The keys to successful portfolio strategy against economic uncertainty
While many countries are seeing the rate of inflation slow, the cost-of-living crisis remains the biggest worry for many. It is the number one concern in our What Worries the World survey, where it has been for the last 22 consecutive months.
Even during periods of economic downturn and slow growth, Ipsos’ Innovation Testing database suggests that consumers are still receptive to innovation during tough times, as their status quo and behavior significantly shift. We have found that innovations introduced during crises or period of higher inflation had a greater rate of success, emphasizing the importance of continuous innovation, despite perceived affordability challenges.
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Indeed, personal changes and disruptions, like those experienced during the Covid-19 pandemic, have a big impact on consumer behaviour. Rapid adjustments during a crisis provide chances for adaptive marketers. Economists agree that an impending downturn will affect consumers in varied ways, with inflation spurring needed stockpiling and recessions disproportionately impacting lower socioeconomic groups.
Certainly, both inflation and recession scenarios impact consumer purchasing power and confidence, heightening price sensitivity. During economic downturns, consumers' rational behavior often leads to SKU proliferation, which could potentially erode profitability. SKU rationalization, involving the elimination of underperforming variants and the introduction of stronger ones, helps maintain efficiency. As consumer incomes shrink, they favor less elastic categories like basic food and home care products, leaving more substitutable categories vulnerable to reduced consumption.
Mitigation strategies include business model innovations, such as Pret-A-Manger's monthly coffee subscriptions, 'buy now' tactics, such as introducing value-sized packages, and catering to growing segments, as seen in Coca-Cola and McDonald's diversifying their offerings for health-conscious consumers.
During economic downturns, premium brands can employ strategies like emphasizing product superiority, affordable indulgences, and launching 'fighter variants'. Innovation during these times can fortify brands. Foresighted marketers utilize challenges as opportunities, using tools for growth strategies. Newly formed consumer habits, like online shopping, present opportunities. Marketers should also identify and quickly seize transient opportunities in their evolving competitive landscapes.
Consumer spending cuts impact various sectors differently based on their elasticity. Brands can capitalize on adjacent growth areas in declining sectors, while premium brands at risk can explore cheaper yet high-end categories, considering potential equity impacts. Amid economic downturns, focusing on long-term goals, like Netflix and Honda Civic did during past crises, can give a competitive edge. Resilience, research, and proactive innovation can turn risks into opportunities.
