2010: Marks & Spencer, Sustaining the Brand Promise - Case Study

The determination of Marks & Spencer to hold fast to its message of quality through both the good and bad times reinforced the brand’s premium positioning and its profitability.

Key insights

• Despite the recession Marks & Spencer (M&S) held its nerve by maintaining its premium pricing and continuing to invest in brand-building advertising.
• Refusing to lower prices meant the retailer didn’t suffer the fate of companies which cut pricing in the bad times and then struggled to raise them again.
• Outstanding communications, including iconic advertising, were an important part of its strategy.

Summary

M&S is one of the UK’s leading retailers, selling clothing, food and homeware. In what have been troubled times for the UK high street, the retailer took what appeared to many in the media to be two foolhardy decisions. First, it was determined to maintain its price premium when competitors were slashing their prices to the bone to survive. Secondly, it decided to continue to invest in brand-building advertising to justify that premium.

Even though newspapers were full of stories of falling sales and declining share prices and consumer confidence plummeted, measures of M&S’s ‘brand momentum’ remained consistently positive — despite premium pricing in a discounting world — and were shown to be directly influenced and maintained by advertising.

As 2009 progressed, so M&S’s sales performance and share price began steadily to improve. It was able to resist the margin-pinching ‘race to the bottom’ in which many of its competitors were engaged and which they would find very hard to reverse once the recovery set in. By the last quarter of 2009, M&S had achieved its strongest performance for two years, with shares outperforming the DJ Stoxx European Retail Index by 46%.

The good times, the bad times

In the years prior to the recession, when M&S was faced with a takeover bid by Sir Philip Green, it invested heavily and consistently in advertising that was universally acknowledged to have increased footfall, sold products and benefited the brand by raising measured scores on such dimensions as ‘quality’, ‘trust’, ‘understanding’ and ‘worth paying more for’. This, in turn, boosted the share price.

As the dark clouds of recession loomed, things got tough on the high street. It was, without doubt, the worst recession in living memory. As a consequence, consumer confidence plummeted by an unprecedented forty percentage points. Some of
the biggest names in retail crashed out of business. Only four or five years ago, for example, it would have been hard to imagine the high street without Woolworths. But it happened.

Perhaps unsurprisingly, more or less the whole of the industry went into a discounting frenzy. And Britain’s biggest retailer, Tesco, became Britain’s biggest discounter. But every cloud has a silver lining:the Primarks of this world, whose business models were built around absolute bargain-basement prices, did very nicely for themselves. But everyone else was hurting.

Standing firm

One retailer that did not cut its prices as deeply as the rest, and that did not abandon its commitment to brand-building, was M&S. This was despite the fact that keeping a steady nerve when all around were panicking was hard and, at times, painful. In consequence, stories abounded about the ‘troubles’ and ‘difficulties’ suffered by the brand. In January 2008, when £5 billion was wiped off of the share 2prices of high street stores, the media were quick to pin the blame on M&S, which had just reported a 2.2% fall in sales.

“Credit crunch wipes a third off of M&S profits” said one headline. Troubled High Street Giant M&S to cut jobs” said another; “M&S sales likely to fall again,” said yet another. The negative press coverage was creating a vicious circle. But M&S still did not rush to join the price-cutters. Chairman Sir Stuart Rose announced that he was confident that a strong brand left M&S “well positioned to compete by improving our operational delivery and continuing to focus on quality, value and choice. ”And communications were central to the job of turning the vicious circle around.

In February 2009, Marketing Week published the results of a survey, carried out by Brandhouse/The Centre for Brand Analysis in 2008 at the nadir of the recession, into the emotional appeal of a hundred of Britain’s leading brands as judged by consumers. The only retailer to feature in the Top 10 was M&S, which came seventh. This is despite the fact that M&S’s prices consistently indexed at +8, versus Tesco’s -11 and Asda’s -22.

Meanwhile, in sharp contrast to this precipitous drop in consumer confidence overall, attitudes to M&S as measured in terms of brand momentum were far less volatile, and never strayed into negative figures, not even at the very worst of times.

Consumers, it seemed, continued to feel good about the M&S brand despite the best efforts of the media doom-mongers and the appeal of price-slashing rival retailers. Gradually, the drop in M&S’s sales and profits began to slow down, so that by April 2009 the year-on-year drop for the quarter was just 4.2%. Investors who, acting on the strength of media reports, had been expecting a continued downward spiral, were taken by surprise. The result was that the share price jumped by 12% overnight.

One of the strongest influencing factors driving this strong brand momentum was consistent advertising. Even throughout the worst of the recession, M&S advertising explicitly focused on building the brand’s quality perception, rather than ‘selling off the family silver’ for short-term gain by just plugging the latest low prices.

Consistency of communications

The overarching communications strategy was based around the idea that M&S provides ‘quality worth paying more for’: you pay a bit more but get a lot more back. This brand campaign ran across all parts of the business celebrating the brand’s long-term commitment to quality. The activity also coincided with M&S’s 125th anniversary. This enabled it to assert its stability and heritage in a time when big names were disappearing from the high street. The retailer was able to show how the brand had been there for people through the decades. The TV spot told stories that illustrated the lengths M&S has gone to bring the best quality products to the high street for the past 125 years.(Figures 1 through 10 show some of the TV stills from the M&S 125 years campaign. Figures 11 through 17 show a selection of outdoor ads from the M&S 125 years campaign).

The TV campaign was supported by national poster and press to provide a sense of scale and stature and featured ‘hero’ products such as Oakham chicken, the iconic chocolate pudding, lingerie and tailoring.

The brand idea also ran across the Plan A activity to show how committed the retailer was to becoming more sustainable and which helped to reinforce M&S’s quality credentials (see Chapter 11). Stories included Fairtrade cotton, sustainable
fishing suppliers and traceable meat (Figures 18 and 19).

The quality message was also reinforced in promotional activity: namely ‘Dine in for £10’. This reframed the competitive positioning strategy to challenge restaurants directly because compared with a meal out, £10 for three courses plus wine represented fantastic value for money. Despite being a promotional mechanic, this actually raised quality perceptions and positioned the food as worth paying more for, not only among core customers but crucially among occasional food customers too, helping drive footfall and basket size.

Finally, even the M&S Christmas campaign reflected the changing mood of the UK consumer. Rather than celebrate with the opulence of previous years, it focused on the integral role M&S has played in the nation’s Christmas for so many years

Taking the long view

For a premium-priced high street brand to ride out of such a deep recession so well and to be in the position it is now in is a remarkable thing. But the longer-term achievements of consistent, long-term brand-building in both good times and bad are even more important. Econometric modelling has shown that the long-term payback of consistent brand investment are, on average, four times greater than the short-term profit boost generated by cutting it.

In contrast to many of its rivals, M&S continued to build its brand equity, continued to maintain its price premium and to justify it through advertising, and refused to damage its reputation for quality in pursuit of short-term gain, even when its profits and share price were falling. Nor did it educate or condition its shoppers to trade down to ‘bargain basement’ goods where once they would have been prepared to pay a bit more for quality.

It took time for this strategy to begin to pay off, and it took nerve. But, by the start of the last quarter of 2009, it began to pay off, with the Wall Street Journal, on 30th September, reporting how, after being “hit hard in the recession, losing ground to cheaper rivals like Primark in clothes and supermarkets in food”, M&S had begun to turn its fortunes around, announcing its best financial performance for two years.

The result was a gradual growth in share price over 2009. By the end of the year M&S was outperforming the DJ Stoxx European Retail Index by 46%.

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