'Take It or Leave Its' or 'So Whats' Would Help Internet Brands

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Do you think there's any correlation between a less-than-robust economy and marketers' increased reliance on digital commerce and advertising?

The 21st century hasn't been very cooperative so far. David Brooks, columnist for The New York Times, says the current time period is "looking much nastier and bumpier" than the 20th century.

"Rising ethnic nationalism, falling faith in democracy, a dissolving world order." And, I would add, the 21st century marks the rise and absolute domination of the internet.

The internet has been playing havoc with all sorts of traditional businesses, from retailing to the media. And about all we've got to show for the disruption is Amazon, Google and Facebook.

And competitors find it exceedingly difficult to compete against Google and Facebook. Chuck Townsend, the retired chairman of Condé Nast, told me last year that he was "really disappointed" in the amount of digital advertising Condé Nast had generated -- a little more than 15% of ad revenues. That's why the company has teamed up with NBC Universal and Vox Media to collectively deliver 200 million web visitors, about double the Condé Nast number.

What other $80 billion business doesn't know if its product is even seen or is effective in selling merchandise? What other business treats fraud as a necessary expense? And what other business is dominated by two gigantic ad platforms in Google and Facebook, with everybody else getting the crumbs?

And speaking of crumbs, consumers sure don't seem to be in a buying mode. Many of the top brands are showing declines as consumers look for healthier and more innovative items.

It doesn't help that many digital advertisers seem to be conceding that their products will interest only consumers who are already sold on them. So brand building is taking a backseat, and marketers are pumping more and more of their money into digital ads, focusing intently on their most avid buyers by following their every move around the internet. Casual or indifferent buyers are ignored.

Procter & Gamble, for one, has come to the conclusion that it is missing out on building its brands by not stretching for a broader reach. P&G's focus is now on "reach and continuity," said Chief Brand Officer Marc Pritchard, with brands such as Tide, Pampers and Febreze increasing reach 10% to 20% in the U.S. while still focusing on their most important consumer segments. That effort has included "shifting to more broadly appealing television shows and also higher–reach digital platforms," Ad Age reported.

P&G is also scaling back on targeted Facebook advertising because it wasn't helping it reach enough new customers. Maybe Facebook should start a new service going beyond "likes" and catering to the much broader segment of "take it or leave its" or even the more lackadaisical "so whats?"

The point is marketers, to grow in a non-growth environment, need to become more aggressive in building their brands by reaching out to once-in-a-while churchgoers rather than preaching to the choir over and over again.

Kraft Heinz, meanwhile, is not simply making small adjustments. The company, the product of a 2015 merger, is a proponent of the slash-and-burn style of management. As The Wall Street Journal said, the company "is motivated by an inexorable logic. There is little growth in consumer products, so the model appears to be: buy, cut costs and buy again. Kraft Heinz believes it needs a big new target. It will likely prove a determined hunter."

You would think that this approach, which encompasses zero-based budgeting, would prove devastating to ad spending, but at Kraft Heinz they seem to be cutting so they'll have more money for advertising. A year ago, the company said it would increase "working media" by $50 million and cut back on "nonworking" media such as production (as P&G has done).

What's actually happened in the last year is surprising -- at least to me. I asked our crack Ad Age Datacenter crew -- Kevin Brown and Brad Johnson -- along with reporter Jessica Wohl, to look into what Kraft Heinz actually spent on advertising during 2016, fully expecting that it couldn't resist chopping ads to bolster the bottom line. But here's what they found: Kraft Heinz "appears to have met -- and exceeded" its plan to increase its U.S. working media budget by $50 million in 2016, Brad told me. He said the company's measured media spending rose by $92 million, or 19.2%, in the first 11 months of 2016 versus the same period in 2015, according to our analysis of data from Kantar Media.

Since Kraft Heinz is fixated on increasing its operating margins, you've got to figure that its increased ad spending paid off by selling more high-margin products (unless it got the extra money by drastically lowering its production costs -- maybe it shot its TV commercials on an iPhone).

In addition to a big Heinz "Meet the Ketchups" Super Bowl campaign, the company spent money on cleaner formulations of well-known products, such as Capri Sun Organic and Kraft macaroni and cheese with no artificial flavors, preservatives or synthetic colors.

In 2017, the company said it would focus on three key brands -- Heinz, Kraft and Planters -- and on five categories with global potential: condiments and sauces, cheese, meals, nuts and baby food -- with plans for "significant incremental investment in marketing."

It would have been very interesting to observe how the Kraft Heinz-Unilever amalgamation would have panned out. Last year, Unilever reduced its "brand marketing investment" as a percentage of sales, enabling the company to improve its operating margin.

Maybe Kraft Heinz can show the Unilever people how they can have higher margins and still spend more money on advertising, and why I'm guessing Kraft Heinz will continue to be a "determined hunter" of Unilever and why P&G will also be paying close attention.

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