The Law of Perspective
Marketing effects take place over an extended period of time
If you visit almost any bar and grill on a Friday night after work, you'd swear that alcohol was a stimulant. The noise and laughter are strong evidence of alcohol's stimulating effects. Yet at 4:00 in the morning, when you see a few happy-hour customers sleeping it off in the streets, you'd swear that alcohol is a depressant.
Chemically, alcoh 727s185h ol is a strong depressant. But in the short term, by depressing a person's inhibitions, alcohol acts like a stimulant.
Many marketing moves exhibit the same phenomenon: The long-term effects are often the exact opposite of the short-term effects.
Does a sale increase a company's business or decrease it? Obviously, in the short term, a sale increases business. But there's more and more evidence to show that sales decrease business in the long term by educating customers not to buy at "regular" prices.
Aside from the fact that you ran buy something for less, what does a sale say to a prospect? It says that your regular prices are too high. After the sale is over, customers tend to avoid a store with a "sale" reputation.
To maintain volume, retail outlets fine! they have to run almost continuous sales. It's not unusual to walk down a 'retail block and find a dozen stores in a row with "Sale" signs in their windows.
Have the automobile rebate programs increased
sales? The rise of auto rebates have coincided with a decline in auto sales. U.S. vehicle sales have declined for five straight years in a row.
The largest furniture company in the blew York City area, Seamans, has been running a sale every week. Recently, Seamans went bankrupt.
There is no evidence that couponing increases sales in the long run. Many companies find they need a quarterly dose of couponing to keep sales on an even keel. Once they stop couponing, sales drop off.
In other words, you keep those coupons rolling out not to increase sales but to keep sales from falling off if you stop. Couponing is a drug. You continue to do it because the withdrawal symptoms are just too painful.
Any sort of couponing, discounts, or sales tends to educate consumers to buy only when they can get a deal. What if a company never started couponing in the first place? In the retail field the big winners are the companies that practice "everyday low prices" companies like Wal-Mart and K Mart and the rapidly growing warehouse outlets.
Yet almost everywhere you look you see yo-yo pricing. The airlines and the supermarkets are two examples. Recently, however, Procter & Gamble made a bold move to establish uniform pricing, which could become the start of a trend.
In everyday life there are many examples of short term gains and long-term losses, crime being a typical example. If you rob a bank for $100,000 and wind up spending 10 years in jail, you either made
$100,000 for a days work or $10,000 a year for 10 years of labor. It depends on your point of view. Inflation can give an economy a short-term jolt, but in the long run, inflation leads to recession. (The nuts in Brazil haven't figured this out yet.)
In the short term, overeating satisfies the psyche, but in the long run it causes obesity and depression. In many other areas of life (spending money, taking drugs, having sex) the long-term effects of your actions are often the opposite of the short-term effects. Why then is it so hard to comprehend that marketing effects take place over an extended period of time? Take line extension. In the short term, line extension invariably increases sales. The beer industry clearly illustrates this effect. In the early seventies, Miller High Life was barreling along with sales increases averagirig 27 percent a year. Millers success was fueled by "Miller Time," a blue-collar campaign focused on rewarding yourself at the end of the day with a Miller beer. Then Miller got greedy and in 1974 introduced Miller Lite, a brilliant concept (chapter 2: The Law of the Category) buried under a line extended name.
In the short term the two Millers could coexist: the blue-collar beer (high Life) and the yuppie beer (Lite). But in the long term, line extension was bound to undermine one or the other brand.
The high-water mark for Miller High Life was 1979, five years after the introduction of Miller Lite. In those five years Miller High Life's annual sales almost tripled, from 8.6 million to 23.6 million barrels. This was the short-term effect of line extension.
The long-term effect was grim. From a high of 23.6 million barrels in 1979, Miller High Life declined 13 years in a row to just 5.8 million barrels in 1991. And the decline is bound to continue.
Nor has Miller Lite been immune to the ravages of line extension. In 1986, the brewer introduced Miller Genuine Draft. The brand took because it was the first beer in a new category. Unfortunately, the brand also carried the Miller name. (See the next chapter: The Law of Line Extension.) History repeats itself. Five years later, Miller Lite peaked in sales and then started to decline. Once started, the decline is almost impossible to stop.
Unless you know what to look for, it's hard to see the effects of line extension, especially for managers focused on their next quarterly report. (If a bullet took five years to reach a target, very few criminals would be convicted of homicide.)
The same thing that happened to Miller happened to Michelob. Three years after the introduction of Michelob Light, regular Michelob peaked in sales and then declined 11 years in a row. Today the four Michelob flavors combined (regular, light, dry, and classic dark) sell 25 percent fewer barrels than Michelob alone did in 1978, the year Michelob Light was introduced.
The same thing happened to Coors. The introduction of Coors Light caused the collapse of Coors regular, which today sells one-fourth of what it used to.
Even the king is down. After annual sales increases stretching back to the end of Prohibition, Budweiser
has been slipping the last three years in a row. The cause? Bud Light.
You might be thinking that Miller, Coors, and Anheuser-Busch had to line extend because light beer has taken over the market. If you believe what you read in the papers, you'd think that everyone is drinking light beer. Not true. Today, 18 years after the introduction of Miller Lite, light beer still accounts for only 31 percent of the beer market.
In other areas of marketing, the short-term/longterm line extension effects occur much more rapidly. Coca-Cola clothes were introduced by Murjani in 1985. Two years later wholesale volume reached $250 million. The following year, the line dried up virtually overnight, saddling Murjani with millions of dollars' worth of inventory.
What happened to Coca-Cola clothes also happened to Donald Trump. At first, The Donald was successful. Then he branched out and put his name on anything the banks would lend him money for. What's a Trump? A hotel, three casinos, two condominiums, one airline, one shopping center.
Fortune magazine called Trump "an investor with a keen eye for cash flow and asset values, a smart marketer, a cunning wheeler-dealer." Time and Newsweek put The Donald on their covers.
Today Trump is $1.4 billion in debt. What made him successful in the short term is exactly what caused him to fail in the long term. Line extension.
It looks easy, but marketing is not a game for amateurs
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