Dave Trott: What do marketing experts do?

1993 was the year "the brand" died.

At least that’s what all the marketing experts thought.

Investors wiped $13.4 billion off Philip Morris shares, because they owned the most profitable brand in the world.

And they wiped billions off the owners of the other valuable brands: Proctor & Gamble, Coca-Cola, PepsiCo, H.J.Heinz, RJR Nabisco, Quaker Oats, and many more.

So why did the experts suddenly decide "the brand" was dead?

It started with Marlboro cigarettes.

Marlboro had 24.3 per cent of the American cigarette market.

They sold as much as the next five brands combined.

But this had fallen to 22.2 per cent because of cheaper cigarettes.

Marlboro were selling at around $2.20 a pack, but cheaper cigarettes were selling for half that.

Previously, Marlboro decided they could charge a premium for "brand".

Now, they decided all consumers cared about was price.

So Marlboro cut 20 per cent (40 cents a pack) off their cigarettes.

It was called "Marlboro Friday".

Marketing experts saw it as proof "the brand" was dead, you couldn’t charge a premium for brands anymore.

And investors began dumping shares in big brands.

But the marketing experts had been concentrating on the wrong thing.

They hadn’t spotted the real problem.

Marlboro had always kept profits high by encouraging stockists to over-order.

To take more cigarettes than they actually needed.

But how do you get stockists to do that?

The best way was to keep putting the price up.

If stockists buy them now, before the price goes up, they can sell them at the new higher price later.

So that’s what Marlboro did.

They knew people would always pay a premium for a brand.

They kept putting the price up, sometimes 10 per cent a year.

Sales kept going up, profits kept going up.

You’d think experts would spot this couldn’t go on forever.

But they didn’t spot it.

And eventually, Marlboro got to be too expensive for some consumers.

So they switched to cheaper cigarettes.

Marlboro decided "the brand" was dead and announced they were cutting prices.

And guess what?

What the marketing experts hadn’t spotted happened.

The stockists stopped over-ordering cigarettes.

Because cigarettes would actually be cheaper next year.

In fact they stopped ordering any more stock at all while they sold all the stock they’d built up.

It’s estimated that alone cost Marlboro nearly a billion dollars.

The problem wasn’t that the brand was dead.

Because the brand is never the only answer.

The brand is always just one of several possible answers.

By ignoring everything except the brand the experts got themselves in trouble.

Then, by ignoring everything except the brand again, the experts got themselves in worse trouble.

But surely these were "marketing experts".

Isn’t pricing and distribution part of what a marketing expert does?

Ensuring the pricing and distribution of the product is right?

Apparently not.