Case Study: Huge Marketing budget doesn’t mean Sales!!!

Generally, most Middle Eastern FMCG and Retail brands spend enormous amount of money on communications each year to sustain survival or grow by a small fraction. Most of these Brands hardly double their digits over the years; some claim that they’ve doubled their sales, HOW? You need to grow in channels to double your sales but it’s merely impossible to double your sales from the previous two years without Channel Reach. We witness price increase every few years and that should not be the comparing yardstick with previous years. Only by Innovating values to address different segments of the Market, over extending SKUs, can add to growth

Now most marketers base their decision on Market Research, hardly any that I’ve met or known is thinking outside the box to move away from the long repetitive patterns that we all witnessed throughout the past generations. For example, what Nescafe started as a trend is followed by many local Brands, what Pampers started as a trend is followed by many to this day

The look and feel of Brands are relatively the same across the board and since most professional marketers in the region are graduates of the two multinational schools i.e. P&G and Unilever, they intend to follow the same pattern of their respective experience at local level, even the practice remains the same. Now, we understand at the local level that the scope is different as it requires all sort of development unlike the previous experience on both Brand and Marketing strategy as well as Tactics

Most of the local Brands hardly own any Brand strategy; they carry two types of strategies:  ‘Design’ and ‘Communication’ (both are extremely evident on their Brands). Now, most require a massive Communication budget in order to maintain the current level of sales or increase by few percentages each year, why? In most cases if you don’t own a relevant Brand or Marketing Strategy, you’ll depend on Advertising to push your message forward, for example: Management and Advertising agencies are aware of Rabea’s new Positioning and Promise but is the public aware? Did Rabea educate the public on their recent evolution? Not from what I saw but apparently this seems to be the current logic which is commodities over Brands

If we look deeper, into the local FMCG Brands, their 2 major problems are their ‘Brand Strategy’ and ‘Marketing Mix’ that’s resulting in a small fraction in growth which is between 5-10% because most are missing the point that Brands are about Values and not Market Research Data that dictates what they should do next. For instance, if we take Cofique and Rabea as local brands from FMCG sector, hardly their audience can understand their Market Positioning, Brand Promise or even the single idea they’re trying to sell, they are relatively offering the same values of their Direct Competitors who are also the category owners, Nescafe and Lipton respectively

If you take Al Nahdi as a Retail Brand, hardly their audience is connected with their Repositioning, though their goal is to move from Pharmacy to Lifestyle (to grab Market share from Faces, Paris Gallery etc.), that’s a Category Shift in which the Brand must resonate before the Marketing Mix. Today after 3 years, customers still think of Al Nahdi as a Pharmacy same as before (with only a face lift and addition of more product categories). The incredible amount  Al Nahdi spent on communication at the launch with the message ‘Hope’ addressed a particular value, NOT all of values that Al Nahdi  had planned to offer. It had a message but lacked the Brand strategy that could’ve helped the evolution. If one plans to apply the Boots model, then you need to apply the model across the board. I must say that they’ve done an incredible work if compared with their past

There are reasons why would we use massive Communications budgets, there are reasons why we need them and how will they support our overall goals. If the single goal is to help deliver your tactical strategies (promotions) then fine because it’s relevant to be in store (customer experience).  There are fundamental issues here, so what will a huge communication budget do? Rabea for instance has over 40 SKUs, Cofique has a good number of SKUs for a Brand that launched 5 years ago, I mean the Brand never fully matured and the management already extended their SKUs. Cofique is offering Nescafe’s values and that’s very evident but management need to understand that to solve the problem is to offer different values as consumers find Nescafe relevant and preferred, not Cofique.  Cofique spent enormous amount of money on Marketing since its launch and yet for the past 5 years the brand suffered enormously. I predicted Cofique’s failure from the day they launched. I advised the management of their approach but they seemed to take things personally and they ignored my advice, the sad reality in our region is that no one likes to be corrected or be recipients of advice from subject matter experts

Let’s looks at sales of the following brands for 2015 and you, the readers, be the judge. This case study is based on 4 different Brands (3 FMCG & 1 Retail). The Brands are Rabea, Cofique, femi9 and Code Red (the energy drink)

  • Rabea tea is a heritage tea brand with over 60 years in the business, founded by a family with great legacy in the tea business. Today in 2015, Rabea’s annual sales stand at SR. 400 million ($ 107 million) with 40 SKUs more or less. Rabea’s annual sales 5 years ago were approximately SR. 300 Million, an additional hundred million increase since five years is partially due to Price increase. Rabea annual marketing budget is relatively good amount of money that goes across all activities. Here’s the breakdown:
    • Rabea Sales 2015: SR. 400 million
      • Loose Tea: SR. 150 million
      • Tea bags: SR. 150 million
      • Other SKUs: SR. 100 million

Loose Tea is losing sales because of Tea bags as they are considered more trendy and convenient by younger generation

Tea as a category is losing 2% to Coffee because the latter is becoming more favored by the younger generation due to its variety of tastes (Mocha, Espresso, Cappuccino etc.) plus it’s also considered as a trendy drink due to growth in café culture that is adding to this perception. Rabea should own the tea category but that’s not the reality today. 5 years ago with a SR. 30 million budget, Rabea was growing 5% and bottom line 10%, on average. Today, Rabea has aggressively evolved the proposition and introduced different SKUs like long leaf in Tea bags, yet sales are not very high compared with past levels

  • Cofique is a local coffee brand which since its launch has went through aggressive Brand visit exercise for the past 5 years and yet suffers to connect with the audience till today, why? Well the sales values that are owned by Nescafe. Their total annual Sales are almost 10 to 15 million with over 20 SKUs. Sounds crazy, doesn’t it? Well they’ve spent enormous amount of money since launch and one will expect that in their 5th year they’ve reached maturity in their sales. In 2010, I had the honor of meeting the head of Marketing and I advised him NOT to go ahead with his plans but he felt offended, took things personal and decided to go ahead anyway. A free advice could have saved a lot trouble. They should’ve launched a subcategory than go head to head with the category owner
  • Code Red is a local energy drink focused mainly on Marketing Mix and a defined audience. Their total sales in 2015 have been SR. 350 million from one single SKU, Code Red spent around SR. 100,000 on Advertising in the past 10 years, they don’t own a website, nor they are active on Social Media. In fact all the videos and social media pages are created by their ‘loyal customers’, Code Red offered a unique set of values to their audience. Many might argue and say, Code Red is not in modern trade, therefore not much Marketing budget is required but the reality is that Code Red had a clear Marketing strategy addressing the entire Mix. It focused on a target audience more relevant to Code Red i.e. which doesn’t shop for energy drinks in modern trade

    Branding and Marketing is all about relevance which is why today Code Red is a Brand!

  • Femi9 is a Saudi fashion retail outlet focused on women casual wear that started from a humble beginning with two stores in Riyadh. The owner is a visionary and ambitious, today Femi9 operates in most of GCC, North Africa and Switzerland with total approx. sales of SR. 200 million. The Brand spent less than SR. 10 million on advertising in the last 15 years. Its growth continues to this day

So I beg to ask, what would a huge Communications budget achieve? Great results? No! Can any of the Marketers work without a Communications budget? Well, a brilliant Brand and Marketing strategy would achieve enormous growth. Code Red and Femi9, both local Brands, are able to continuously grow with minimal Marketing budget and yet both Brands have their loyal customers that advocate for them. Today out of one SKU Code Red earns 75% of what Rabea earns with over 40 SKUs, you would expect Rabea to sell more given the fact that they spend more on Marketing. Cofique which also spends a lot on its Marketing but with such sales, it needs to re-visit their proposed values and the Brand itself  

Some might discount this case study because I consulted both Femi9 and Code Red in the past which is why I favor them but that’s not true. I intend to speak on huge Communications spendings that should equal results i.e. SALES, therefore logic must prevail for businesses to grow. A brilliant Brand and Marketing strategy is more than enough to create short and long term growth which is why Brands are supposed to be sustainable unlike commodities. Create Your Space and evolve from the old school of Marketing

*All figures obtained from Euromonitor, Nielsen and other sources

 

Said Baaghil is the ‘Unconventional’ Branding and Marketing Adviser to reputable companies in the Middle East, author of many reputable books including the ‘The Power of Belonging’ and a Speaker. Baaghil appeared in books published by America’s experts on Branding and Marketing such as Dan Hill and Libby Gill. Most recently Baaghil was interviewed by world renown Brand Consultancy firm Siegel+Gale on Branding in the Middle East

He can be reached on AskBaaghil.com

The article was first published on Linkedin Pulse on 13th January, 2016

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