The Unilever marketing story: the “lost generation”
The Financial Times of a couple of days ago had a report of its interview with Simon Clift, who is retiring as head of marketing for Unilever, one of the largest personal care products companies–as well as one of the largest advertisers–in the world, with a marketing budget of $7.2 billion.
In it, Mr. Clift makes a number of, to me, surprising observations, among them that:
–the people Unilever has running its global brands, aged 25-45, have very little knowledge of, or experience with the internet. They don’t know how the consumers of Unilever’s products gather information or share views online. As to social networking, they are “a lost generation.” Armed with a lifetime of television advertising expertise, they continue to cling to the idea that a good commercial solves all problems.
Their subordinates aged under 25 know better because they have grown up using today’s communications media. Their bosses do too, since they see how their kids behave. But the guys actually steering the ship “built our business on brilliant use of television. You can’t immediately change your competence.” This seems kind of like saying you can lead a horse to water, but… Is this good enough if you’re the boss and know better?
–Unilever’s brand managers’ counterparts at advertising agencies are apparently in the same bad shape.
–in contrast, public relations agencies “get” the internet and are leaders in effective use of social networking sites.
Can this be right?
For at least the past decade studies have shown that consumers who have grown up with traditional advertising know it well, but consider it distortive and don’t trust it. This might have been news at the end of the last century, but not today.
Again, for at least the past ten years, large advertising agencies have been buying public relations shops as fast as they can, both for the superior earnings growth profile of pr, as well as for the greater persuasiveness of public relations campaigns. I presume that every ad agency Unilever works with has plenty of pr talent just itching to enter the fray on Unilever’s behalf. But it seems the ad agencies haven’t offered and Unilever’s brand managers, despite their boss’s insistence, haven’t asked.
The head of marketing at Unilever says that he understands the company’s main communications problem and what the solution is, but that his subordinates are either incapable of doing what he wants, or have refused to do what he has told them. If true, this really says something, not only about the boss, but about the corporate culture at Unilever as well.
maybe so
…speaking of which…When I entered the stock market in the late Seventies, I had an acquaintance who got his PhD in history just as the Baby Boom finished college and the bottom fell market for young professors. So he got a job at a consulting firm, writing corporate histories. The idea was by so doing to help client firms recapture the vigor that they once had.
For him, the pattern for successful companies was clear:
the founders were swashbuckling entrepreneurs. Succeeding generations of managers became more concerned with preserving gains already made and the company would gradually ossify. The current set would typically be bureaucrats, punching in at nine, out at five and doing little in between other than seeing to it that the status quo is not disturbed.
So I guess it’s possible that the FT article accurately portrays what’s going on in the consumer products industry.
investment implications
1. The “lost generation” idea implies that, ten years in, there’s still a lot of scope for growth in internet advertising and for disappointment in traditional media, especially television.
2. Bureaucratic inertia is a more difficult problem to handle than most investors realize. GM, which turned a 40% share of the US car market into a bankruptcy filing in about thirty years, is the classic case in point. The way I see it, successive managements decided they didn’t want to be the ones to be responsible for the down profit years (and consequent lower bonuses) that change would have implied. And had they opted for change, they may well have been sabotaged by their own employees, who wouldn’t/couldn’t learn new skills.
To me, the case of a large, established company is the most difficult one to be persuaded by the value investor’s argument to buy, in the belief that assets are undervalued and that either management will change or the company will be taken over.
3. Some investors argue that in an industry that’s behind the times, as the FT asserts the personal care products firms as a whole is, it’s okay to buy a competitor that may not be a great company but is at least better than its peers. This is a variation on the argument that if your group is being chased by a hungry bear, you don’t need to be able to outrun it. You just need to be able to run faster than one other group member.
My experience is that a situation like this always ends in tears. I think that great companies routinely surprise on the upside; weak companies always find new and inventive ways to underperform. And an industry with five weak competitors is a more attractive target for new entrants than one with only a few. But then, I’m a growth stock investor. A value investor would probably write the opposite.