Out of the Box

Can Marketing Stop the Bleeding

By Menachem Lubinsky on August 10 2007

Imagine if you’re Irene Rosenfeld, chairman and CEO of Kraft, North America’s largest food company, and you just admitted that half of your company’s $34 billion business is not growing. Or imagine if you’re Patrick Cescau, CEO of Unilever, and you have some underachieving businesses, including a $1.1 billion laundry business and other $1.6 billion in businesses that are loosing money. Or you might be Moshe, a Brooklyn printer loosing about $125,000 a year. What do you do? Invest more into marketing? Sell the business and cut your losses? Just shut it down and look for something else?

The choices for people that are in businesses that are not growing over a period of time, or in fact loosing money, are pretty stark and the consequences significant. Obviously a problem should never be fixed unless you understand what’s broken in the first place. Too often businessmen make a quick almost knee-jerk decision to spend more on the product, packaging, and promotion to solve a problem with a declining brand. They believe that they may have simply neglected to do what the competition is doing, spend more more. The risk is what is commonly referred to in business “as throwing bad money after bad money”. In short, it may not at all be a solution or the correct problem may simply have been overlooked.

Mrs. Rosenfeld apparently told investors that she might sell some of the underachievers and underpin others with more aggressive marketing. Mr. Cescau has decided to sell his underachievers and to halt any additional investment into the brand. My feeling is that Rosenfeld probably feels that there is a great deal of value in some of her major brands and that new marketing initiatives might revive them. She’s dealing with such household names as Maxwell House and Post. These are proven leaders that may have indeed slipped because of an outdated image with younger consumers.

Cescau on the other hand may be looking at a changed competitive environment in which he would have to invest too much to turn the laundry and the other businesses around. It may very well be that the laundry industry has changed so dramatically as to call his business plan into question. His problems may be “fixable”, but he no longer wants to deal with it. A proper suitor might indeed turn some of the Unilever losers around, and who knows it might take a generation, two, or more until someone out these figures out how to resuscitate these businesses and brands.

Moshe is, of course, the little guy in all this maneuvering. He is starved for capital and desperately needs to find away to invest in his business. He has decided to take in a working partner to both raise some cash and get some extra help. While he was reticent about giving up his hard-earned equity, he knew that he could not afford to add to his debt by taking out additional loans. Moshe hopes that the capital will allow him to invest in a new Web site and other marketing, and he hopes that the “working partner” will also help him increase the sales. He is looking to follow the model of other “inside - outside partnerships” where one partner manages the business from the inside while the other is the rainmaker for new business.

Even if there is a decision to put more capital into resuscitating a brand, there are of course no guarantees, but there is a question if enough money was put in to make it work. The Kraft CEO promised an investment of some $400 million into marketing only to have marketing consultants say that it may not be enough. The investment would represent 1% of sales at a time when marketing experts are counseling spending as much as 10%. Others say that the 10% obviously has to be adjusted when sales are in the billions.

Presumably, many large companies are faced with Rosenfeld’s challenge, and sell off the brand at a time when there is still value in the brand. There is always someone who believes in their ability to take a well-known brand to the next level. It’s sort of the American way. While one company divests itself of a brand to stop the bleeding, another drools over the prospect of acquiring the brand and dreams of turning it into a huge profit maker. It happens every day in the big corporate world out there.

It is far more complex in small business when investing more money into a brand might cause the collapse of an entire business. Buying an underachiever could similarly break the bank for another small investor when the returns simply prove to be elusive. Timing is, of course, key to the success of a venture. Timing can mean opportunities in an industry where there is no clear leader. Or timing might be the popularity of a product. Some businessmen seem to have good nose for such opportunities while others seem to stumble at the wrong moment.

What is clear is that while marketing can frequently fix a bleeding brand or business, it cannot be considered a magic wand. It takes a great deal of strategic thinking to figure out whether marketing can do the trick or whether other options should be explored. Rosenfeld and Cescau hope that their decisions will not only be correct but that they will help the entire company.

Out of the Box is a collection of strategic marketing articles that Lubicom has published on various topics, trends and ideas in the marketing world. The articles have been published in the Hamodia weekly newspaper circulated on three continents to a readership of well over 100,000.

The name, "Out of the Box" is a term used frequently in business nowadays to describe creative thinking that is not the norm. It is meant to help a business pull away from the pack or separate oneself from the competition. It is to some extent fraught with risk, simply because it is not the run of the mill thinking, but it is at the same time the key to reaching the next opportunity.