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2 August 2014

Shelf-life

Tag(s): Marketing
How many boxes do you have for recycling? We have six: two for paper and cardboard; two for plastic; one for glass and a big one with wheels for garden waste. Our council recently instructed us to also put our food waste in this one and we dutifully followed this even though we have a perfectly good waste disposal unit. The council also cunningly gave us a quantity of paper bags in which to store this food waste but when they ran out we had to buy them. Only the big supermarkets stock them so I find myself driving a few extra miles now and again to replenish our stock. Such is the logic of going green. Now food waste comes in many varieties and one of us must have thrown some meat in. Another one of us, or maybe it was the same one, then opened the lid a few days later to be faced with a veritable cloud of maggots. It took bottles of bleach and gallons of water to clear it all up. As I said such is the logic of going green.

But this got me thinking about shelf-life and I wrote as follows on the subject in Chapter Nine of my book, The 20 Ps of Marketing.

 “In food companies, and others with a perishable Product, there is the additional factor of shelf-life to consider. I first encountered this when I went to South America to set up Mars’ business in Chile. I had only previously been responsible for Petfoods which were in cans with almost infinite shelf life or dry or semi moist products that lasted for a long time. Chocolate, however, has a very short life and must be stocked inside quite tight temperature boundaries. If it melts it is, of course, unsaleable. Thus the Push strategies were really not appropriate. We did not benefit from selling in excessive stock but worked hard to maintain good balances. Later I worked at Pillsbury where our shelf life was typically about nine months. Most of our Products contained flour which loses its quality over time. If we included a raising agent this would also lose potency. This restricted the stock we would manufacture and seek to sell and so again this circumstance directed us much more to a Pull strategy. Retailers also insisted on a proportion of shelf-life being left before they would accept the Product. This might be, say, two-thirds of life and so a Product which claimed a shelf-life of nine months had to at least retain six months on shipment.

 Shelf life does not only relate to food Products. Yesterday’s newspaper has little or no value although when I lived in Santiago de Chile, keen for news from home, I often paid a premium for British newspapers even several days old. On one occasion I bought a copy of The Times from a kiosk in the city centre. The crossword had been completed by someone else and I surmised that there was probably some black market recycling newspapers left on British Airways’ ‘planes.

 Indeed shelf-life does not only relate to physical Products. A hotel cannot sell last night’s empty bed. An aircraft costs the airline more or less the same to fly empty or full. A theatre wants to put up a “house full” sign every night. At NXT where we operated a licensing model and held no physical inventory, nevertheless our inventions were patented and so we were still subject to the shelf-life of the patents which would expire 20 years after grant. Some businesses have become much more sophisticated as to how they manage demand through manipulating Pricing. The cut-Price airlines will vary Pricing right up to the last minute through complex algorithms. Sir Stelios Haji-Ioannou, founder of easyJet, explained this to me as I described in Chapter 2 on Price. But even for the purposes of this book I don’t think I can explain it to you.

 Service businesses also have an inventory that cannot be sold after time elapses. A consulting business aims to sell a certain proportion of its billable hours. Anything unsold short of this target cannot be sold at a later date. So billable time is simply another form of perishable goods and must be managed along strict lines of Push-Pull Marketing. A telephone company has made its investment in fixed line capacity. In this sense the inventory is fixed. After that it will do everything it can cost-effectively do to maximize usage because this will impact Profitability. The late Stafford Taylor, when he was in charge of BT’s consumer business, told me that he had a strategy of “One more minute”. At that time the average usage by British consumers of their landline telephone was just eight minutes per day. If BT could increase that by “one more minute” it would deliver an additional £500 million annually to the bottom line. Thus he invested significantly in well-loved advertising campaigns featuring popular actors like Maureen Lipman and Bob Hoskins that advocated “It’s good to talk.”

 Fashion is also a form of perishability. At Pentland where we managed a range of sportswear brands we knew that our styles were likely to go out of fashion each season and so had to manage our procurement with great care. Even publishing is subject to such rules. Private Eye magazine in its Literary review section likes to taunt celebrity authors whose works were much hyped and are now being sold off at very low Prices or in the  terminology of publishers, “remaindered”. Private Eye calls this feature “remainders of the day.”

 There is also a fashion element to consumer electronics and at Sony I found myself more often in a Push situation rather than a Pull contrary to the image you might have of the company. Undoubtedly Sony had an excellent brand image and sought to create consumer demand for our Products but realistically we could never advertise all the Products we sold. Every year I launched about 250 new Products in the Sony range and very few of our Products stayed in the catalogue for more than four years, the majority being discontinued and replaced after two and in some categories the rate of new Product introduction was much faster than this. In my time the camcorder Market was still new and the rate of Product introductions very fast. New models were introduced every six months or so. This was compounded by the problem of television standards. Colour Television was first introduced in North America in the 1950s and standards set by the National Television System Committee (NTSC).  This system was used in not only North America but also Japan and some other Asian countries. In Europe, however, a different system was developed. Europeans could see problems with the NTSC system which some wags designated “Never Twice the Same Colour”. PAL was developed by Telefunken in Germany. The format was first unveiled in 1963, with the first broadcasts beginning in the United Kingdom in 1964 and Germany in 1967.

 Camcorders have to play back in the format on the consumer’s television and so Products were first released in the NTSC markets of Japan and North America and then, if successful, launched in PAL format six months later in Europe. Thus we were always a generation behind. The Markets knew what improvements were coming and so tended to hold back their orders if particularly significant improvements in size, or resolution, or magnification or battery life were expected. The inertia this threw into the Market was very difficult to counteract and our customers tended to get clogged up with several generations of Products. Dixons Stores Group, not only our largest overall customer, but also a retailer with a strong photographic tradition could not afford to miss out on the latest models but as a consequence might have as many as eight or nine generations of old Products layered in their warehouses like geological seams.

 Far worse problems had been encountered by my predecessors in Sony who had to deal with the difficulties created by the video format war between the Betamax format developed by Sony and the VHS format favoured by JVC and others. Much has been written about this elsewhere, not all of it accurate, but for the purposes of this chapter the point is that Sony was following too much of a Push strategy. The manufacturing company responsible for video Production in Japan considered the Product sold when it was shipped when in reality the inventory was piling up around the world in the sales companies. Sony UK alone lost around £30 million one year on discounts and write-offs. The process of forecasting and ordering was known by the Japanese word seihan which covers the whole logistics process. After the Betamax debacle strong controls were introduced and I’m glad to say that such disasters were avoided in my time with the company. I would personally chair a monthly seihan meeting to review and monitor and indeed modify the forecasting and ordering being placed on the factories. However, we never succeeded in reengineering the total business process to get into a situation where we made what we sold rather than selling what we made. In durable Products like consumer electronics few companies will destroy the inventory rather than limit supply but perhaps that is what they should do to maintain Pricing levels and healthy demand. Following the credit crunch in 2008-9 sales of champagne slumped. In France the Producers destroyed some of their excess inventory rather than see Prices fall but in the UK, which is one of the largest markets in the world for champagne, retailers who held excess stocks simply discounted them with the inevitable consequences to Producers’ carefully nurtured brand images.

We used to say that nothing sells like a back-order. In other words creating some kind of shortage often led to even greater demand as the psychology of the Market shifted. A few companies make this a business practice. Some of the more prestigious car marques limit Production, generate a waiting list and then their owners find that far from losing value the minute they drive the vehicle off the forecourt a prestigious vehicle of this kind will actually gain a premium.”

This is taken from Chapter Nine, Push-Pull of The 20 Ps of Marketing. If you wish to order a copy there is a link direct to the publisher on the home page of this website.

Copyright David C Pearson 2014 All rights reserved



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