Do Not Cap Commercial Airtime

Recently in Ireland, TV3 called for the government to cap the amount of airtime that RTE can sell. Given that prices for airtime on RTE and TV3 are not regulated, a cap on RTE’s airtime minutage, as TV3 is promoting (3/3/13), would restrict overall TV airtime supply pushing up prices on both RTE and TV3, especially during periods of high demand. This increased price will then be passed on to advertisers who will either absorb (unlikely) or pass on to consumers through price increases for goods and services. A cap on RTE’s airtime has been tried before. Minister Ray Burke of Fianna Fail pushed through legislation capping RTE’s minutage in the Broadcasting Act of 1990. The result of this Act was disastrous – media inflation increased across all media channels, Irish advertising money moved out of the state (to UTV) and, not forgetting the cost to the Irish tax payer of the legal and administrative fees connected to both introduction of the act and then for another act to remove the cap, the Broadcasting act of 1993. While alternative options to funding Public Service Broadcasting may need to be examined, capping RTE’s airtime supply in a commercial market is not a viable solution.

Promotions Do Not Influence Brand Shares in Long Term

It has been shown many times over the years that trade and consumer promotions have little or no long term affect on sales or shares. Try this one at home; for all of your company’s brands, (or any representative sample of brands) extract two facts – share and % sold on deal - over a three or four year period. Subtract year one from year four for % sold on deal and then subtract year one from year four for the brand share. For each brand, plot the promotional % change on the Y-axis and the share change on the X-axis. Now, does your graph look like the one below?

Of course it does! Most of the brand points are above the X-axis as all brands have been increasing their promotional activity over the tough recession years due to internal reasons – targets, and external reasons - retail pressure. Very few points are below the X-axis as few brands have managed to reduce promotional activity. Also, all the points are clustered around the positive section of the Y-axis as share change over the three/four year period will have been tiny – probably in the region of   - 0.2 to + 0.2 percentage points. There may be over factors at play behind this picture, (for example all the positive share change increases could be those brands that have been supported by advertising throughout the recession), but it is clear that all the expensive promotional activity does not seem to have had any influence on brands long term share.

The long term effect of promotions has been described very well over the years by John Phillip Jones (see his book, “How Much is Enough”). Specifically, he has shown that “promotions have only a limited long-term effect.” In the short term there will be a sales increase, but “then they return to their original level once the promotion stops.” Demand is not stable as the “promotions aims to move merchandise by bribing the retailer and the consumer. When the bribe stops, the extra sales also stops.” In the long run the increased sales line “blips” are negated by the sales drop after the promotion due to the “bribe” effect, competitors retaliatory promotional come back and the long term consumer trend of switching to private label.

The end result? According to Mr. Jones, “promotions lead to volatile demand, in contrast to franchise building (for instance, by consumer advertising), which leads to relatively stable demand.” Over the last few years I have seen some brands sell as much of 90% of their yearly sales on promotion. Quality brands will have to call a halt to this activity sooner or later. In the mean time all this promotional activity, while satisfying short term needs, is weakening the long term staying power of the brand.    

Private Label Share Growth

The evolution of private label share across Western Europe has been growing but not at steady rate over the years, its growth has been more likes fits and starts. The early phase of private label’s strategy was successful enough to get markets such as the UK and Germany up to about a 25% market share in 1992 from a modest base in 1970/80’s. The ten years between 1992 and 2002, however, saw the share growth of private label slow down considerably – see table. But in the five year period after 2002, private label share greatly accelerated.

The early phase of retailers private label strategy is one that Nirmalya Kumar and Jan-Benedict Steenkamp in “Private Label Strategy” call “generic private label” which  “started as cheap, inferior products that offered lower-income and price-sensitive customers a purchase option, enabling the retailer to expand its customer base.”This strategy worked well in the years leading up to 1992, but then stagnated in the ten years between 1992 and 2002.

The European average, as charted below, took a step change in growth after 2002, as private label share change direction increasingly upward suggesting more consumers were entering into the private label franchise.

Kumar and Steenkamp offer one explanation for this rise – “To respond to the intense price pressure from hard discounters like Aldi, Lidl and Netto,” many main stream retailers changed their private label strategy from “Generic” to “Copycat” fuelling the aggressive gains of private label share. Under this new strategy, retailers “analyze the contents of a leading manufacture brand and the re-create the product step by step.” The goal to drive revenues and profits from manufacturer’s brands to retailers through this new copycat strategy has increase the quality of private label in the consumer eyes and has brought more buyers into the retailer net. And all this before the great recession of late 2008.

And what of private label’s future? Kumar and Steenkamp “believe that there is an upper limit to private labels for mainstream mass retailers such as Tesco. In our estimate, this is around 40 to 50 percent.” The UK, in 2011, is at about 50%, so it will be interesting to see how private label share grows in the UK over the next five years.

As for Ireland, with Superquinn’s absorption into Musgrave’s, retail concentration has increased in Ireland, and in all countries with 3 dominate players, private label retailer strategy has led to increased sales. The speed with which Ireland moves from our 30% now to a possible 50% in the years ahead will depend not so much on Musgraves or Tesco, who both have sound private label strategies in place, but on whether Dunne’s Store decide they want in on this action and funnel serious resource into their less well developed private label strategy.  

(Note: All figures sourced through the internet, 1992 figures from the The Economist June 5^th 1993)

The Power of TV

Let the facts speak for themselves - starting with the UK. In 1978, the average hours of viewing TV per day was 3.4. Ten years later in 1988 the level of TV consumption was the same, 3.4 hours per day. Fast forward to 2008, the level of TV consumption had risen by 12% to 3.8 hours per day. Why are these two time periods so diffent? During the ten years between 1978 and 1988, no real innovations or changes were taking place in the UK TV market with the exception of the launch of channel four. During the twenty years between 1988 and 2008, the years of dynamic growth for the internet, mobile phones, and social networking, TV viewing increased in spite of this possible competition for viewer’s time. What appears to have happened in the UK (and in most other markets)  is that the significant variables that influence TV consumption is channel choice and access, not what is happening outside the  TV environment.  The trends suggest that if you offer more TV and make it more accessible, more of it will be consumed.

In the UK in 1988, the BBC channels had 50% of share of viewing and ITV/CH4 had 50%, in 2008, BBC had 30% share of viewing compared to 26% for ITV/CH4 with 39% going to “Other” stations. In 1998 there were 0% of homes with digital (or “other”) TV. In 2008, 21.1 Million or 80% of homes had digital TV, in other words, more channel choice. In addition, the number of TV sets per home in Britain has been increasing over time making TV viewing even more accessible. The number of TV sets per home increased 26% over the last ten years from 1.9 sets per home in 2002 to 2.4 sets today.

In the US, a more mature TV market in terms of reaching saturation of viewing sooner than most other countries, average hours of viewing increased by 10% over the 1988 to 2008 period in spite of games, internet, social media and other possible forms of entertainment or social relaxation choices. The increase most likely has more to do with the fact that access to TV grew, from 1.83 sets per home to 2.83 sets per home (55% increase over this period) and the average home having 33 channels to choice from in 1988 compared to 130 in 2008.

The figures are even more dramatic when we look at Ireland. It should be noted here that Ireland was somewhat behind the UK and the USA in terms of TV set penetration and channel choice. That is, over the time period we are looking at here, Ireland was earlier down a curve that is fast rising but then flattens out as you move toward more choice and availability. In Ireland, average hours of viewing per adult in 1989 was 3.3 while in 2009 it was 4.5, a 36% increase over the twenty year period. But is it is easy to understand this increase in light of choice increasing from an average of 6 channels per home in 1988 to well north of 30 today and an almost 60% increase in average number of sets per home on a 1.2 figure in 1988.

Studies have shown (*), that when a home moves from a 6 channel home to a 12 or 20+ channel home, TV viewing increase significantly. In addition, if you take a one set home and make it a 2 set home, the entire household consumption can increase by more than 20%. Diminishing returns, however, do set in; so moving from 100 channels to 130 channels or from 4 sets to 5 sets, only increases TV consumption by smaller amounts.

So what is this all suggesting?

Clearly, the power of TV should not be forgotten or hyped aside by the internet or social media.  TV viewing has not just held its own over the last 20 years, it has increased. We adopt and nurture our TV viewing from an early age; these behavioural patterns tend to stay with us all our lives. Humans are habitual animals, we develop behaviour patterns and keep them (and not just in terms of TV but many other behaviours traits - like shopping, we tend to shop in the store we “normally shop in”). It is because we are so comfortable with TV, that if you install one in the bedroom and/or bathroom, we will turn it on. Give me 50% more channels and I am more likely to find one with a programme on that I want to watch now. We primarily watch TV to relax and be entertained (“Public Service” or no “Public Service” remit!). New technologies may absorb more and more of our leisure time, but we seem to be able to fit in our much beloved TV viewing around or in conjunction with searches, online friends, tweets, blogs, emails, text, etc, etc.

So, given the facts trending over the last twenty years, the future looks bright for TV. Image what new innovations such as HD, 3D, and streaming online will do? Well, like it has always done, increase the volume of TV material viewed over time.

(Note: All figures are BARB, Nielsen and/or sourced through the internet).

(*) ESOMAR, Expansion of Broadcast Media, Madrid, 1991.