Andrew Cave considers the short-lived battle between Unilever and Tesco over higher prices and ponders whether consumers are really loyal to brands
Andrew Cave is a freelance journalist, who writes the weekly business profile in The Sunday Telegraph as well as several other regular features for the Daily Telegraph. He has recently published his first book, The Secrets of CEOs
Maybe it had to be Marmite. If Britain’s biggest consumer products manufacturer was to fall out over prices with the nation’s largest supermarket group, what better to choose than a brand synonymous with the United Kingdom’s quirky nature?
Yet Marmitegate, the 24-hour spat that saw the popular yeast spread and other Unilever branded grocery products withdrawn from Tesco’s website after an attempt to hike prices by ten per cent was rebuffed, may be about more than trying to pass on the cost of the Brexit referendum’s effect on the pound.
Even Marmite’s own marketing recognises that people usually either love or hate the product, while an exclusive survey undertaken by Opinion Matters, on behalf of CorpComms Magazine, also found this also to be true when consumers were asked whether they would be prepared to swallow a price increase.
Some 1,067 of the 2,012 people polled admitted to usually buying the product. Of this total, 52 per cent of the purchasing base, representing 27.6 per cent of the total surveyed, said they would pay more, leaving 48 per cent who would not. Of the 556 who would still buy Marmite after a price hike, some 67 per cent said they would pay up to ten per cent more. Nine respondents even said they would pay up to double.
But its appeal does not seem to translate outside England; just 6.5 per cent of Northern Ireland consumers and 12.3 per cent of Scottish adults would pay an increased price for Marmite. And 36.6 per cent of the total polled said that if Marmite’s price increased and there was a good quality alternative, they would switch to it, which may be bad news for Morrisons, which recently raised prices by 12.5 per cent.
Brand loyalty is supposed to add value to products, distinguishing them from commodities bought solely on price and protecting them from economic and market vagaries. But is brand loyalty as it has been traditionally conceived now dead or dying? Are globalisation and the internet combining to put pricing power in the hands of customers and, if so, can customer loyalty continue to protect major brands?
Matt Lee, a director of shopper media agency Capture, believes it is no coincidence that media coverage of the dispute focused on Marmite, saying he cannot think of a fast-moving consumer goods (FMCG) product that is more divisive. ‘You literally do love or hate it and if you love it,’ he recently wrote about the issue, ‘you really love it and nothing else will do.’
The second most-mentioned brand in the media coverage was ice cream brand Ben & Jerry’s, whose unusual flavours would similarly make it difficult to find an exact replica under another name.
After that, however, it is hard to think of many other truly unique consumer brand propositions. When it comes to Comfort laundry conditioner, Unilever’s fifth best-selling brand, for example, Lee believes most customers would not have a strong preference between it and another make. If brand loyalty really is becoming redundant in this and most other sectors, with demand instead mainly driven by prices and promotions, the balance of power looks to be swinging away from the consumer brands to the large supermarket groups that stock them.
However, the marketing and ranking agencies whose existence relies on brand power and loyalty are unlikely to take this lying down. Stephen Cheliotis, chief executive of The Centre for Brand Analysis and chairman of the business and consumer councils behind the Superbrands rankings of Britain’s largest brands, is one unbeliever. ‘Marmite is certainly a unique brand but I’m not sure that necessarily means it’s one of the strongest brands,’ he says. ‘In the latest Superbrands listings, it ranked below 250th so it’s not like it’s the number one grocery brand in the country versus Tesco, the number one retail brand. I think we could be overplaying the power of Marmite here.’
Cheliotis argues that, while Britain’s media decided to pivot the story on Marmite, its niche appeal means it does not represent all brands. ‘Marmite’s love-hate advertising campaign was about saying that actually this is a brand that very much splits opinion,’ he notes. ‘So a lot of other people really don’t care about this brand. If the focus had been on PG Tips, which is also made by Unilever and is well within the Superbrands top 100, you would be talking about a brand that is more universally liked.’
Presenting the face-off as being between the power of one of Britain’s most-loved brands against its biggest supermarket was also flawed, he holds. ‘This was pitched very much as brand versus retailer when it was not,’ he complains. ‘It was very much brand versus brand. ‘Tesco in itself is a very strong, powerful British brand that is well within the Superbrands top 100, so with Marmitegate we were talking about a brand in the top 100 against a brand ranked lower than 250.
‘It was a battle between a strong brand and another strong brand that is more polarising and less relevant to the entire British public. We all go to a retailer but all of us don’t necessarily like a yeast-based product spread on our toast.’
So was the row simply about the economic principles of price elasticity? David Haigh, chief executive of branded business valuation and strategy consultancy Brand Finance, is one brand expert who believes so. ‘No doubt Unilever chose Marmite as one for a ten per cent price hike because they believed that consumers are relatively price-inelastic for this strong, unique product brand,’ he says.
‘If Tesco had not turned it into a battleground, I expect Unilever would have got away with the price rise with no negative effect on demand.’ Haigh also believes that there was a strong personal quality to the affair, given that Tesco’s chief executive Dave Lewis is a former Unilever veteran. ‘Several other retailers accepted the increase,’ he says. ‘But Lewis is fighting to reinforce the Tesco brand as the people’s champion. He is fighting to prove that he and Tesco are the champions of low consumer prices, not Aldi or Lidl.
‘As a former senior executive of Unilever, he obviously knows the company and its soft points very well. So this was a good battleground to prove his Alpha Male retail credentials.’ Lewis may have thought he was negotiating from a position of some strength, however. It may even have formed part of some kind of battle by supermarkets to decrease brand power.
Jacyn Heavens, chief executive of retail point-of-sale technology group Epos Now, which works with more than 30,000 brands, says the firm’s data shows that 73 per cent of supermarket promotions run in the six months preceding Marmitegate were against branded goods.
Even the success of discount retailers like Poundland is, he suggests, down to the continuing power of brands, since the company’s basic proposition is to offer branded goods at a significant discount in order to lure customers into its stores.
What is different this time around, he argues, is that the German budget supermarkets Aldi and Lidl are playing a clever game of focusing on selling their own goods rather than those of the big brands, yet using advantageous price comparisons with the branded market leaders in their advertising. ‘People ultimately go to these supermarkets because they are willing to give up brands,’ he says. ‘They don’t go there to buy the brands cheap, they go there to buy heavily discounted but nonbranded items. Retailers ultimately still want to lure in the punters with a loss-leader or a heavily discounted branded product because people understand the cost and value of that brand.
‘Where you have a brand like Marmite which does not really have a non-branded rival or equivalent, that brand retains huge power but other brands ultimately have less of a ‘monopoly’ hold on the market.
‘Brands have power and can command a premium price and the best places on the shelves, so building a big brand is now more important than ever before. But if you are trying to differentiate yourself from other brands, you need to stand out in today’s market when so many lesser brands are trying to replicate your premium product.’
While the Tesco-Unilever dispute was settled quickly on undisclosed terms and it is not clear that any price increase has been agreed, what looks certain is that other brands will follow suit in trying to raise prices as a way of combating their increased costs of selling in the UK due to sterling’s decline.
Nestle has indicated that it may have to review the pricing of its top-selling KitKat chocolate bar and some other products, while in the business-to-business arena, Microsoft has announced it is raising prices of its software in the UK by up to 22 per cent.
The value of sterling against the dollar, in which Microsoft books its revenues, has fallen by 18 per cent since June’s EU referendum. Nick Lee, professor of marketing at Warwick Business School, believes such behaviour by major brand owners is par for the course in the cut and thrust of business. ‘This is normal negotiation practice that has all of a sudden has had a light thrown on it, thanks to Brexit,’ he argues. ‘On the one hand, you have a brand owner who considers itself to have the main negotiating power, since they feel consumers buy brands over categories. ‘On the other hand, you have a powerful retailer who judges that consumers will not change behaviour simply because a selection of brands may not be available.
‘In a sense, they are both right, and both wrong. Indeed, in many situations, consumers are brand loyal, and Marmite is probably one of those. On the other hand, Tesco is right that most consumers are unlikely to change their shopping habits just because a few non-substitutable brands are unavailable.
‘All around, it’s a somewhat dangerous game being played by both parties. I expect we’ll see a lot of this in the coming months as players in this space look to renegotiate deals, and try to play on public sympathy to pressure their negotiation partners.’
Cheliotis believes that there is another important factor which impacts on the corporate social responsibility of brand owners. ‘The way the story broke was around the context of why consumers don’t get the benefit when prices go down but get the bad side of things when prices go the wrong way for manufacturers,’ he observes. ‘We’ve seen this kind of feeling whipped up against the utility companies and now it’s happening against the major grocery brands. It’s being wrapped up in this bigger issue around fairness and that can impact all kinds of brands.
‘If Unilever had made a better argument that it had kept prices down when times were good and had been on the customer’s side but now had to raise prices because it had no option, it might have come down to pure brand strength.’
If that had happened, he argues, customers walking into a Tesco branch only to find that it didn’t stock Sure deodorant, Simple soap, Pot Noodle and Marmite might have blamed the retailer and walked 200 yards up the road to Sainsbury’s or another rival.
‘If you’re talking about brand love, most people don’t really care about Tesco,’ he argues. ‘It’s just the supermarket nearest to them that stocks the brand they love.’
Time will tell. The supermarket giant has won round one of this fight, but there is plenty more action to come.