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Kraft Heinz, The Efficiency Bubble, and Brand Value

Kraft-Heinz, The Efficiency Bubble

Many businesses continue to regard advertising and marketing as expenses—necessary evils in bringing products to market and attempting to gain or maintain competitive advantage. But stock prices and shareholder value have become such dominant forces in decision-making today, the focus on profit efficiency over long-term strategic planning and marketing execution is beginning to tear down great brands. 

The Efficiency Bubble

Ogilvy leader Rory Sutherland, known for his no-nonsense views on business thinking and marketing effectiveness, recently shared thoughts on businesses and “the efficiency bubble.”

The term “efficiency bubble” was coined by Will Lion of Bartle Bogle Hegarty (BBH), referring to the tendency of modern business leaders to focus so heavily on the cheapest way to achieve short-term goals that they cancel out opportunities to improve results through longer-term planning and execution. But marketing, Sutherland reminds us, is about human psychology, with its inherent irrationality and emotionality, and not about numbers at all. Sutherland posits that business people want to believe that applying efficiency and cost controls will improve marketing effectiveness, when in fact, those things tend to undercut the positive impact of creative advertising and marketing ideas.

“I can only come to one conclusion. It is not that businesses do not know that advertising creativity works. No, deep down in their hearts, people in business know perfectly well that advertising creativity works. It’s simply that they do not feel comfortable with the fact that it does. It messes with the map of the world they hold in their heads. They would rather pretend that their success is attributable to efficiencies, economies of scale, cost-cutting or any MBA guff than to think that it might be due to psychological factors.”

Just because something is efficient does not mean it is always more effective. Execute marketing on the cheap, and you get poor results—in other words, you get what you pay for. If you need evidence of the harm the efficiency bubble can do to once stable brands, look no further than the Kraft-Heinz debacle.

Kraft Heinz Collapse Highlights the Bubble

Brazilian investment bank 3G Capital purchased and merged Kraft Foods and H.J. Heinz in 2015, and immediately introduced zero-based budgeting, a tactic focused solely on increasing profit margins through cutting expenses. Among the first big-ticket expenses to go were marketing and brand investment. Canada’sStrategy magazine reported Kraft Heinz decreased its U.S. ad spend by $50 million each year, according to research firm Statista. By 2017, a mere 2.4% of the company’s sales were being allocated to the global ad budget, “which is lower than that of either Heinz or Kraft prior to the merger,” per AdAge. Wall Street analysts worried that 3G Capital’s cost-savings agenda would erode brand equity; by the end of February 2019, Kraft Heinz took a US $16 billion asset write-down for its Kraft and Oscar Mayer brands, and its share prices dropped sharply.

CPG brands are suffering from changes in consumer shopping patterns—more people are leaving packaged foods on the shelves in favor of “shopping the perimeter” for fresh foods, trying meal kit programs like Blue Apron or Hello Fresh—or electing to have take-out foods delivered and not cook at all. But a focus on efficiencies didn’t help Kraft Heinz deal with that challenge; it just worsened the decline in shoppers’ brand loyalty. 

David Aaker, an American Marketing Association Hall of Famer and noted brand strategist, described 3G Capital’s Kraft-Heinz strategy as “a myopic focus on cost” at the expense of “brand-building efforts to sustain programs that yield long-term benefits.” 3G “did not take into account the fact that a cost-first strategy eventually runs out of costs to cut and, in the meantime, damages brands instead of keeping them energized and relevant,” said Aaker.

Branding for Long-term Success

David Ogilvy said, “Any damn fool can put on a deal, but it takes genius, faith and perseverance to create a brand.” We would add that it also takes patience. Branding is all about the long term. In our instant gratification marketing world, our clients are often caught up in short-term wins, ignoring the long history of brands that built up over time, committed to creating loyal customers through offering great products and services consistently and reliably. The modern focus on efficiencies and margins ignores that you can’t build brands that last if you keep cutting investment in brand-building activities. How do agencies counsel clients to have patience in long-term brand-building? 

Behavioral scientist Richard Shotton shared on his Twitter feed a page from the agreement used in the historic collaboration between Avis Rent A Car And Doyle Dane Bernbach (DDB). DDB virtually demanded that Avis trust their creative recommendations, with the commitment that those efforts would deliver “five times the effectiveness of the competition’s advertising.”

 

 

Creative conviction and a promise that the creative will fulfill the client’s marketing objective—those are the keys to getting clients to reinvest in marketing. Deliver results not just in short-term efficiencies, but in long-term customer brand preference and sales, and clients will be less ready to chop advertising and marketing budgets. Fight hard for creativity you believe in, and be prepared to measure and prove the impact of those ideas. And fight for the time needed to execute brand development for the long-term. Great brands require investment to build and sustain them. Pop a few efficiency bubbles and bring clients back to what works—a clear brand position, consistency of message and a strong emotional appeal.

“However much we would like advertising to be a science—because life would be simpler that way—the fact is that it is not. It is a subtle, ever-changing art, defying formularization, flowering on freshness and withering on imitation; where what was effective one day, for that very reason, will not be effective the next, because it has lost the maximum impact of originality.”  

Bill Bernbach

See also: On Your (Bench)mark

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Bring Back the Big Idea

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