The Mistake That Almost Killed Some of the World’s Biggest Brands

Life is strange.

I am one of the most disorganized jokers you’ll ever meet, but a book by one of the world’s most organized people influenced me hugely.

It was My Years With General Motors by Alfred P. Sloan.

Under Sloan’s leadership, General Motors became the world’s largest car manufacturer. The company was so important to the US economy that they used to say, “What’s good for General Motors is good for the country.”

But General Motors – and Chrysler – got into terrible trouble and had to be bailed out, barely surviving.

There were many reasons, but one was their marketing. Aside from their ads tending to be boastful and dull, they fell into a habit I see as the marketing equivalent of crack addiction: heavy discounting.

This gives an immediate boost to sales, but you become addicted to it. And you get nasty after-effects – as with crack. Consider:

• The people who buy most from a promotion are your best customers, who would have bought even without the discount.
• When offered a discount, people are enticed to accelerate their buying decisions… so there is a slump afterward.
• You are training your customers to expect bribes.

To explain more about why this is so dangerous, I must take you back 25 years.

Ogilvy and Mather had a unit called the Ogilvy Centre for Research in San Francisco. The director, Alex Biehl, was working on a project called PIMS. PIMS stood – I think – for Profit Impact of Marketing Strategies.

Over 200 firms took part, and the project was run in partnership with Professor Andrew Ehrenberg at the London Business School. (David Ogilvy always said Andrew had the best mind in marketing.)

One thing the project revealed was very simple, very important – yet seemed to be news to almost all marketers: Firms that spend more money on discounting than advertising are far less profitable than those that spend more on advertising than discounting.

The project divided the firms into four quartiles. Those in the top quartile spent the most on advertising and the least on discounting. Those in the bottom quartile did it the other way round.

The firms in the top quartile were on average twice as profitable as those in the bottom one.

Think about it. When you spend more on offering deals than explaining why people should want to buy your stuff, you are perilously close to saying, “Our stuff is not good enough to sell on its merits at full price.”

To get back to where I started… General Motors is no longer the world’s biggest automotive firm. Toyota is.

Another brand that once led its market but no longer does is Dell.

And guess what? Every single e-mail Dell sends me offers a deal.

I am not saying never discount. I offer discounts all the time.

Nor am I saying traditional advertising is the answer to your problems.

What I am saying is that marketing messages – through whatever medium – that give people reasons, emotional or rational, for buying are the key to building your business and brand.

[Ed. Note: Veteran copywriter and direct-marketing strategist Drayton Bird has worked with American Express, Ford, Microsoft, Visa, Procter & Gamble, and scores of other clients during his five-decade career, which included a stint as international vice-chairman and creative director of Ogilvy & Mather. In 2003, he was named by the Chartered Institute of Marketing as one of 50 living individuals who have shaped today’s marketing.

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