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Monday, 16 January 2012

Was I right about Tesco's folly on Saturday? Or was it just more Bird Blether?

You probably take a rest from the tyranny of the internet on Saturdays, but as a helpless motor-mouth I often find something to talk to thin air about.

Such was the case two days ago. There was a big brouhaha in the investment world when for the first time in 44 years Tesco issued a profit warning and their shares dropped 16%.

After my last divorce I have no money to invest, but I do follow what goes on. That’s because I have clients in this area, because I’m interested in almost everything under the sun and for a personal reason I mentioned at the start of my Saturday piece.

Anyhow in that piece I suggested Tesco’s sales drop was due to three crass errors, all to do with marketing.  You can see what they are if you look at what I wrote.

Eight days before the profit warning Tesco’s Chief Operating Officer (with others) sold a load of shares and made a tidy profit. Tesco say this was not illegal as he didn’t know what was about to be announced. All I can say is pull the other one: it’s got bells on it.

If someone at the top of a large sophisticated organisation doesn’t have the figures and projections at his fingertips, either he is incompetent or they are - or both. It is fifty years since I first worked on a retail account – the long gone Hope Brothers - and even as a humble copy group head I knew the weekly figures on my ads. 

If what that man did was not illegal, then it should be.  This is precisely the sort of thing that makes people build tent slums outside cathedrals. It is high time the people who run things in this country stopped treating us all like idiots. And more than high time the Financial Services Authority focused on the big things rather than poodling about with small details in direct mail copy so as to make it incomprehensible.

One of the best books about investment – and human nature – is Extraordinary Popular Delusions and the Madness of Crowds (1841) by Scottish journalist Charles MacKay. If you read that and Reminiscences of a Stock Operator (1923) the fictionalised biography of investment wizard Jesse Livermore you will know more about the subject than most investors.

You will also conclude that much investment is driven by hysteria, that the 16% drop is crazy and that Tesco is a good stock to buy. Tesco chairman Sir Richard Broadbent has just spent £100,000 doing so.

But be careful. A recent Which? survey gave Tesco a customer satisfaction rating of 46% compared to Waitrose with 83%, Aldi with 72% and Lidl with 68% followed by M&S, Morrisons, Asda and the Co-op, which was 46%. 

When I was drafting the first edition of Commonsense Direct and Digital Marketing back in 1982 I was very impressed by a an article by Gordon Grossman, former head of marketing at our client The Reader’s Digest. It was headed “If your customer won’t make you rich, who will?”

Your customer can also make you poor.

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