Case Study: The challenge of Demarketing

I’ve taken my idea of Demarketing from my eBook “So What’s wrong with Marketing” and turned it into a case study for Business Students. Even if people reject the premise that we need Demarketing I think the exercise of thinking it through will enrich one’s view of marketing in a sustainable world. Anyone interested in using it let me know.

The Demarketing Challenge

Background

In my eBook “So what’s wrong with Marketing” I put forward the idea of ‘Demarketing’, the re-purposing of marketing to reduce consumption.

“Marketing was developed for a world of economic growth. Its purpose, however you dress it up, was (still is) to make people ‘consume’ more. That’s why marketers refer to people as ‘consumers’. The problem, it would appear, is that we can’t just keep on consuming, wasting and depleting resources at the expense of our planet. There is no ‘Planet B’. So that presents something of a difficulty for marketing in the future – can it, should it, survive in a world where we need to persuade people not to buy what they don’t need or can’t recycle? Instead of marketing, should we not think about ‘demarketing’?”

Summarised like this demarketing makes absolute sense. We cannot just continue to invest $ trillions to persuade people to buy more stuff than they need and more than we can cost-effectively recycle or, in whatever way, re-engineer to be sustainable. And yet governments around the world (of varying political persuasion) for what they would say are sound economic models continue to strive for GDP growth to lift people out of poverty and improve the quality of life. Can the idea of buying less co-exist with the imperative to increase economic output? At a micro level can a company’s board of directors persuade their shareholders to support them if they wish to invest in suppressing demand? Investors move their money to wherever gives them the highest returns. Perhaps it might work if all companies faced legislation that required them to fully cost their products to take account of all their environmental and societal impact (no business currently directly bears the cost of the full life-cycle and total impact of their products or services on e.g. waste disposal, health, infrastructure, they just pay tax in a largely one-size-fits-all fiscal system and many avoid even doing that if they can). But it would be hard for a government to be re-elected on a manifesto that includes proposed legislation limiting what people can buy and raising prices. Demarketing might sound like the right thing to do, but how to do it is the challenge.

Nonetheless there are signs of positive movement albeit more in the name of CSR and sustainability rather than specifically this idea of actively demarketing. Blackrock, the behemoth of private equity, now insist all its investment portfolio have coherent CSR and sustainability programmes. There are a growing number of ethical funds like FirstPlanet, dedicated to investing in businesses that can deliver financial returns and build a better world. More and more big businesses like Ikea, Unilever, even Amazon have moved CSR and sustainability from something they should do ‘as well’ to being central to their core purpose. All for the good, but there aren’t many like Patagonia who spend money on ads asking people not buy their products unless they really need them and who offer free repairs to make previous purchases last longer (they will even repair competitive brands if you ask nicely).

Demarketing is a tough idea to get your mind around and some would argue is not needed. Oxford were early champions of the Circular Economy and this has now taken root in many top academic institutions. The industrial revolution (and the later technology revolutions) were based on a linear economic model – find/process materials, turn them into products or services, get people to buy them, use them and then throw them away to buy something new using the money you earn to help find/process materials, turn them into products or services, get people to buy them, use them and then throw them away to buy something new. While it was mostly Europe and America doing this we could cope with the energy demands and the waste. But with America and Europe, bar the odd recession, relentlessly consuming more and China, India, the rest of Asia catching up and set to overtake them, plus South America (maybe even Africa one day) following suit this linear economic model has become unsustainable, an existential threat.  It’s obvious, we need to make a linear model circular through recycling and repurposing. If we focus on this perhaps we can go on just consuming more and more and more. On the other hand, maybe events will overtake us……..

There’s a linearity to the environmental debate too – more people, more consumption, more carbon, more climate change. A great deal of the spotlight is focused on climate change and greenhouse gases. Let’s not argue the science, let’s just go with the consensus, the wisdom of a wise crowd, and accept that we need to limit global warming to no more than 1.5 c-degrees in the next two decades and thereafter reverse it. There are 3 ways to do that – reduce, replace and remove CO2. In this linearity there is no argument against reducing the consumption of carbon fuels, many argue it is the priority. Renewable energy sources may not come on stream (cost-effectively) fast enough, electric cars just push the issue further up the supply chain. There is investment into technology to remove CO2 but nowhere near as much as has gone into alternative energy perhaps because it’s hard to design anything better at removing C02 than trees. But no-one seems to be confident that we can plant enough trees fast enough to compensate for the rise in CO2 emissions, or indeed enough to replace the ones we are cutting down in places like the Amazon. A lot of businesses like Ikea have tree planting initiatives to offset their environmental impact but in the wider context it’s really just a sticking plaster. No, we have to reduce consumption, no argument. Well there is an alternative to this, or at least a different point of attack. We could reduce population growth, like China tried to do (for different reasons), but outside a totalitarian state that would be hard. Or we could reduce consumption of things we don’t need to consume and/or replace consumption with better alternatives, like reducing meat and dairy for plant based foods. Or we could try a combination of all of this?

My argument is – and I hope I’m wrong – reducing wasteful, unnecessary consumption of everything, not just carbon fuels, needs to be in the mix because the alternatives won’t kick in fast enough. There needs to be more Patagonia thinking, we need to stop spending money making the environmental challenge worse, and embrace the challenging idea of demarketing, perhaps not everywhere and not to the same degree for every category, but we need to think about using some new form of marketing to do the opposite of what we have been trained to do, to make people buy less not more.

To take just one example, and apologies to Gillette for singling them out, they forced people to throw away a razor they were perfectly happy with to buy a new razor with more blades (and some little ‘easy-glide’ strip). There are many other things people have been persuaded to throw away in order to buy things they did not really need but that is a choice people can make. Gillette gave us no choice, they took the replacement blades for our razor off the market and their marketing team invested millions of dollars to force us to buy a new razor needing a new type of blade not all of us wanted or needed. Surely that kind of marketing is just plain irresponsible? We are being told to avoid travel where we can for the sake of the environment. With just a little demarketing to reduce unnecessary consumption and wastage we could happily enjoy more guilt-free travel.

Can it be done? Can we square the circle between demarketing and government-led economic growth, between responsible consumption and shareholder returns? Honestly, no-one knows but it might be possible, if only to an extent sufficient to make an impact. It deserves the effort to try, if only as an insurance policy in the event of the other planet-saving initiatives failing to deliver in time. And it can be as creatively and intellectually satisfying as conventional marketing, perhaps more so. Selling more Gillette razors, or beer, or cosmetics, or fashion clothing or washing powder or burgers or biscuits or electronics etc etc is not actually that hard once you know the rules and tactics. Demarketing will be very hard and demanding of the best ‘marketing’ minds.

Exercise

Select a B2C company you are familiar with, preferably one with a reputation for high marketing investment.

You are to prepare a presentation for the board to persuade them to embrace and commit resources to a demarketing strategy. You don’t have to develop the strategy, you just have to persuade them of 3 things:-

  • There is a case for demarketing (building on the macro rationale make it specific to this business and category)
  • It can enhance enterprise value and shareholder returns in the long term
  • You have some feasible ideas for options to explore

Success would mean they would agree to set up a task force to explore your ideas.

Some starter thoughts

  • There is evidence that businesses that have really committed to sustainability have out-performed their peer group. Demarketing takes sustainability to the next level.
  • Enterprise value and shareholder returns are derived from a sustainable profit stream. The same or lower sales does not have to mean lower profits – you can grow share, or raise margins
  • Strong brands can have a much higher valuation even if they have lower sales cf Tesla versus Ford
  • Demarketing could result in far more efficient marketing spend “Advertising is the tax you pay for having an unremarkable product”
  • “What gets measured gets done” – a business committed to demarketing would choose to create better KPI’s that show the link to future returns. Engagement, loyalty, affinity are all believed to correlate to brand strength and from that to enterprise value and shareholder returns
  • Case studies can help your case – Patagonia is the one everyone cites, is this relevant to your business, what others can you find?
  • It is hard to imagine what demarketing looks like, some examples of what it could be in terms of customer communications, engagement, events, service etc might help. In what way does ‘good demarketing’ differ from “good marketing” in terms of skills, people, partners, spend?
  • It would also help to show how this links to, and builds on, other sustainability/CSR initiatives
  • Are there business model changes that could help make demarketing attractive e.g. direct to customer?
  • Break the challenge down ito market segmentation. Who/when/where is the opportunity? Reducing consumption can relate to purchase frequency, penetration, usage.

Mark Sherrington

mark.sherrington@marksherrington.com

Solving the Social Dilemma

I’ve just finished my article on my response to the Netflix documentary, ‘The Social Dilemma’. I ran a small survey to help me in the writing of this and results are still coming in so there may be some further additions and editing to be done but I wanted to get this first version out there and see what people think. Please let me know.

Solving the Social Dilemma

The recent release of Jeff Orlowski’s documentary ‘The Social Dilemma’ on Netflix may prove to be an even bigger deal than their 2016 film ‘The Great Hack’. The latter left you feeling that the villains of the piece were the businesses like Cambridge Analytica who malevolently manipulated social media data to change the political narrative, influence elections and threaten democracy. TSD points the finger squarely at big tech who purposefully design social media to feed their commercial model and in the process fuck up society and the whole of mankind.

 “If you don’t pay for the product, you are the product”.

Social media is not just abusing their tech to sell us stuff, they are selling us – our attention and our behaviour – without us knowing and to our detriment. TSD paints a scary future with overtones of the human batteries in The Matrix and Skynet from Terminator – AI may have started as a technology tool we used but it might become us that are the tools serving the needs of higher artificial intelligence. You think this is fantasy? Watch the documentary.

“Only two industries call their customers ‘users’: illegal drugs and IT” said Yale’s Edward Tufte.

Marketers (who pay for all this with their ad budgets) are trying to wean themselves off calling customers ‘consumers’. (If you drop the ‘m’ consumer is an anagram for ‘con user’). I think ‘people’ would be the best word because it simultaneously captures diversity and common humanity – the ‘we’. But I don’t think the lexicon is the issue and in fact I don’t think marketers or even the titans of big tech are the villains. They are people. A lot of the contributors to TSD, people like Tristan Harris or Justin Rosenstein, are from big tech. They have a conscience and know that many of their former colleagues do too. Marketers are not evil svengalis. They are paid to promote their products but most recognize that this increasingly means doing so in a sustainable and socially responsible way because that is what society wants. It is what will make their customers happy and they like happy customers. So what makes good people in marketing and tech do bad stuff? Two things:-

  1. Not recognizing the unintended consequences
  2. Not having a commercially attractive alternative

On the heels of ‘The Great Hack’, TSD can address the former. As ‘Inconvenient Truth’ was for climate change, this is a tipping point in the debate about social media and the issues around the misuse of the data it generates for the ‘attention extraction’ industry. We all know that something is wrong, we all know this is seriously fucked up and heading in a bad direction – but what is the alternative? What is the antidote? TSD is incredibly powerful and disturbing, very disturbing especially as it leaves you in no doubt things need to change but not much hope they will and no real solutions other than regulation (of some sort not defined) to disrupt the business model on which big tech has thrived.

Just as I concluded in my paper ‘Naked Economics; the new laws of the jungle’ the easy conclusion is that governments need to fix this – ‘they’ need to regulate. Easy but wrong because even if ‘they’ wanted to, ‘they’ can’t. It’s too complex, there is too much vested interest and there is no ‘they’. The legislation would need to be intricately drafted to cover every issue and avoid every unintended consequence. There are $ trillions at stake so expect some resistance and every government would need to act in lock step which they won’t/can’t.

So, as with the new economics, let’s focus on ‘we’ –  what we the people can do about the social dilemma that is social media data harvesting, processing and commercial application. For the wider economic context the macro levers to pull were the attribution of cost and ascribing of value to enable us to make better choices. In the specific area of data the micro levers are platforms that allow us as individuals to own, control and transact our own data.

The solution lies not so much in regulating the current business model, although that might have a role to play, but rather in creating a new business model that empowers people.

At the heart of the current model is data about 3 things:-

  • What you think
  • What you do
  • The connection between these

The tech, the algorithms, the UI and the AI that are all designed to do this can of course then be applied to change what you think and do, to get your attention and to persuade you. The business model is then to monetize this by selling it to people who wish to promote their business. It can also be sold to people wishing to change your politics but that will only ever be a small fraction of the billions social media earns. The big bucks come from big business.

The global industry for advertising and research is roughly $1 Trillion. That is how much business will pay to find out what you think and present the best version of themselves to you at the most opportune time.

What if we just told them? What if we offered the information they want to know and stuck our hand up when they had the best chance to sell something to us? Because if we did, en masse, then the revenues for facebook et al would start to evaporate.

Who would be prepared to do that? We all would. We do it all the time for purchases that are important to us and about which we are unsure. Say we want a haircut, a new car, expensive cosmetics, a new home, a piece of home electronics, a suit for our wedding. We pitch up, tell someone we are interested and then proceed to tell them everything they need to know about our lives, quite often more than they need to know. Yes we may do some research on-line and then purchase on-line but there are still many things where we meet people face to face, people that we know are there to sell us stuff, we tell them we are interested and we answer pretty much any question they care to ask. Why? Because it is in our interest to do so and we get something in return – help in making our best choice.

As long as we feel in control of the exchange of our information, our attention, our data, and this has material benefit to us we are happy to give business what they want.

I have been thinking about this for the last 5 years and I have ideas for two potential tech based platforms that would allow people at scale to exchange their ideas and their data – on their terms – with businesses and brands. These could divert a big chunk of the revenue Social Media generates directly into the hands of us, we the people, and offer what business wants quicker, cheaper and more effectively.

It would not stop the potential of big tech to produce addictive, manipulative social  platforms with the power to affect peoples’ physical and mental health, to undermine truth with fake news, to divide society and swing elections but it would take away their incentive to do so. They would eventually be left with only one option which is to make you pay for their service – and if we pay for it then we control it. It becomes the product, not us.

Let me know if anyone is interested to know more……..

The Roaring Twenties?

Interesting piece in the Telegraph this week from their highly distinguished economics journalist, Jeremy Warner, in which he speculates that the aftermath of this pandemic might be an economic boom as was the case after the 1918/19 Spanish Flu outbreak. The period that followed the post 1st WW pandemic was known as ‘The Roaring Twenties’. Might we be on the verge of a ‘New Roaring Twenties’ 100 years on?

JW quite rightly warns of the danger of historic comparisons. The Spanish Flu was far worse than Covid 19 (10 million people across the world died) so the scale of the disruption was more than comparable but the situation was different. It’s hard to separate the bounce back from Spanish Flu and the bounce back from the Great War. His point, nonetheless, is that economies can reinvent themselves after, or even because of, catastrophic events as resources flow into new and emerging industries. A lot of people hope that one driver of our economic recovery this time will be Green Energy – a booming industry that addresses a global challenge – but it will need to be more than that, more perhaps than we are capable of imagining. A century ago the industrial landscape was made up of coal and steel, railroads and ships. That was displaced by oil and plastics, cars and planes. There was leisure and entertainment but no-on thought of them as sectors capable of driving an economy. There was data in our parents’ generation but no-one envisaged it as an industry, the new oil.

So what awaits us? Clean energy we hope but also Fintech, Biotech, Robotics, AI we think (so maybe we won’t need to) . There’s no sign of population growth slowing, only shifting geographically. Economic growth is fundamentally fuelled by population growth. As social apes distinguished by three things – our ability to produce more offspring than we can feed, our ability to exist in larger groups and our ability to copy quickly – we have had to develop and been able to disseminate technology to support our growing numbers. From the wheel & fire to electricity & computers, as our numbers have swelled our technology has transformed and our economies have grown. In 1820 the world population was one billion, by 1920 it was 2 billion, in 2020 it is heading towards 8 billion and our global economy has grown by even more than that. In 1820 China accounted for nearly 40% of a global economy of roughly half a $ Billion. By 1920 the global GDP was more than half a $Trillion and USA had overtaken China. In 2020, before Covid hit, the global economy was worth $142 Trillion.

It’s not all about money. Creative expression has also evolved enriching us culturally but also economically. The creative industry is estimated to be close to 10% of the global economy. Charlie Chaplin didn’t see that coming.

Our predecessors in the early 1920’s could not begin to see the explosion in innovation and birth of new industries coming down the track. They would not even recognise most of the job titles that exist today – data scientist, influencer, epidemiologist (the science of epidemiology emerged as a result of Spanish Flu)

The notion that there could more than just an economic recovery from Covid 19, there could actually be an economic boom based on sectors and jobs we cannot even imagine, is perhaps not so daft. I would however make two important caveats. Firstly the dislocation from where we were to where we might be heading will be very painful for some, sadly the poorest and most disadvantaged in society. The medium term might be exciting but the short term could be social carnage, and we know the dangers of that. As a result of social depravation and the rise of populism, the world was at war again less than two decades after the end of the Great War and the subsequent outbreak of Spanish Flu  .

Secondly, as I write about in my paper Neo-naked Economics, the actual economic model has to evolve to meet new challenges, as it has always needed to over the centuries. The new economic model for a new global economy needs to get back to having a social purpose, something we’d lost sight of in business and something we need to rediscover to avoid history repeating itself in the wrong way.

Finance and Accounting 101

posted in: Business/Marketing | 0

A friend told me the other day that he was re-looking at my eBook “So you want to run an agency (and maybe sell it one day)”. He’d just sold his agency to a big International Group and they had put him in charge of that Group’s Regional office (smart choice, he’s very talented). I was flattered and intrigued. I wrote that book more than 10 years ago and to be honest I could not remember what I’d said so I refreshed my memory and was relieved to discover that the advice I give has mostly stood the test of time. I stand by it as far as an agency or consultancy is concerned.

In the intervening years since writing it I have spent most of my time investing in and supporting technology based businesses plus a couple of consumer goods start-ups, in all cases where professional outside investors are involved. I’ve been a NED and looked at a lot of business plans and financial results. My eBook is weak on finance and accounting for these kind of businesses. I’m not going to try to rectify that here – get yourself a very good finance director would be my first advice. I am, however, going to talk about what all the leadership team need to know about finance and accounting to get the best out of their finance director and run a better business.

The next piece of advice is that all the leadership team should understand P&L, Cash Flow and Balance Sheet. They should know the purpose of each, how they work, what the differences are and how they connect to give the complete picture on a business. They don’t need to know this to the standard of a Chartered Accountant but they need to know the basics. You’d be surprised how many don’t. These are all real and fairly recent examples:-

The CEO who told me their P&L was strong because he’d added the equity finance to the revenue line.

The CEO and COO who thought that being just above break-even meant they would not run out of cash. (They did – twice)

Several CEO’s who had no idea what they could or could not depreciate thus understating their P&L.

The CEO and COO who could not distinguish between equity, loan and deferred costs. (They even mistook an overdraft limit as the liability rather than the actual overdraft).

A senior business advisor (whose experience was all gained in large corporates) appointed as a NED to several start-ups who had no idea what a term sheet was.

Several CEO’s and COO’s who did not understand their various options to raise finance and the pros and cons of each.

I want to pause on this last example of financial ignorance. Of course you can use advisors to explain your financing options but you need to at least understand what they are and how they evolve as the business evolves. You must also appreciate that advisors, banks or financial investors will not weigh the pros and cons in the same way as you might as the actual person or team running the business. I will give three simple examples, all based on real situations I have seen first-hand.

The best way to finance your business is through growth (to be precise, operational cash flow). If you need, say, £500k to invest in the business, to hire new talent, build technology, put behind marketing, open up overseas markets etc, the very first place you should look is your revenue. Even if you can only squeeze a bit more from higher revenues that reduces the need to borrow or raise. Banks and investors will not tell you that, it’s not entirely in their interests.

It may nevertheless be the right option to raise money either through borrowing or raising capital . Where possible, borrow, it’s normally cheaper and more flexible. Selling (or issuing) shares is time consuming and expensive and places additional restrictions on the business.

When you raise capital you need a bit more than you think but not too much. I still hear advisors tell companies to take as much as they can get. There is some rationale to that as the process is time consuming so raising bigger amounts less often is better in some ways. Also, you never want to run out of money and have to ask investors or the bank, at short notice, for more. But the more you’ve raised the more equity you’ve given up plus too much ‘spare capital’ in a business has a habit of promoting the wrong behaviours. You must also be wary of the investors motivation – some US investors always want an early big raise so the business has plenty of capital. Why? Because they want to dilute the founders down so far they have to create huge growth to make their share worth something – if they can’t they’d rather know sooner than later so they can just move on to the next investment – Go Big or Go Home.

Simple but real examples that I hope show you cannot just rely on advisors or worse still the people offering you money. You need to understand it yourself.

Which brings me to the final point – you have to have some realistic understanding of how businesses are valued. Here are a number of things that could be used to estimate the value of a business to an acquiror:-

  • Multiple of Revenue
  • Multiple of Profit
  • Trading record over 3 years (trajectory)
  • Projected Cash Flow (and/or Free Cash Flow)
  • Nett present value of future profit (or cash)
  • Assets (Financial, Human, IP, Client, Distribution)
  • Contractual and other liabilities

I said ‘could be used’ to estimate value. The true value is what someone is actually offering to pay and that can depend on any and all of the above plus many other factors like the deal Structure (how the consideration gets paid). Depends on the business and it depends on the acquiror. But as the business leaders you need to have some appreciation of what they all mean, the implications for how you run the business, how you can raise money and where the information sits in your P&L, Cash Flow and Balance Sheet.

I must stress I am a long way from being an expert in any of the things I’ve covered – but I know enough to ask the right questions and to understand the implications of the answers. Even if finance and accounting is no part of your job description and you have the best advisors you still need ‘Finance and Accounting 101’ to start and run a business. That said, if your basic reflex is to drive the hell out of revenue and run a tight ship I’ll forgive you. Strong revenue growth and effective allocation and management of costs will cover a multitude of other shortcomings.