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Saturday, 14 January 2012

Big Price Drop = Big Share Drop: Tesco’s three mistakes – all to do with marketing, and pretty ghastly, too

I have always been interested in Tesco.

Back in 1962 in my first big job at Leo Burnett, London one of my accounts was The Supermarket Association, and we were given a tour of a Tesco branch by the founder, Jack Cohen.

He was, like Alan Sugar, originally a market trader, which is a damn good training for business – or marketing as we now call it. You must buy well, sell well and watch your margins. What’s more you know almost immediately whether something will sell.

My dear, much-missed late brother George started on the markets. He made his first money at 16 buying a load of fireworks cheap after Guy Fawkes day, keeping them for a year then selling them on Ashton market before the next Guy Fawkes day. He bought for a penny and sold for sixpence. 

The other day Tesco’s shares took a beating when for the first time since 1968 they issued a profits warning. Their new chief executive admits with admirable honesty that this was because they changed their promotional approach and got clobbered.

I may be maligning them but I suspect this needn’t have happened. For me the first law of marketing is to test. A friend who worked for Revlon founder Charles Revson told me Revson used to test everything including price in an area before he launched a product nationally.

It is hard to believe they tested their Big Price Drop promotion properly before they gave up the other promotions that were working well. Promotions pretty much identical to those which helped their competitors snatch business from them – and which have worked for years. 

Incidentally, I wager Big Price Drop is not as good as The Big Save. I know that because I am a copywriter, and I know that what something does for the customer (save) beats what it is (price drop) every time. That took a split second to occur to me, but if I had a big shiny office fitted out with hot and cold running planners and account handlers I could charge you, assuming I wrote nice long report, a few grand for it.

(As an aside, in 1961 the Metal Box Company, then a member of The Supermarket Association, had a miniature supermarket on Baker Street where members could test alternative packaging on real customers. Does anyone do that now?)

The second of Tesco’s ghastly marketing mistakes explains why instead of going to their shop which is nearer, cheaper and with equally good quality I traipse off to Sainsbury’s. It is called forgetting the customer is always right.

I have written about this before, but it is important.

Two years ago I bought some bad fish from Tesco in Soho. When I went to the branch near my King’s Road flat to complain, they said that since I hadn’t bought there, they weren’t interested.

Actually they were always bloody rude in that branch – slap in the middle of one of the wealthiest areas in Britain. When I emailed Tesco about my “shopping experience” as they told me to on the receipt, nobody replied.

They haven’t explained three things to their staff, maybe because they have forgotten them themselves: who pays their wages, the need to do what you promise and the value of a customer over time.

In a similar piscatorial tragedy at Sainsbury’s near me in Clifton, when I complained they gave me my money back and a voucher for £10. I haven’t even bothered to use the voucher, but the moral is obvious. 

If the only thing that mattered to customers was value for money Tesco would be almost impossible to beat. But other things sometimes matter more – especially buying from people we like and who seem to like us. Tesco don’t.

The third ghastly marketing mistake is to do with reputation – PR.

When I read that Noel "Bob" Robbins, Tesco’s UK chief operating officer has profited by £44,000 through selling shares before the profit warning, I thought there was a couple of misprints. Surely it must be Noel “Rob” Robbings.

The Financial Services Authority says directors must not buy or sell shares in their company while in possession of unpublished, price-sensitive information. Does anyone seriously think the guy who runs the business doesn’t know what’s happening to sales, margins and profits? If so, he shouldn’t be operating anything more important than a check-out.

Never have corporate ethics (if that is not an oxymoron) have been under such scrutiny. I am currently working with a client who helps firms in this area.

Having  your chief operating officer sell shares just before a profit warning suggests a) your directors  are a bunch of rip-off artists b) your compliance department is up the creek and c) the man supposed to run your business is a serious liability.

May I end by making a self-interested point? What this story demonstrates is a sad lack of understanding of several important aspects of marketing.

It is not enough, if you wish to succeed on a significant scale, to understand just one part of marketing. You must try to understand all of them. And that understanding is what I try to convey in my Commonsense Marketing programme, yours to try for a month, free.

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