Focusing the Brand for the Coming Recovery

Is there a glimmer of light on the horizon? Perhaps. There are certainly glimmers of optimism that the worst recession since the 1930s may be abating and a recovery is just around the corner. What, then, can Marketers do to position their brands for growth in the coming recovery?

Look to New Horizons

In past recessions when sales and margins were in decline, Marketers looked for tactical efficiencies, cutting back wherever possible and reducing advertising and marketing spending. However, there is abundant evidence that those companies that brand build, innovate, advertise and take a long-term perspective are stronger and more successful as they emerge from recession. ¹ According to John Quelch of the Harvard Business School, "It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost during good economic times." ²

Although there is certainly evidence of a number of blue chip companies that have cut back on marketing costs, a July 2009 survey by the Fuqua School of Business of Duke University projects marketing spending by major US corporations to increase by 1.1% compared with only 0.5% six months ago.³ It would seem that companies may at last be heeding, at least in part, to past experience showing brands that change strategy, pander to short term needs and reduce marketing expenditure increase their likelihood of failure. One example is Unilever, who recently beat market expectations with a rise in quarterly sales, due in part to increased advertising and promotion spending.⁴

Prepare for a New World

As we pick up the pieces from the recession and enter a period of recovery, Marketers can expect to be challenged by new consumer mindsets and altered brand landscapes.

Reassess the New, Post-Recession Consumer

The Baby Boomers who benefited from, and have driven, much of the prolonged economic prosperity since the post-World War II era have been one of the key segments impacted by the economic crisis. The core of solid consumer spending in decades past, they are now faced with modifying their retirement years to accommodate the new economic reality. At the other end of the age spectrum, Gen-Y is also far from immune: their road to prosperity is by no means guaranteed. For example, under-25 year olds in the principal European countries are experiencing unemployment levels three to four times higher than the general population.⁵ Nor will growth in emerging economies pick up the slack as much as was hoped, as a slowdown in consumer goods purchasing has begun to have a ripple effect on once booming markets such as BRIC.

The effect of the recession on the consumer mindset is reflected in decreased levels of consumer confidence. Although consumer confidence has stabilized in the past six months with around 29% of consumers saying the economic situation in their country is "very good" or "somewhat good,"⁶ this reflects a drop from 54% from April 2007 to December 2008. One figure that does not appear to have changed, however, is the 73% of consumers who have cut back on spending - with an average of 41% cutting back on basic groceries. "Less," "simplicity" and "essentials" are now the watchwords of the contemporary consumer. Marketers are noticing the shift - and taking action. For example, P&G's plans include focusing its advertising on the value message. ⁷

And, there is a realization that postmodernist consumerism is now out-of-hand and it is time to reel in the excesses. This is not merely from an economic perspective, but also from the viewpoint of health and wellness, environmental sustainability and the financial crisis engendering "cutting back" as a new expression of political correctness. In parallel, a finding that 40% of consumers disagree that a company with a good reputation would not sell poor products,⁸ illustrates that the events of the past years have rocked consumer confidence and trust.

The reinstatement of consumer confidence will be lengthy and the recessionary mindset, one that focuses more on essential values, may therefore exist well beyond economic recovery. "The consumer you thought you knew, pre-recession, can be almost unrecognizable. When times get tough, people re-examine old habits and brand loyalties." ⁹

Understand the Role of Value

There is little doubt that the traditional brand is under greater threat today than possibly ever before - especially from private label brands. Mintel reports that in 2008 US private label food sales grew by 9.3% versus 4.5% for branded food product sales.¹⁰ And, while the trend is slowing somewhat, an 8.1% private label food growth rate is predicted for 2009. The phenomenon is widespread. The Ipsos Economic Crisis Monitor shows that one third of French consumers expect to buy major brands less often, while a similar number expect their purchase of private label brands to increase. ¹¹

Similar trends are seen for other developed markets, including the US, UK, Germany, Italy and Spain.

It is not solely price that attracts consumers to private label brands. Neither is it just about what is inside the 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 Joe's, Whole Foods, Aldi, Tesco (where 50% of its sales are private label) and Wal-Mart (its "Great Value" brand says it all) are examples of retailers that have transferred significant parts of their own equity to the products they sell. Add to this the behavioral, attitudinal and need state changes brought on by the recession and the brand landscape is changing.

There is no more critical time than now for Marketers to truly diagnose how their brands are currently perceived by consumers and, importantly, how they can be positioned for future growth in the brave new world.

Establish What Drives the Brand

Turning to more traditional analytic tools such as market analysis, attitude and usage studies and segmentation research will not provide the complete answer on how to grow a brand during recovery.

This is because such approaches generally reflect the current and, more often, the past perspective and lack any predictive capability. Marketers really need to know:

• What truly drives the brand, and how this relates to current and future brand equity
• The implications for customer loyalty, and how this ultimately translates into potential share and ROI

Re-Evaluate Brand Perception

Re-evaluating the brand through the consumer lens is a necessity. This means profiling the brand's DNA, as defined by its body and soul. (See Figure 1.) The `body' comprises two key elements: the functional properties that define a brand's performance (what it is good at, such as "cleaning power" or "rich taste") and its image (what it stands for, such as "traditional" or "cutting edge" qualities). These are aspects that Marketers typically examine in traditional strategic overviews. The body of the brand is a key component, often accounting for 60% to 70% of brand equity. However, it is the `soul' where the brand comes to life meeting consumers' emotional needs (evoking feelings such as "makes me look younger" or "gives me confidence") together with the associated personality of the brand (what the brand says about the user, for example, "youthful," "fun") that contribute to the balance of brand preference and where differentiation can be established.

Brand equity is also conditioned by perceived price, which in turn affects brand value and choice. It is therefore important to explore the role of price and how it relates to the body and soul drivers which a brand can modify to improve its position. As has been seen in the marketplace, several CPG companies have struggled to determine whether to hold prices steady during the recession or to play the price game and adopt a more tactical approach. But how much consideration has been given to the longer term post-recession implications? A price reduction for a `quick-fix' increase in share is very attractive. It is the easiest to implement with minimal cost involved - however, it may deteriorate profitability. Conversely, changes in brand positioning, although difficult to implement and with associated, sometimes high, cost will likely have longer term impact on brand loyalty. Because price interacts with all of the other components that make up brand equity and hence perceived value, there is the need to achieve a balance between short-term sales during a recession and the long-term post-recession position of the brand. This is the benefit of adopting a more holistic approach that takes into account both a brand's DNA and the role of price. Based on extensive R&D, we have been able to develop such an approach (embodied in our PERCEPTOR174Plus model) that can determine 85% to 95% of brand choice from the contribution of such brand drivers and price in a competitive context.

Utilize Forward-Looking Tools

Simply profiling a brand's DNA without the ability to look forward and dynamically predict the impact of change limits the opportunity for effective brand building in the post-recession recovery. Understanding, retaining and building customer loyalty around an optimized brand positioning is imperative, especially in an environment where there has been significant attitudinal and behavioral change.

This is where understanding the relationship that the individual consumer has with the brand is critical and leads to the application of individual-level consumer modeling. Our R&D indicates that individual-level models are at least 30% more accurate than aggregate-level modeling in predicting consumer behavior.

Aggregate-level modeling often exaggerates the effect of changes to brand drivers - pushing overall preference to unreasonably high levels. Realistically, even major changes to brand drivers, for example, improving "makes me feel refreshed" or "gives me confidence to get through the day" will likely interact with other attributes and together result in only relatively minor shifts in share (usually low single-digit).

In terms of effectively segmenting consumers into loyalty groups, an affinity model that links brand equity and value drivers should be used. Moreover, it is critical that inertia - the degree to which it is easy or difficult for an individual consumer to switch from one brand to another - is factored into the model. Inertia can be conditioned by everything from pure habit, creating almost Pavlovian-like responses, to more promiscuous, variety-seeking behavior. But as we have seen, a recessionary structural break can have significant effect on the inertia dynamic, quickly changing both actual and potential behavior.

By utilizing an affinity modeling approach and equating level of brand value with propensity to switch, loyalty segments - from the deeply entrenched and the committed, to the shallower and the relatively disconnected - can be identified. This approach (which is incorporated in PERCEPTOR174Plus) provides the basis for optimizing brand positioning and developing retention and acquisition strategies for both core and potential customers.

Seeing the Light

While these are still the dark hours before the dawn of economic recovery, there is now a glimmer of light on the horizon. But, there is indication that the new day will be founded on new and different consumer behavior. The extent to which the sun will shine on yesterday's brands will depend on how well the Marketer rides the current storm and predicts the weather of tomorrow.

Footnotes

¹Bane, Brad and Carter, John. February 2009. Innovation Lessons from Prior Recessions, Ipsos Marketing Point of View.

²John Quelch, Senior Associate Dean and Lincoln Filene, Professor of Business Administration. March 3, 2008. Marketing Your Way Through a Recession. Working Knowledge, Harvard Business School.

³Christine Moorman, Lead Researcher and T. Austin Finch, Senior Professor of Business Administration. August 2009. The CMO Survey. The Duke University Fuqua School of Business.

⁴Thompson, J. August 7, 2009. More Marketing Boosts Unilever Results. BusinessWeek.

⁵Scott, M. August 3, 2009. Europe: The Young and the Jobless. BusinessWeek.

⁶Ipsos Global @dvisor Surveys. 2008-2009.

⁷Wong, E. January 30, 2009. P&G: Value Messaging Will Drive Growth. BusinessWeek.

⁸Ipsos Global @dvisor. May 2009.

⁹Best Global Brands. September 18, 2008. BusinessWeek.

¹⁰Mintel Press Release. July 2009. Mintel GNPD: Private Label Food Manufacturers Focus on Quality, Convenience, Health

¹¹Ipsos Economic Crisis Monitor: Monthly survey of consumers in France, UK, Germany, Spain, Italy and the US. 2009.