1960s WORK
0105 Gallahers Market Research
It was at Gallahers that I had my first chance to apply my marketing skills, and in particular my skills in market research, on the grand scale. We had a separate market research department. It was a very professional department and I got on very well with its management. To start off, though, I didn't need to use them that much -- or at least that's what I thought. I had market research reports coming out of my ears. All of them said exactly the same thing. Pipe tobaccos, and in particular Condor, were declining at an absolutely steady 1% per annum. This literally was as pipe smokers died off, and there was nothing we could do about it! Our job in marketing, therefore, was to maximise the profits that we get out of this situation. Accordingly, I first of all addressed myself to the roll and twist market. This was a market that really was declining fast as its aging users died. I therefore increased price, since these users had nowhere else to go. I felt uncomfortable about this, since they were old age pensioners, but it was easiest way of starting to leverage profits up – and firms are driven by profits – and, as I, say they had nowhere else to go.
On the main brands I also managed to leverage up the price. This was because, once a quarter, I met with my competitors from Ogden's, Imperial Tobacco division which owned the St. Bruno brand -- the brand leader and our main competitor, and the representative of Rothmanns, who owned Erinmore, the third brand in market. Ostensibly we were engaged on joint PR activities across the pipe tobacco market -- especially the ‘Pipeman of the Year’ award. In reality our main benefit was approached discreetly over lunch, when one or other of us would say '... I think it's my turn to increase prices and I intend to do that in the near future'. In those days this was strictly not illegal, since we didn't agree prices as a cartel, and increased our prices individually. On the other hand, we did this knowing full well that the others would follow suit. It is now very illegal.
In this way the prices were rapidly escalated -- until the tobacco division became one of the main profit centres of Gallahers.
On the basis of the extensive market research, I was sure that there was nothing I could do about increasing sales. At this time, however, the cigarette people were planning on running a continuing panel to see how their smokers changed their brands. They wanted us to join them to make the data more complete. I refused, on the grounds that it was a waste of money. We knew that pipe smokers, especially Condor smokers, never changed brands -- they were just about the most loyal customers anyone ever had. Anyway, to cut long story short, the cigarette marketers said they would add us to the survey for free -- so we let them get on with it. When the results came in, however, they showed that pipe smokers, or at least a third of them, actually changed their brands every three months! This was a complete revelation. All the data said it could never happen. Accordingly I went back to look at the previous surveys and, in the light of the new material, it quickly became obvious that the earlier questionnaires had been loaded to deliver the answers that were expected.
Accordingly we had we do all of our market research again, at a cost of several hundred thousand pounds -- a massive cost in those days.
The market research manager, who I got on very well with, was keen to do some very avant-garde work -- using techniques which were only just being developed. In particular he wanted us to use factor and cluster analysis. These were only just emerging because they demanded the use of computing power, which had only recently become available. As well as representing the most sophisticated research which was available to commercial firms, they were also very expensive procedures. Factor analysis looked at what aspects of the product were important to the consumer. To do this we used Kelly Grids, something that had rarely been used before. This, in particular, ended with significant use computers -- you can read about it in my marketing book. Indeed the market research I did in those days was the foundation of my later career as an academic! Cluster analysis then went further to see what groups of customers were important to the brand, and again computer analysis was essential.
The most fascinating results came from the factor analysis. Thus, for example, we found that the perceived strength of the brand was not based on the actual smoking strength but on the colour of the pack! The darker the colour on the pack the stronger the brand was seen to be. Accordingly, as part of our move towards a wider coverage of pipe smokers in general, we lightened the brown colour of the pack, whilst making it warmer and replaced the yellow colour printing with gold printing -- since this was associated with quality. While saving money from the overall course of our actions, since we were able to use cheaper leaf, our quality image went up dramatically.
In terms of cluster analysis, the key result was that Saint Bruno and Condor were almost equidistant on either side of the ideal position in the marketplace. Thus, I made the best strategic move I ever did. I didn't move Condor to the ideal spot, but jumped over into the position between St. Bruno and the ideal -- capturing an even bigger share of the market. This was achieved by the changes in the product and package and in particular by very carefully designed advertising.
The net result of this was that we had a unique understanding of the marketplace -- which none of our competitors had.
As part of the process, I also built a mathematical (econometric) model of the marketplace. This was done largely by hand, using one of the first electronic calculators. It was typewriter size machine which only had the arithmetical functions you can now get built into watch, but it cost £500 and I had a lot of explaining to get hold of it. But it was worth its weight in gold in use, since it speeded up my calculations enormously. With it I was able to build a matrix structure which looked at all factors which affected the brand. I was very fortunate in terms of the conditions in the marketplace, which is why I was able to do this. Except for the car market, nobody else has ever been able to reproduce this level of work.
Thus, we had exact sales figures for every brand. This was because all the tobacco firms were exchanging information at the time, for a court case on resale price maintenance. This meant we knew what everyone sold, down to the last unit, rather than working to an approximation from retail audits. In addition, in the marketplace, each brand had made only one very different change in direction each year. Thus, I was able to look at the market each year and see what happened when someone changed their advertising, or reduced price or whatever. On the basis of this I was able to predict exactly what the result would be of our own planned changes in marketing strategy.
The best measure of the success of this model actually came with Old Holborn rather than Condor. Thus, looking at the monthly sales figures for this, I announced that they could not be right -- Old Holborn was deviating too far from my prediction. As the deviation was less than 1 percent everyone thought I was mad, but I was convinced that my model was accurate to well below 1 percent; a unique achievement. I insisted on an investigation and it was found that a wholesaler had been given credit of a hundred thousand pounds instead of one hundred and, and was quietly spending this. My image was enhanced considerably by this achievement!
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