Maniolas

MARKETING guru Bienvenido Bautista was president and managing director of such large food and beverage companies as San Miguel Brewery, Kraft, Universal Robina Corp. Here, he shares his thoughts on turning around brands and businesses.

Question: As former president of Philippine International Trading Corp. (PITC)—Pharma, I understand you were able to turn around this profit-challenged government company within your 14-month stay. What issues plagued PITC and how did you turn around PITC?

Answer: PITC Pharma or PPI is the only government owned pharmaceutical company, which formerly owned Botika ng Bayan (BNB). It spearheaded the drive to promote and encourage the use of generic pharmaceutical products at low prices. Unfortunately, with the entry of more pharmacies that focused primarily on generics, like Generics Pharmacy, Generika, even Watsons, with their advertising budgets (PPI had none), consumers went to these competitors instead.

Additionally, PPI was logistically challenged—cash flow was an issue. Suppliers weren’t being paid, thus stocks in BNBs were depleted, causing customer dissatisfaction. The objective of offering low priced generics through low-end botikas was good, but given the pressures of competition and poor fiscal management, BNB died a natural death in 2013.

But PPI had an ace which it could use—as a procurement arm for any government agency that needed to buy medicines. Thus, when an agency like the DOH (Department of Health) needs to procure medicines for their projects, they have two options: Buy it themselves or buy the medicines through PPI.

In reality, PPI took the hassles of procurement away from the agency since that was the only thing PPI did. But PPI had to have a compelling argument for the government agency to buy through PPI.

So we did our market research and determined the most common generics bought by government agencies. We figured that if PPI could pool all these requirements together, then suppliers could give it volume discounts, which could be passed on to any government agency that needed medicines.

Major pharmaceutical companies had to be approached and convinced that PPI was going to be paying them. I went to see all the major players, like Sanofi, GSK, Pfizer and Unilab. I presented PPI’s core competencies and that, through pooled procurement, the pharma companies would only deal with PPI, not the different agencies with their peculiar procurement policies.

After getting a sense of how much medicines were being bought, PPI got from the pharma companies what their lowest prices were, based on pooled requirements.

The first acid test was for flu and pneumonia vaccines. The last purchase of the DOH in 2012 for a million doses was worth around P400 million, or P400 per dose. However, when we aggregated the vaccine requirements of other agencies, like the PCSO (Philippine Charity Sweepstakes Office), the volume discount provided by the pharma companies ended up in savings of around P70 million to the DOH.

PPI also looked at the private sector. Coming off the disasters regularly visiting the country, where would companies go to buy its medicine donations or put together medicine kits for easy distribution? PPI then put up a commercial division and assigned salesmen to visit the big corporates who had big CSR budgets.

PPI had never made money in its history. In fact, cumulative net losses of PPI in its 7 years of existence amounted to P325 million. In 2013, it made its first ever profit with around P17 million.

What made the difference? Every business needs a sustainable competitive advantage, use the strengths and assets it has and start communicating.

Q: While in the private sector, you also had several successes in turning around brands. Can you share with us these cases?
Clusivol of Wyeth comes to mind. It was a dormant brand in the 1990s, and the vitamin and minerals market was dominated by Enervon and Revicon. What the brand needed was a big idea. Enervon and Revicon had outrageous claims—drink this and you will be able to play many sets of tennis, etc. Their TV ads had people jumping off airplanes, hang-gliding and skydiving. Once again, we did market research—what exactly did consumers want out of their vitamin and mineral brand? Surprisingly, all they wanted was to get more out of life, that the vitamin pill would give them not just quantity but also quality time.

The big idea therefore, as embodied in the ad campaign was: Clusivol, for a little more quality time. The message was simple and truthful—“for a little more quality time” all one needed was a healthy diet, rest, exercise and a daily capsule of Clusivol. In a year, Clusivol became the third largest brand behind Enervon and Revicon. Today’s hook, with the late Dr. Flavier’s help, is “bawal magkasakit.” I believe it is right up there battling the leaders of this category.

Promil, also from Wyeth, is a big story. In 1989 Promil’s ad campaign broke with “The Gifted Child.” From less than P50 million in sales when the campaign broke, sales reached P1.2 billion after three years. It became the largest selling infant formula in the market.

Market research revealed what the come-on was: “The gifted child.” The proposition was, give your child the chance to be a gifted child by giving him or her the right dietary requirements, more than what ordinary cow’s milk could give. Which mother doesn’t want a gifted child?

Not all brands can be turned around—sometimes the brand carries too many negatives and is beyond cure. Sometime the cost of entry or rehabilitation is too expensive. All these have to be taken into consideration. But above all, market research will always carry the day—the brand person has to have the deepest possible understanding of his product, his market and his consumer.

Q: What patterns do you see on why brands or companies become unprofitable?

A sales drop in the first year is a red flag, two years on and a drop means the brand is in trouble. Brand men press for better execution when they need a better strategy. Or they craft a new strategy when they really need to improve execution. Strategy and execution are inextricably linked and the bar should be raised for both simultaneously. In my experience brands and companies become unprofitable because corrective actions are taken too late—the handwriting on the wall is ignored. And that’s when decisive leadership is needed.

Leaders should use the Pareto principle more often as it has so much power as a problem-solving rule of thumb. Like, how do we boost our profits? The next question is, where do our profits come from? Where do we cut costs? Where do our major costs come from?. It’s all about leadership, decisive leadership.

Q: What are challenges or barriers that may block a turnaround? How do you untangle them for progress?

This is a tough question as behind any corner is a barrier. But generally, the leader should get rid of dysfunctional departments. He should build teams as the complexity of some problems makes it impossible for one person to solve them. Someone once said: Many hands don’t just make work light, they make for a better result. Every company needs innovation, which comes from innovative behaviors. And these behaviors are driven by what senior leaders do and not by what they say.

Q: What are critical success factors for a turnaround?

Again a tough question but I believe a company is destined for greatness if it has the right people, who set correct strategies, make brave and calculated decisions and deal first and foremost with its consumers and customers. I believe that what makes a company succeed is by the way it is led. The tone at the top sets all of it in motion. Turning a company around takes time, and all the resources needed to turn things around must be provided.

Q: In Kraft, you reduced the price of Tang by over 20 percent to effectively compete with then new market leader Eight O’ Clock. You again dropped the price of beer while you were still with San Miguel as part of the “Affordaboys” campaign. When should major brands consider dropping price? What should management aim for when they drop price?

In 1982, Tang owned the market with an 80 percent share. In 1992, Tang share was down to 20 percent because Eight O’ Clock had a price that was half that of Tang. In 2002, Tang was back as market leader. How? In order to come down in price it moved its manufacturing location to Thailand, where sugar and labor are 40 percent lower. Also, Kraft innovated with the “Litro” pack, which took off with gin drinkers as they blended Tang flavors to avoid taste satiation.

In the San Miguel beer case, management was seeing volumes decline as beer drinkers moved to gins, brandies and rums. Market research showed that the consumers felt that beer, while their drink of choice, had become too expensive and was only reserved for special occasions. Market research told us what price level pale pilsen beer should be to get back its consumer. In the end, it is not about what the gross margins are, but absolute profit. The price rollback gained back market share, volumes and absolute profit, more than making up for the lower margins.

Price drops are risky because the brand image may suffer, and it is always harder to raise prices. Some try it through price promotions and sugarcoat the rollback through bundling, etc. But in my experience a price rollback, and the heavy dose of communications that go with it, are most effective.

Q: In 1994, when you were with Kraft, countries in South and Southeast Asia were assigned under your supervision. How do marketers in each country you handled rank in terms of strategic thinking, creativity and execution?

The first thing I noticed is that the “Not Invented Here” syndrome is alive and well in most countries, where skills and expertise flown in are irrelevant to the local guys. In South Asia, marketers are more vertical thinkers, where math and sciences played major roles, with quantitative data seeming to override creative thinkers. In Southeast Asia, they are more horizontal thinkers—more creative and qualitative data was more important than the quantitative information.

Cutting across all geographies however is the need to understand the culture of the country, the culture of the company (surprisingly even if they are all Kraft affiliates, each had its own culture) and to understand the context of the problems and situations as strategic decisions and tactics depend heavily on context.

Countries differed in advertising space, media complexities, as well as strengths and weaknesses of the advertising agencies we were allied with. In the end, what was needed was the focused mindset of the affiliate to place the customer at the center of all they did, and put marketing and selling at the center of the strategy. Everything else was secondary.

Q: To executives from the private sector who intend to join and serve the government, what pieces of advice can you offer them?

First, expect an 80 percent cut in pay. Expect good people who will surprise you with their passion and zeal. Expect politics too, with all of its bureaucracies. Expect a group willing to learn, and that is where you can make the biggest difference—training them and getting the most out of them.

(The author is chair of marketing training firm Mansmith and Fielders Inc. For the complete interview as well as those of other thoughtleaders, please visit www.josiahgo.com. For comments, email josiah@mansmith.net)