Why sponsors won’t be dribbling away from John Terry. Unless…

January 31, 2010

Among the many footballing clichés pithily describing the dilemma of putative England captain John Terry my favourite is “Own goal”.

Perroncel: Single outing

Terry was poorly advised in applying for an all-gagging superinjunction on the grounds that the revelation of an adulterous affair with lingerie model Vanessa Perroncel might harm his “financial affairs”. It was another example of a bad call by celebs’ favourite law firm Schillings, which has been in the forefront of blunting freedom of expression through the exploitation of privacy laws that operate under Article 8 of the European Convention of human rights. Last December, Mr Justice Eady was widely ridiculed for the absurdity of an injunction which forbad sexual athlete Tiger Wood’s naked anatomy being taken in vain. And Schillings were the people who brought it before him. This time, they were less lucky in the choice of judge presiding over the case. Sir Michael Tugendhat seems, on reflection, to have taken a dim view of an orchestrated cover-up designed to protect the financial interests of an erring footballer.

Anyway, back to Terry. Presumably it was his estimated £4m-a-year sponsorship money he was concerned about rather than the £200,000 a week he earns as Chelsea captain. If so, he had – and I suggest has – little to fear on that account. Samsung, Nationwide, Umbro and Terry are all in this enterprise together.  I have no idea whether it is the stern disciplinarian or the shrewd pragmatist in England manager Fabio Capello that will win out as he reflects on Terry as a fit and proper symbol to lead England. And in the event it doesn’t much matter. Even if Terry is “demoted”, he will still be on the front bench – which is status enough for his sponsors to keep faith.

Ah, but what about the example of Woods, you say? Once it became apparent the golfing legend was guilty as charged of multiple adultery, Accenture and Gillette jumped ship. Even Nike, which continued to back its man, has begun to withdraw support.

The important difference between these two cases is contained in the word ‘multiple’. So far as we know, Terry has only had one extramarital affair. Woods, on the other hand, quickly became overwhelmed with an avalanche of revelations which effectively forced his withdrawal from public life. With no further glory on the links in prospect, sponsors became disillusioned. I doubt they will feel the same about Terry’s singular excursion from the straight and narrow. Unless, of course, there’s something he hasn’t told us yet…

Spotted in conversations at Davos: Levy and Roth

January 28, 2010

No doubt Publicis Groupe chief Maurice Levy and head of Interpublic Michael Roth were discussing snow conditions, or the iniquitous constraints about to be imposed on capital markets by the Volcker Rule. Or were they…? See below.

One thing that may have popped into the conversation is why IPG just got so close to busting its debt covenants that it felt it had to amend them on more generous terms. In plain language that means IPG probably won’t make its earnings forecast (bad news for the share price). IPG claims it’s just a “precaution”; but the trailing share price since the announcement says otherwise: analysts don’t believe the sweet talk. Good news for any predator, though…

Is Publicis preparing a bid for Interpublic?

January 22, 2010

Can it be true? I hear that Publicis Groupe is looking at an audacious all-shares takeover bid for Interpublic.

Publicis is nominally fourth in the marketing services league, behind Interpublic, when ranked by global revenues. However, the gap has been closing steadily in the last year and they are now almost neck and neck. Study their market performance and you would hardly believe both have entered the same recession. Where Publicis, judging from its share price, has outperformed, IPG has significantly underperformed. The market capitalisation of the two companies eloquently tells the story. IPG is now valued at about $3.4bn whereas Publicis is worth $8.26bn, making it nearly two and half times bigger. We might add that, over the past year, Publicis’ position has been strengthened by the dollar/euro exchange rate moving in its favour (excepting bumps in the last few of days, of course).

But why would Publicis entertain such a thing, given all the turmoil it could cause? Imagine the account conflicts: the cars, the cosmetics, healthcare and technology accounts that would have to be sorted out…

A few ideas come to mind. First, IPG is temptingly vulnerable, whoever decides to have a tilt at it; and Publicis is better equipped than most. Despite Levy’s surface optimism about recovery, he knows as well as any other group chief that significant organic growth in the near future is a will-o’-the-wisp. With shareholders to appease, and assets cheap, another round of industry consolidation begins to look attractive. Never mind whether the acquisition is really earnings positive – or dilutive. With an astutely managed ‘merger’ no one can be certain for years to come. A big acquisition buys time and the benefit of the doubt (as Kraft well knows).

Second, Publicis has some unresolved business with Dentsu, the Japanese agency group with a 15% stake in the group. It has not been a happy arrangement. I noted, for example, tension between the two partners over the Razorfish acquisition last year. Acquiring IPG might be a way of diluting Dentsu’s influence by rebalancing Publicis’ portfolio. The Dentsu deal, in any case, comes to a close in 2012: Dentsu may want its money back. Dentsu and Publicis-owned Saatchi & Saatchi share a worldwide interest in the Toyota car account. Could there be a bargain to be struck there, for example?

Lastly, never underestimate the human factor. Publicis Groupe chief Maurice Levy is nearing the end of his long and successful tenure. He may wish to bow out on a high note. And this would certainly be a ‘C’ to crack the chandelier.

According to those in the know, the detail of any such bid would be managed by Isabelle Simon, senior vice president at the French global marketing services conglomerate. More important than the title is the fact that she is charged with acquisitions policy at Publicis. Simon has had a high-flying career as lawyer and financial whizz-kid, in both the United States and Europe. Her last job was as an executive director at Goldman Sachs, where she specialised in M&A and capital market transactions. She was poached by Levy last February. The telephone-number salary attached to her suggests he wasn’t thinking of a couple of cheap infill acquisitions.

There’s only one solution to doctors’ health messages: ban them

January 22, 2010

Better for your daily health requirements

Not long ago, if you bit into a Kraft Oreo, munched some McDonald’s fries or tucked into a Kentucky Fried Chicken leg, the chances were you would be ingesting a nasty, toxic substance called trans fatty acid. Consume enough of it and it won’t do your health any good at all. It’s known to cause heart problems, by promoting “bad” cholesterol at the expense of “good”; and it’s also a suspect in other disorders, such as Alzheimer’s, cancer, diabetes and infertility.

In small, probably harmless, doses, trans fatty acid is found in nature – especially in dairy products. The reason intake of the stuff reached epidemic proportions was because it can be synthesised easily and makes a cheap and superficially attractive alternative to butter-based saturated fats and lard. As such, it provides a useful shortening agent in baked products and can also be counted upon to extend shelf-life well beyond its natural span.

It is not a new discovery. The processed food industry has been using it, in increasing concentrations, for most of the past 100 years. The bio-chemical formula was first adopted by a UK company which later became a part of Unilever. In the same year, 1909, Procter & Gamble acquired the US rights and promptly launched Crisco, a shortening product that was based on hydrogenated cotton-seed oil (it still exists, but under different ownership, and in a different formulation). At the time, nothing was known of the lethal side effects of trans fatty acids. Indeed, the delusion continued to exist well into the sixties that trans fatty acids, found in various margarine products, were not only cheaper, but actually better for you.

What was the medical profession doing all this time? For most of the past century, it was being about as ineffectual in exposing the ill-effects of these fats as it was in combatting the well-known health-hazards of tobacco and alcohol. This was not because of a total absence of pathological evidence. On the contrary, indications of a possible connection with cancer began to emerge as early as the 1940s. There was reasonable doubt; it’s just that no one seemed to want to voice it in public.

I mention all this because doctors  have now adopted a high moral tone in calling for the banning of these man-made fats. The fact is, the horse has already bolted. Although Britain hasn’t – unlike Denmark, New York, California, Australia, Switzerland and Austria – actually prohibited the stuff, a quiet self-denying ordinance has already been put in place by UK food manufacturers and retailers. The latter made a pledge back in 2006 to eliminate it from all their own-label brands, which they have now fulfilled and Big Food is beating a hasty retreat. For this we have a public health campaign, BanTransFats.com, and the so-called Project Tiburon, to thank. It originated in 2003 with a court case against Kraft in California which then snowballed. I don’t recall the British medical profession being particularly vocal at the time. We had to wait until July 29, 2006 for an editorial in the British Medical Journal promoting “better labelling,” which seems to have stopped well short of calling for trans fats to be banned.

There’s nothing quite like jumping on a bandwagon, however, once someone else has got it rolling for you. A similar “bannist” tendency may be seen in the medical profession’s approach to alcohol advertising. No finer example of the genre exists than Professor Gerard Hastings’ recent polemical article in the BMJ.

His proposals for tightening up advertising regulation (to include among other things a 9pm watershed, digital and sponsorship restrictions) bear an uncanny resemblance to the recommendations just published by the Commons health select committee. Indeed, if I did not know better, I would have thought he had single-handedly masterminded them. So I don’t underestimate his influence as a lobbyist.

And yet, closely argued though the paper is, it somehow misses the point. Whatever impact marketing communications may have on increasing consumption of alcohol, it is scarcely the principal villain behind our lamentable ‘binge culture’. A better place to look for major remedial correction would be our unhinged drinking hours, below-cost supermarket offers (which most brands abhor) and a decline in social standards (not all of which can be blamed on the advertising industry). Hastings, however, is not notably interested in any of this. The true nature of his agenda is revealed in the last paragraph of his article, where he cites former advertising luminary David Abbott’s views on tobacco advertising. The only really satisfactory solution to alcohol advertising is to ban it, it seems.

Will Kraft know what to do with Cadbury’s brands?

January 19, 2010

Now that Kraft has acquired the highly-prized Cadbury brands – and turned itself into the world’s largest confectioner ahead of Mars/Wrigley – will it actually know what to do with them?

First, let’s get something out of the way. There’s been a lot of phony sentimentality about Cadbury and its brands during this protracted takeover. The global geographical fit between these two companies is highly complementary and the cultural gulf far less of a chasm than it appears. Sure, Kraft is a machine conglomerate that munches brands for breakfast: I won’t waste time on that. But Cadbury is not quite the pure-play quintessentially British property it seems. A Quaker tradition and two hundred years of family history cannot disguise the fact that Cadbury these days is an international corporation like any other. Its key shareholders are American, its chief executive is American; the breadth of its markets is such that Britain accounts for a small part of them. Of a workforce of about 45,000, only 11% are based in the UK. Certainly it has proved an invaluable training ground for generations of UK marketers, who retain an affection for the company, and produced some great and quirky advertising (latterly through Fallon). But I doubt whether that has much bearing on how the company is regarded outside the UK.

The truth about Cadbury is it was – like a number of other great British corporate brands such as United Biscuits, Beecham, Boots and ICI – a relic of the British Empire. The Empire gave it favourable and abiding access to invaluable growing markets which would these days be recast as “emerging”. India springs to mind as a superior example. Nevertheless, just like the rest of these British brands, it created insufficient momentum to transform itself into a genuinely global corporation. Cadbury, whether as a soft drinks operator (Cadbury-Schweppes) or as a pure-play confectioner, conspicuously failed to crack the single greatest market in the world, the United States of America. Its long-term fate, in a globalising economy, could not therefore be in doubt. The surprise, if anything, is that it has taken so long to pass under the hammer.

That said, is Kraft the right global corporation to buy it? Whatever Kraft executives may say in public, the squeeze on Cadbury’s assets will start sooner rather than later. It will have to. Cadbury, it almost goes without saying, always meant a lot more to Kraft’s future than the other way around. A low-growth US-focused conglomerate in desperate search of high-growth emerging markets (such as Cadbury’s), Kraft needs not only to appease long-suffering investors (Warren Buffett being the largest) but to pay down a vast amount of debt it has incurred as a result of the takeover. By my calculations, this alone is about £7bn. The total figure is about £22bn. The near 20,000 jobs it shed and 35 sites it closed in the UK between 2004 and 2008 (mostly Terry’s) will be as nothing to the cost-cutting stringencies it inflicts on the Cadbury estate. Attila the Hun’s scorched earth policy may come to be judged mild by comparison.

Ultimately, however, there is a more important strategic issue at stake. Will Kraft know how to make best use of the brand culture it has acquired? I rather fear it won’t. Kraft is very good at text-book, incremental marketing. It knows how to build on existing brands by rolling them out internationally, as it has done very successfully with Oreo and will probably shortly demonstrate with TUC. It is less gifted in the new product development area. It’s hard to believe Kraft executives would ever have had the wit, or self-confidence, to acquire Green & Black’s; still less to build from almost nothing some of the world’s fastest-growing chewing-gum brands (Trident et al). You could, of course, argue that, thanks to Cadbury, the essential building blocks are now in place. All that is required of Kraft is to deploy superior resources to ensure that they are properly, if less imaginatively, exploited.

Even there, I find room for doubt. Mars, now it has acquired Wrigley, seems better balanced to exploit its global position; it remains essentially a confectioner. Kraft, on the other hand, looks like a corporate identity crisis in the making. Its confectionery elements remain only one part – admittedly a very important, unwieldy part – in the portfolio of a maker of groceries and “sweet snacks”.

Bellwether optimism – no double-dipper, but interest rate rise may be on the way

January 18, 2010

Good news on the economic front, as the Institute of Practitioners in Advertising unveils the latest quarterly results of its authoritative Bellwether survey.

True, marketing spend fell for the ninth quarter in succession, but the rate of decline is the slowest yet. Some sectors, such as digital and direct marketing, even showed weak signs of growth. Apparently, budgets have been set higher for this year than last, and marketers are more optimistic than they have been for five years. Which emboldened Rory Sutherland, IPA chairman and vice-chairman of Ogilvy Group UK, to forecast an end to the recession.

So trebles all round? Well, not necessarily. IPA director-general Hamish Pringle tells me there may be a sting in the tail of this dying recession.

No, not a double-dipper: it’s not that bad. But he has seen this sort of marcoms recovery pattern before (like me, he sports a few grey hairs), and almost invariably it is the prelude to an imminent uptick in interest rates. So expect a hike earlier than the end of this year (though not, I suspect, before the general election). Pringle cautions his prediction falls short of being scientific. It’s a bit like counting the number of recruitment advertising pages in the second calendar issue of Marketing Week and gauging the economic recovery accordingly (a good indicator, but not infallible). The magazine was, by the way, gratifyingly plump in that respect.

China plunges into cyber war as Google threatens to pull out

January 13, 2010

In the dark days of the Soviet Union, with its ever-present threat  of arbitrary incarceration in the Gulag Archipelago, samizdat was a key form of communication between dissidents. Then, it consisted of often hand-written or typed copies of a sensitive document passed from hand to hand, to avoid arousing suspicion.

Nowadays, things have moved on – to China, Iran and the internet. A curious illustration of this has been provided by events in cyber space over the past 24 hours (although their direct causal relationship remains anyone’s guess).

It all started with the sensational revelation that, after four years, Google was going write off billions of dollars investment and close its operation in China. The reason stated was that the Chinese government had broken its side of the contractual bargain, amounting to non-interference in an auto-censorship regime, by attempting to hack into the Gmail accounts of several Chinese human rights activists. This is no doubt true, but there is also a hint of Google frustration at being unable to crack the Chinese market (the biggest in the world) in the same way it has done elsewhere. After four years of struggle, Google has gained a “mere” 30% share. Much of the rest of the Chinese search market (60%) is held by a single operator, Baidu, which seemingly enjoys a much more relaxed relationship with the authorities.

Baidu executives, however, will have spent little of yesterday popping the champagne. They were far too busy warding off a cyber attack which for much of the day  paralysed their operation. The culprits were a mysterious band of hackers calling themselves the Iranian Cyber Army. It is not the first time they have struck. Last month, the ICA attacked Twitter, which makes some sense if we look on the hackers as a proxy of the Iranian government. Twitter has been widely used by the increasingly vocal Iranian opposition as a means of communication. Less clear is why the Iranian Cyber Army should go on to attack Baidu. Some say it’s another covert attack on Twitter. Twitter is blocked in China, but several thousand people there have apparently found ways to use the micro-blogger to lend support to the Iranian opposition. If so, the tactic is a sledgehammer to crack a nut with some very negative consequences in view. The Chinese and Iranian governments enjoy a close and mutually supportive relationship. Why jeopardise them? Which rather suggest the Iranian Cyber Army is not what it purports to be at all. Is it perhaps an Iranian opposition group masquerading as a government covert operation? A bunch of mischievous hackers? Or ICA an anagram of CIA?

I don’t know. All I can say is that shortly after Baidu went down, the Iranian website room98.ir appeared to be the victim of a counterattack from an organisation calling itself the Honker Union for China.

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