The profitability of purpose

Last year, New Zealand retail giant The Warehouse announced it would stop selling all R18 games and DVDs in its 92 Warehouse and 77 Noel Leeming stores after concern over controversial scenes in the latest edition of Grand Theft Auto. It was a move that surprised both share-holders and commentators alike. But chief executive Mark Powell said the decision was driven by the company’s guiding principles and purpose, which include “making New Zealand a better place to live”

The Warehouse move was significant, because it put people before profits. The decision to pull R18 games from its shelves will reportedly cost the company in the region of $1 million. Alongside this, in August, The Warehouse also announced that it would introduce a ‘living wage’ for 4,100 of its retail staff, going above and beyond the legally required minimum, and guaranteeing an hourly rate of at least $18.50, at a cost of $6 million dollars to the business. But will these choices really prove to be expensive decisions for the retailer? Or will the fact that The Warehouse has remained true to its higher company purpose, deliver greater returns for the brand in the long term?

Research on the world’s 50 fastest growing brands, by Procter & Gamble’s former global marketing officer, Jim Stengel, found a cause-and-effect relationship between a brand’s ability to serve a higher purpose and its financial performance. Identified in his book Grow, Stengel published a list of 50 brands that have built the deepest relationships with customers while achieving the greatest financial growth from 2001-2013. Furthermore, investment in these companies known as ‘the Stengel 50’ would have proven 400 percent more profitable over the last decade than an investment in the S&P 500.

The research also identified that the fastest growing 50 brands touch on five fundamental human values:

·      Impacting Society: Affecting society broadly, from challenging the status quo to redefining categories.

·      Evoking Pride: Giving people increased confidence, strength, security and vitality.

·      Enabling Connection: Enhancing the ability of people to connect with each other and the world in meaningful ways.

·      Inspiring Exploration: Helping people explore new horizons and new experience.

·      Eliciting Joy: Activating experiences of happiness, wonder, and limitless possibilities.

Prior to the global financial crisis, it seemed that all a brand had to do was focus on increasing profitability, no matter the cost. These days, people are far more discerning about when and how often they spend. To secure their share of wallet in a post GFC world, brands need to be able to demonstrate more than just an ability to ‘take costs down’ and have a clear purpose that goes beyond ‘selling more stuff’. Brands need to stand for something customers actually care about and then tangibly demonstrate that they share the same ideals as their consumers. If they can achieve this, then as Stengel’s research suggests, their customers will return the favour.

Time will tell if The Warehouse’s customers will do the same. Whatever the outcome, Powell’s decisions to stay true to purpose over short-term profit, is a bold and positive move for our market.

  • Janisa Parag is a senior brand strategist at Saatchi & Saatchi.
  • This article originally appeared on saatchi.co.nz/thinking

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