As marketing folk, rather than politicians, we think in a particular way. We also have roots across the country, and don’t live in the London bubble. So reflecting on marketing politics over the General Election, and since the EU Referendum, we share thoughts on lessons learned.
It is Friday 13th December and all of the results from the first winter-time general election since 1923 are in. Of 650 seats, the Conservative Party have 365, a clear majority of 80. That’s an increase of 47 more seats, while Labour Party lost 59 seats. The reflects a 44% and 32% share of the vote respectively. The SNP also gained seats with a 45% share of the Scottish vote. The Lib Dems lost one seat overall, most notably that of leader, Jo Swinson. Their vote share was just 11%.
The Conservative seat gains are largely in the North, Midlands and Wales. These are also amongst the highest Brexit supporting areas. And also areas of traditional working class labour support. Though Labour also lost share of vote in strong remain areas (1).
According to numerous polls in the run up to the election, the key issue facing the country was firstly, though not universally, Brexit. Second, health (i.e. the NHS). And third of approximatly equal importance, crime, immigration and the economy (2).
Of course, the Brexit issue masks different needs, either to leave or remain in the EU. Nevertheless, the 2016 Referendum result stands, and ‘leave’ was endorsed in the 2019 local European elections. Further, Parliament’s inability to get the job done has compounded public frustration.
The Conservative message focused primarily on ‘Get Brexit Done’ and also ‘Unleash Britain’s Potential’. Secondarily that enabled investment in the NHS (20 new hospitals, 30-50k new nurses etc.) and 20k more police. Thus cleverly linking the voter’s #2 and #3 concerns to the first. Whereas Labour focused primarily on the NHS (the concern most relevant to their supporters) yet offered a protracted and no obvious solution on Brexit.
Yet interestingly, despite the Conservative’s focus on Brexit messaging, a recent survey suggested that still only some 57% associate the party with this cause. Thus while many of us may be bored with the message, it failed to reach 43%.
At the same time as promoting ‘Get Brexit Done’ the Conservatives also ‘dissed’ the ambiguity and incredibility of Labour’s position in calling for another referendum, and being unclear what they would support.
Conversely the Labour Party attempted to stoke fear that the NHS would be sold by the Conservatives to Donald Trump). This message was strongly challenged, unsupported by documents provided. Procuring drugs from US companies at the right price appears an entirely different and less relevant point.
While historically voting allegiances split along age, wealth and geographic lines, the Brexit issue has complicated this pattern (3). There now appear to be more different types of people with differing underlying concerns. In London, folk are younger, more white collar, work for big, multi-national business and are remain concerned. Whereas in the Midlands, North, and Wales, as well as parts of the South, there are also larger numbers of blue collar, small business, and leave concerned. As the Conservatives have won them over, reading between the lines, it appears that Labour has failed to understand and meet their hopes.
Social media which allows targeting by multiple demographic and psychographic variables seems to have played a significant role.
Of course, it remains to be seen whether Labour voters’ switch of allegiance is temporary or evidence of a fundamental shift in attitudes.
The Conservatives elected Boris Johnson leader partly on the premise that he would give them a bounce in the polls. He has also consistently led Jeremy Corbyn on leadership ratings (strong, decisive) (4). While there are many personality issues on both sides, it appears there is considerable anecdotal evidence on doorsteps that JC was a liability. The Conservatives knew this and it was central to their communication strategy – ‘we’re not Jeremy Corbyn’ (rated dislikeable, weak, untrustworthy) (4).
Sensing decline under Mrs. May in the Summer, the Conservatives, quickly replaced her with a fresh face. While much has been made of his personal life little appears to have harmed. Again this is interesting, and by comparison, we should remember that a ‘colourful’ personal life appears essential to get top jobs in countries such as France and Italy. Looking to the future, it remains to see what type of Prime Minister Boris Johnson will be. He has the opportunity to choose and learn from others – perhaps Winston Churchill or Ronald Reagan.
Today’s announcement that JC will not stand at the next election in order to oversee a change of leadership and not go quickly seems to prolong Labour’s difficulty. Though perhaps in time, the Labour Party will thank the Conservatives for hastening his end.
Productivity is an economic concept (Figure 1). It represents the ratio of economic output: input. Practically, productivity assesses the competitiveness of an economy, and the health or otherwise of constituent businesses. It also indicates a country’s ability to improve raise wages over costs as this depends largely on raising output per worker. Thus understanding UK productivity is key to determining how to improve the UK economy and businesses.
Since 2008, UK productivity failed to follow the previous 10 years plus trend line (Figure 2). Overall output fell by 6% yet employment by just 2%. As a result, productivity fell by 4%. Exactly why UK productivity failed to grow is hotly debated by economists (1). The decline is similar to other major OECD countries (with exceptions such as the USA and Ireland (2)).
We, therefore, thought it helpful to have a view. So in this article, we investigate why? We also pin-point lessons for UK plc and businesses. In particular, we cover:
In general, labour productivity is the ratio between a measure of output volume (gross domestic product or gross value added) and a measure of input used (the total number of hours worked or total employment).
For our analysis, we use the following UK Office for National Statistics (ONS) definition (3).
Productivity = output per worker i.e. Gross Value Added / Total Number of Hours Worked (by those employed).
Gross value added (GVA) is the same as gross domestic product (GDP) minus taxes on products plus subsidies on products. We use the ‘Chained’ definition to eliminate the effect of inflation.
We also use time series data with 2007 indexed as 100 to match Figure 2.
Thus, for productivity to improve, this means that output must rise ahead of hours worked. Or more must be produced in the same or fewer hours. Let’s investigate further.
Figure 3 shows first, that total hours worked failed to keep pace with the trend line between 2008-2014. The decline between 2008-2014 reflects the fall-out from the banking crisis. Between 2007 and 2009 some half a million lost their jobs when many firms down-sized, went out of business (and/or were taken over). Some notables in financial services include Northern Rock, Bradford and Bingley and Lehman Brothers. However, total hours worked is now back on the long-term trend line mirroring population growth. Nevertheless, the number of hours worked has failed to ‘grow output’ or it has held up despite the fact there is less to do. Both options suggest some time is ‘wasted’ or ‘inefficient’.
Second, total output (Chained GVA) grew strongly between 2000-2007. It also fell sharply at the height of the banking crisis, yet continues to under-perform the trend line. Thus this also appears a compelling reason for the productivity decline. Let’s investigate both of these factors further. Starting with the supply-side.
Since 2008 the number of single owner businesses and part-time employees grew above the trend line (Figure 4).
However, according to the Annual Business Survey, the ONS’s annual tracker, small firms produce less than large firms (Figure 5). Overall, therefore, it seems that a shift in the mix to less productive firms has depressed overall UK productivity. Further, as Figure 5 also shows, even the productivity of the largest firms fell during the heights of the financial crisis. This suggests that even switching some workers to part-time contracts, failed to maintain productivity. Of course, both part-time and full-time workers still require the same training.
Further, looking at the ‘W’ shape of Figure 5 suggests that firms of all sizes have ‘bounced-back’ from the worst of the recession. With output at between £43-52,000 per worker, figures match those a decade earlier. It therefore appears that both employers and workers appear to have swallowed a new pill to keep businesses fully functional, flexible and to benefit quickly from an economic recovery.
The UK service sector currently accounts for 80% of output and hours worked (2018). This is an increase of 7% points in output and hours worked since 2000 (from 73%). Further, in the 7 years to 2007 the increase was 4% points, yet in the last 11 years, just +3% points. While the service sector continues to grow ahead of the rest of the economy, growth remains below the pre-2007 trend line. As Government has focused on ‘belt-tightening’ since 2008, and Brexit since 2015, it is unsurprising, that spending remains depressed. But what’s going on in the different sectors?
Closer inspection of the performance of individual service sectors reveals six laggards: wholesale/retail, finance/insurance, recreation/culture, hotels/catering, transport/storage, and the public sector (Figure 7). All six continue to perform below the historic trend line. Performance changes may be due to lower levels of expenditure and/or trading down to lower value, margin, or non-essential services. This seems reasonable given several sectors appear more ‘discretionary’. A decline in transport could also be explained by an increase in ‘stay-at-home’ entertainment.
Two sectors are yet to show a marked change of trajectory post the financial collapse. First, the finance sector which grew very rapidly to 2007 (with historical evidence pointing to uneconomic over-lending as the reason). ). Yet the sector still trails the pack. This seems due to a combination of low interest rates, low consumer confidence, and the rise of challenger banks (offering better value, and perhaps an opportunity for revenge). Second, the public sector; while resilient post ‘crash’, public sector GVA declined from 26 to 22% of the service economy from 2000-2017. However, hours worked remained c. 28% throughout the period. Thus output per hour has fallen and remains subdued.
Conversely, some service sectors have over-performed: services businesses (including rental, building and employment services), real estate, IT (including media and telephony), and other services (includes scientific, technical, law, accounting, advertising and consulting professions) (Figure 8). However, growth for all but two remains below the historic trend line. Growing most strongly, are IT (reflecting many new markets and growing customer penetration), and service businesses. Some services businesses, such as employment, advertising, consulting, and media firms, were highly responsive to changes in the economic environment. They quickly laid off staff or reduced hours or salaries, and vice versa, to maintain competitiveness and profitability. Many are also highly reliant on people, particularly well-educated people, to deliver services. Also on personal relationships to drive demand, rather than mass marketing, and the Internet.
Since 2007 the UK has experienced major sociological shifts, ‘belt-tightening’ societal pressure, and the rise of online channels. The financial crisis of 2008 also seems to coincide with a tipping point in the rise of the Internet. In 2000, just 27% of the UK population had Internet access, and fast speeds were non-existent. In 2007, 75% of the population had Internet access, and 50% received broadband at an average speed of 4.6 Mb/second. The first iPhone also launched in 2007. Yet today UK Internet penetration is over 90%, and average download speeds are 45-47 Mb/second (4). The first iPhone also launched in 2007 yet today 80% own a smartphone.
Aided also by the growing number of comparison sites, there is an increasing and high propensity for customers to compare and hunt lower prices (up to 30% less) online.
Thus online purchasing has grown significantly from just 3.4% of retail sales in 2007 to nearly 18% in mid 2018. Further looking at trends (Figure 9), overall retail sales since 2007 remain below the overall output trend line. And retail sales excluding online sales, even further below the trend line. The pattern of decline is almost a mirror image of the growth in Internet users.
The convenience and financial benefits of shopping online enabled by increasing broadband and mobile penetration continue to drive online sales growth at the expense of ‘bricks and mortar’ retailers. Black Friday appeared in the UK in 2009 championed by etailers such as Amazon, eBay, and others. It was also spurred by Asda in 2013. However in 2015 Asda de-clined to participate, announcing that their customers preferred year-round deals rather than a single day of discounting. Reading between the lines, this suggests the event had little effect on Asda’s bottom line. Perhaps merely serving to bring forward demand. Conversely, etailers have experienced significant sales and growth.
The UK branch of Amazon EU alone amassed £21 billion sales in 2017, +80% over 3 years (and equivalent to £7.5m per employee). However, as this Amazon business is based in Luxembourg these sums are largely removed from the UK’s accounts.
While the wholesale/retail sector only accounts for a 10-11% of total output, other sectors such as real estate, hotels/catering, recreation, transport, and finance /insurance markets, also have burgeoning online sectors. And the last decade or so has seen online challenger brands enter and grow share in other markets too. Examples include Rightmove in real estate, Booking.com in travel/hotels, a myriad of flight search engines, Confused.com and ComparetheMarket.com in finance and insurance, and uswitch.com in energy.
The growth of online therefore appears to coincide with the removal of a significant chunk of income from the UK economy.
Figures were first recorded for digital advertising expenditure in 2005. In 2005 spending was just under £600m (some 5% total advertising expenditure). In 2007 digital advertising spend was 9% of the total, and by 2017, 28% of the total (£5.7bn). This is a growth index of 474 vs. 2007 (Figure 10).
While online advertising potentially influences all purchases, growth better correlates with online sales rather than total output (Figure 10). While online advertising potentially drives income, it is also a cost, and only adds to profits if extra income generated exceeds extra costs. It remains to be seen whether this level of online advertising is sustainable (6-8% income) and grows margins.
What we do know however, is that a very great proportion of online advertising income is also due to US owned Google and Facebook – both based in Ireland. Google Ireland’s turnover is £27.5bn (£9.2m/employee) and Facebook Ireland’s turnover is £16bn (£4m/employee). Again this suggests a significant chunk of UK advertising output has shifted offshore.
Now let’s return to the role of internal business influences on productivity (Figure 11). In 2016, the ONS surveyed management practices among 25,000 firms. The so-called ‘management practice’ score is an aggregate of several measures including practices relating to continuous improvement and employment management – such as those relating to promotions, performance reviews, training and managing under-performance. In the questions, a score of 1 is assigned to the most structured management practice and 0 the least. The mean score across all organisations was 0.49. Their analysis found a statistically significant correlation between management practices and labour productivity, with an increase in management score of 0.1 associated with a 9.6% increase in productivity.
The analysis also shows a statistically significant relationship between management practices, the size of a firm, and productivity. Further analysis also reveals that family firms have lower management practice scores and productivity than non-family or foreign-owned firms. Management scores are also higher for the real estate, service business, and other services (scientific and technical) businesses. A higher incidence of degree-level staff is also associated with a higher management practice score and greater productivity.
Finally, we explore the effect of hours spent online at work to see if this has any bearing on productivity (Figure 12). Since 2007 the number of hours spent online at work (or in education) doubled from 3.3 hours (10% total in 2007) to 6.6 hours (20% total in 2017) (6).
While we cannot precisely quantify productivity in those hours, some research raises questions. Asked whether ‘I feel more productive without the Internet’, 10% of adults 16+, and 15% of those aged 18-34 answered ‘yes’ (6). Recent announcements that Wetherspoons, and Lush Cosmetics, are closing their social media accounts, also confirms (at least for them) that the marketing time-costs fail to outweigh the benefits. And if marketers are failing to realise benefits, it raises the question are you?
What do you think?
(1) Patterson, Peter, Deputy Chief Economist, Office for National Statistics, The Productivity Conundrum, Explanations and Preliminary Analysis, 2012
(2) Organisation for Economic Development (OECD)
(3) Camus, Dawn, Editor, The ONS Productivity Handbook – A Statistical Overview and Guide, 2007
(4) UK Fixed Line Broadband Performance (Residential), OFCOM, November 2017
(5) Management and Expectations Survey, Office of National Statistics and Economic Statistics Centre of Excellence (ESCoE), 2016
(6) Communications Market Report, OFCOM, August 2018
Thanks to the UK productivity team at the Office of National Statistics for answering our questions and helping with our analysis. Also to fellow marketing consultants at The Marketing Directors, Chris West, and Tim Arnold. To anyone wishing to build on this analysis, please do. We’re also happy to share our datasets and insights to help you.
On June 23rd 2016 the UK decided to leave the EU. So what does this mean for UK businesses and marketers? The consensus expect a period of uncertainty as everyone digests the facts, and devise strategies to manage the risks and plan a way forward. But with Brexit looming on Dec 31st, it’s now time to embrace the world.
The trade barriers erected around the EU protect EU businesses from global competitive pressures. As a result they cause ‘flabby’ rather than ‘fit’ competitors. The UK has a proud history as a free trading nation and being ‘open for business’. Thus UK business should be materially ‘fit’ to compete in unfettered markets. Also to attract inward investment.
According to the IMF (1) the world economy was worth $73.2 billion with the EU accounting for $16.2bn (22%) (Figure 1) in 2015. Thus the rest of the world accounts for the larger proportion (78%), with the USA, China and Japan, being the largest markets.
Moreover, emerging markets are forecast to grow faster than the developed markets, and China and India will both reach the top 3 by 2030 (Figure 2). There are many opportunities to grasp.
As marketers we know that the most successful businesses are those that understand and meet the needs of their customers. Thus investing in research and marketing to better understand and meet future customers’ needs, and build relationships and value makes sense.
1. To best manage the risks, and realise opportunities don’t leave Brexit planning until the 11th hour. Develop a clear business plan now. Also make clear that you are open for business as usual, and that you value your relationships. Take steps to strengthen relationships with overseas suppliers and customers too. There is reassurance and value in relationships.
2. Keep searching for win-win opportunities to sell, invest and buy. Also acquire knowledge to build competitive advantage. Use research to uncover insights and and realise short and long term opportunities.
3. Have no fear. The fittest or most able will be the most successful. So stay true to good business and marketing principles; understand customer needs, and demonstrate and deliver value in meeting needs.
4. For any business that considers themselves unfit, start Brexit planning to get fit wisely. In particular, to maximise the value of your offer.