Focusing the Brand for the Coming Recovery

Focusing the Brand for the Coming Recovery

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  Point of view Focusing the Brand for the Coming Recovery CONSUMER Is there a glimmer of light on the horizon? Perhaps. There are GOODS certainly glimmers of optimism that the worst recession since S E CTO R the 1930’s1 may be abating, yet unemployment is still on the increase and consumer spending continues to be noticeably down, wreaking havoc on economies and confounding Marketers. The ultimate outcome and timeframe may still be uncertain, but what is clear is that this recession is not merely deep; it is creating a sea-change in consumer behavior. By all accounts we are witnessing what economists term a ‘structural break’– a concept popularized by David Hendry meaning an unexpected shift in a macroeconomic time series.This break represents the discontinu- David Pring Executive Vice President, ity of a trend whose origin dates back to the post-war boom of Head of Global Client Development, the 1950s. While we will hopefully see a return to some measur- Ipsos Marketing, Consumer Goods Sector able degree of growth in the next year or so, the behavioral [email protected] changes are considerable such that traditional notions of consumer behavior and market segments may no longer be valid. The world that the Marketer is likely to find post-recession therefore may be very different from the one before. As Richard Rumelt cites in his paper Strategy in a Structural Break, “Old sources of competitive advantage weaken and new sources appear. Afterwards, upstarts can leap ahead of seemingly entrenched players. 2 He is not the only economist who points ” out that continuing to do things in the same way has proven unsuccessful, and that the traditional moves of reducing fixed costs, scope and variety are insufficient. What, then, can Marketers do to position their brands for growth in the coming recovery? August 2009 For more Ipsos Marketing POVs, visit www.ipsosmarketing.com/knowledgecenter © 2009, Ipsos
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  Focusing the Brandfor the Coming Recovery Look to New Horizons goods purchasing has begun to have a ripple effect In past recessions when sales and margins were in on once booming markets such as BRIC. decline, Marketers looked for tactical efficiencies, cut- The effect of the recession on the consumer mindset is ting back wherever possible and reducing advertising reflected in decreased levels of consumer confidence. and marketing spending. However, there is abundant Although consumer confidence has stabilized in the evidence that those companies that brand build, inno- past six months with around 29% of consumers saying vate, advertise and take a long-term perspective are the economic situation in their country is “very good” stronger and more successful as they or “somewhat good, 8 this reflects ” emerge from recession.3 According to “The consumer a drop from 54% from April 2007 John Quelch of the Harvard Business to December 2008. One figure that you thought School, “It is well documented that does not appear to have changed, brands that increase advertising dur- you knew, however, is the 73% of consumers ing a recession, when competitors are pre-recession, who have cut back on spending – cutting back, can improve market share can be almost with an average of 41% cutting back and return on investment at lower unrecognizable. on basic groceries. “Less, “simplicity” ” cost during good economic times. 4 ” and “essentials” are now the watch- When times get Although there is certainly evidence words of the contemporary consumer. tough, people Marketers are noticing the shift – and of a number of blue chip companies that have cut back on marketing re-examine old taking action. For example, P&G’s costs, a July 2009 survey by the Fuqua habits and plans include focusing its advertising School of Business of Duke University brand loyalties. ” on the value message.9 projects marketing spending by — Best Global Brands, And, there is a realization that post- major US corporations to increase by BusinessWeek, 2008 modernist consumerism is now out- 1.1% compared with only 0.5% six of-hand and it is time to reel in the months ago.5 It would seem that companies may at excesses. This is not merely from an economic perspec- last be heeding, at least in part, to past experience tive, but also from the viewpoint of health and well- showing brands that change strategy, pander to short- ness, environmental sustainability and the financial term needs and reduce marketing expenditure increase crisis engendering “cutting back” as a new expression their likelihood of failure. One example is Unilever, of political correctness. In parallel, a finding that 40% who recently beat market expectations with a rise in of consumers disagree that a company with a good quarterly sales, due in part to increased advertising reputation would not sell poor products,10 illustrates and promotion spending. 6 that the events of the past years have rocked consumer confidence and trust. Prepare for a New World The reinstatement of consumer confidence will be As we pick up the pieces from the recession and enter lengthy and the recessionary mindset, one that focuses a period of recovery, Marketers can expect to be more on essential values, may therefore exist well challenged by new consumer mindsets and altered beyond economic recovery. “The consumer you thought brand landscapes. you knew, pre-recession, can be almost unrecogniz- Reassess the New, Post-Recession Consumer able. When times get tough, people re-examine old The Baby Boomers who benefited from, and have habits and brand loyalties. 11 ” driven, much of the prolonged economic prosperity Understand the Role of Value since the post-World War II era have been one of the key segments impacted by the economic crisis. The There is little doubt that the traditional brand is under core of solid consumer spending in decades past, they greater threat today than possibly ever before – espe- are now faced with modifying their retirement years to cially from private label brands. Mintel reports that in accommodate the new economic reality. At the other 2008 US private label food sales grew by 9.3% versus end of the age spectrum, Gen-Y is also far from immune: 4.5% for branded food product sales.12 And, while the their road to prosperity is by no means guaranteed. For trend is slowing somewhat, an 8.1% private label food example, under-25 year olds in the principal European growth rate is predicted for 2009. The phenomenon is countries are experiencing unemployment levels three widespread. The Ipsos Economic Crisis Monitor shows to four times higher than the general population.7 Nor that one third of French consumers expect to buy will growth in emerging economies pick up the slack major brands less often, while a similar number expect as much as was hoped, as a slowdown in consumer their purchase of private label brands to increase.13 –2– © 2009, Ipsos
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  Focusing the Brandfor the Coming Recovery Similar trends are seen for other developed markets, Figure 1 including the US, UK, Germany, Italy and Spain. Brand’s DNA It is not solely price that attracts consumers to private label brands. Neither is it just about what is inside the The Body of the Brand The Soul of the Brand package, although private label product quality has significantly improved in the last few years. Instead, it is about the total brand value experience. Costco, Trader Emotional Needs Functional Properties Feelings evoked by the Joe’s, Whole Foods, Aldi, Tesco (where 50% of its sales Competency of the brand: brand: How does the What is the brand good at? brand make the user feel/ are private label) and Wal-Mart (its “Great Value” brand what does the brand says it all) are examples of retailers that have trans- help the user to achieve? ferred significant parts of their own equity to the prod- ucts they sell. Add to this the behavioral, attitudinal Brand Image Personality Image of the brand: Character of the brand: and need state changes brought on by the recession What does the brand stand for/ What does the brand what kind of image does say about the user and the brand landscape is changing. the brand convey? of the brand? There is no more critical time than now for Marketers to truly diagnose how their brands are currently per- Brand equity is also conditioned by perceived price, ceived by consumers and, importantly, how they can be which in turn affects brand value and choice. It is positioned for future growth in the brave new world. therefore important to explore the role of price and how it relates to the body and soul drivers which a Establish What Drives the Brand brand can modify to improve its position. As has been Turning to more traditional analytic tools such as seen in the marketplace, several CPG companies have market analysis, attitude and usage studies and seg- struggled to determine whether to hold prices steady mentation research will not provide the complete during the recession or to play the price game and answer on how to grow a brand during recovery. adopt a more tactical approach. But how much consid- This is because such approaches generally reflect the eration has been given to the longer term post-reces- current and, more often, the past perspective and sion implications? A price reduction for a ‘quick-fix’ lack any predictive capability. Marketers really need increase in share is very attractive. It is the easiest to to know: implement with minimal cost involved – however, it may deteriorate profitability. Conversely, changes in • What truly drives the brand, and how this relates to brand positioning, although difficult to implement and current and future brand equity with associated, sometimes high, cost will likely have • The implications for customer loyalty, and how this longer term impact on brand loyalty. Because price ultimately translates into potential share and ROI interacts with all of the other components that make Re-Evaluate Brand Perception up brand equity and hence perceived value, there is the need to achieve a balance between short-term sales Re-evaluating the brand through the consumer lens during a recession and the long-term post-recession is a necessity. This means profiling the brand’s DNA, position of the brand. This is the benefit of adopting a as defined by its body and soul. (See Figure 1.) The more holistic approach that takes into account both a ‘body’ comprises two key elements: the functional brand’s DNA and the role of price. Based on extensive properties that define a brand’s performance (what it R&D, we have been able to develop such an approach is good at, such as “cleaning power” or “rich taste”) (embodied in our PERCEPTOR®Plus model) that can and its image (what it stands for, such as “traditional” determine 85% to 95% of brand choice from the or “cutting edge” qualities). These are aspects that contribution of such brand drivers and price in a Marketers typically examine in traditional strategic competitive context. overviews. The body of the brand is a key component, often accounting for 60% to 70% of brand equity. Utilize Forward-Looking Tools However, it is the ‘soul’ where the brand comes to life Simply profiling a brand’s DNA without the ability to meeting consumers’ emotional needs (evoking feelings look forward and dynamically predict the impact of such as “makes me look younger” or “gives me confi- change limits the opportunity for effective brand dence”) together with the associated personality of building in the post-recession recovery. Understanding, the brand (what the brand says about the user, for retaining and building customer loyalty around an example, “youthful, “fun”) that contribute to the bal- ” optimized brand positioning is imperative, especially ance of brand preference and where differentiation in an environment where there has been significant can be established. attitudinal and behavioral change. –3– © 2009, Ipsos
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  Focusing the Brandfor the Coming Recovery This is where understanding the relationship that the About Ipsos Marketing individual consumer has with the brand is critical and Ipsos Marketing – The Innovation and Brand Research leads to the application of individual-level consumer Specialists – is the Ipsos brand for Marketing Research. modeling. Our R&D indicates that individual-level Ipsos Marketing operates under a global structure that models are at least 30% more accurate than aggre- brings clients unequalled research expertise through- gate-level modeling in predicting consumer behavior. out their innovation and brand development process. Aggregate-level modeling often exaggerates the effect Supported by specialized teams, Ipsos Marketing offers of changes to brand drivers – pushing overall prefer- in-depth understanding of the drivers of consumer ence to unreasonably high levels. Realistically, even choice and of the marketing challenges faced by our major changes to brand drivers, for example, improv- clients. Our experts provide integrated qualitative and ing “makes me feel refreshed” or “gives me confidence quantitative research solutions, as well as advanced to get through the day” will likely interact with other modelling and forecasting techniques that include attributes and together result in only relatively minor simulations and linkages to in-market data. shifts in share (usually low single-digit). Ipsos Marketing is a specialization of Ipsos, a global In terms of effectively segmenting consumers into survey-based market research company that offers loyalty groups, an affinity model that links brand equity expertise in advertising, customer and employee loyalty, and value drivers should be used. Moreover, it is critical marketing, media, and public affairs research. that inertia – the degree to which it is easy or difficult for an individual consumer to switch from one brand Ipsos is present in 64 countries, with a leading position to another – is factored into the model. Inertia can be in both mature and emerging markets. In 2008, it conditioned by everything from pure habit, creating achieved global revenues of 979.3 million euros, Mar- almost Pavlovian-like responses, to more promiscuous, keting research contributing to 48% of Ipsos’ total variety-seeking behavior. But as we have seen, a reces- global revenues. sionary structural break can have significant effect on Visit www.ipsosmarketing.com to learn more. the inertia dynamic, quickly changing both actual and potential behavior. References 1 The US National Bureau of Economic Research. December 2008. By utilizing an affinity modeling approach and equating Determination of the December 2007 Peak in Economic Activity. level of brand value with propensity to switch, loyalty 2 Rumelt, Richard P. 2009. Strategy in a Structural Break. segments – from the deeply entrenched and the com- The McKinsey Quarterly, 2009, Number 1. mitted, to the shallower and the relatively discon- 3 Bane, Brad and Carter, John. February 2009. Innovation Lessons from Prior Recessions, Ipsos Marketing Point of View. nected – can be identified. This approach (which is 4 John Quelch, Senior Associate Dean and Lincoln Filene Professor incorporated in PERCEPTOR®Plus) provides the basis of Business Administration. March 3, 2008. Marketing Your Way for optimizing brand positioning and developing Through a Recession. Working Knowledge, Harvard Business School. retention and acquisition strategies for both core and 5 Christine Moorman, Lead Researcher and T. Austin Finch, Senior Professor of Business Administration. August 2009. The CMO Survey. potential customers. The Duke University Fuqua School of Business. Seeing the Light 6 Thompson, J. August 7, 2009. More Marketing Boosts Unilever Results. BusinessWeek. While these are still the dark hours before the dawn of 7 Scott, M. August 3, 2009. Europe: The Young and the Jobless. economic recovery, there is now a glimmer of light BusinessWeek. 8 Ipsos Global @dvisor Surveys. 2008 –2009. on the horizon. But, there is indication that the new 9 Wong, E. January 30, 2009. P&G: Value Messaging Will Drive Growth. day will be founded on new and different consumer BusinessWeek. behavior. The extent to which the sun will shine on 10 Ipsos Global @dvisor. May 2009. yesterday’s brands will depend on how well the 11 Best Global Brands. September 18, 2008. BusinessWeek. Marketer rides the current storm and predicts the 12 Mintel Press Release. July 2009. Mintel GNPD: Private Label Food weather of tomorrow. Manufacturers Focus on Quality, Convenience, Health. 13 Ipsos Economic Crisis Monitor: Monthly survey of consumers in France, UK, Germany, Spain, Italy and the US. 2009. www.ipsosmarketing.com –4– © 2009, Ipsos 0 9 - 0 8 - 1 6