Recession Marketing: New Game. New Rules
Jul, 2009
By Jody Evans
Senior Lecturer - Marketing, PhD Co-ordinator
Knee jerk reactions by nervous marketers are pushing Australian consumers more deeply into recession.
But as marketers, are we simply catastrophising the situation and in so doing are we talking ourselves into a recession?
Part of what's in doubt now, is whether Australia is going to be as hard hit as the US. This is where Australian marketers have to be cautious.
Research in this area has found now is not the time to put the brakes on. It is about moving forward and minimizing your exposure to the financial crisis while seeking new opportunities.
Paying attention to the five Rs of marketing will help you focus your efforts
The first R is research. Before you make any drastic changes to strategy or tactics, you need a good understanding of your customer, which requires solid research.
The US-based CMO of Kraft Foods talked about the need for marketers to walk a mile in their customers' shoes. She now suggests that you have to walk two miles in your customers' shoes.
Doing your focus groups is a must. Talk to your core customers about how they're feeling, how they are behaving, where they are spending and about their big issues.
Go the extra mile and talk about how their spending has been affected, how much debt are they are in, how much money they have left over each week and what that means to your brand.
This is a basic requirement that's not expensive or time consuming in a climate where you're also cutting your marketing budget.
As a result of its focus groups, Kraft's new brand proposition around Kool-Aid is that it is one third the cost of soda. This is a clear value message for today. They've also come out with the "one bag, five dinners" proposition, meaning one bag of groceries will give you five dinners for the week.
This is very similar to Coles' "Feed four for under $10" campaign right now.
Understanding the psychology of customers today helps you make the right strategy decisions and avoid the discount trap.
The natural inclination in this climate is to say, we need sales, sales aren't eventuating, how are we going to get them, we need to move stock, we need to get rid of inventory, let's discount.
The problem is that you are fundamentally changing the psyche of consumers-to buy on discount-which might not be a short-lived change. When things improve your margins may not recover because consumers won't buy unless it's on sale.
A number of premium luxury departments in the US fell into this trap, particularly Saks Fifth Avenue when it offered discounts of 70%. This actually damaged its brand because its customers felt they'd been ripped off in the past and they lost faith in the brand. It is difficult to recover after that sort of pricing strategy.
Normal sales and normal discounts are fine but deep discounting screams desperation and customers worry about whether you've got a future. They only want to shop with brands that have longevity and that they trust.
Doing the right research means you can come up with a much more relevant value proposition that isn't necessarily about discounting.
The latest research from Harvard Business Review has identified four new segments of the recession market.
There is the ‘slam on the brakes' segment who feel the hardest hit by the recession. They are the ones who have been retrenched and they are cutting all types of expenditure across the board.
There is the ‘pained but patient' segment who have probably lost the value of their super and maybe lost a bit of wealth in terms of their shares, but they are not facing unemployment so they are fairly resilient and optimistic about the long term. But in the short term they are less confident and a lot more cautious so they're economising. taking longer to make decisions and scrutinising every decision they make for good value.
There is the ‘comfortably well off' segment. They feel secure-they're earning at the same level they always were and they are consuming at near pre-recession levels. The difference is that they are more selective and less conspicuous. Today it's considered poor taste to be seen to be consuming expensive products, so these people are moving more towards online purchases.
Finally there is the ‘live for today' segment. They remain fairly unconcerned about saving and they continue to buy their favourite brand at pre-recession levels. The main shift for them is that they now extend the timetable for major purchases or buy on 24 months interest free.
So there's this interesting psychological affect of the recession-a fundamental shift in consumer values and attitudes-which isn't necessarily directly linked to whether you are unemployed.
This is partly created by the media-they keep telling us we're in recession so this starts to affect consumer psyche as people get nervous-and by marketers with their recession sales.
Second R - Relevance
If your core customers are reassessing their priorities, trying to stretch their budgets further, switching among brands and product categories, and starting to redefine what value means to them, marketers have to consider where their brand fits in that context.
Value isn't necessarily defined by cheap. For example, disposable fashion which has been a big trend in past years, is experiencing a dip right now. If people are going to spend, they want a product that lasts. Up to 80% of disposable fashion is thrown away before it is even washed. That seems irresponsible in today's climate, so now we are going back to classic purchases and quality products. We are now willing to spend more on one item because our sense of value and money has changed.
Value can also be communicated in terms of longevity, efficiency, superior performance of a product or service.
There are two things that brands need to do in terms of relevance. One, focus on communicating value. What is your value proposition? Where do you provide value to customers in this climate? This is what Coles has done well with its "feed four for $10".
The second aspect is to be a brand customers can trust. They trust you are going to deliver value and that you understand what's important to them right now.
The third R is about retention
Marketing often talks about growth-growth of market share or a customer base. But in times of crisis we need to slightly shift our priority to also focus on retaining valuable customers.
If they have been hit by the recession and if they are open to messages from other brands, there are some key ways to keep your brand in their life and retain them as a customer. One is around affordability. If they can't afford the large bottle of shampoo, are you offering a smaller bottle at a cheaper price?
It's also about credit terms. How generous are you going to be? There's a number of insurance companies in the US who have responded to the crisis by saying we'll extend your payment terms or refund your policy if you become unemployed.
You can retain customers through desirability and this is where it's really important not to stop spending on marketing. Brand awareness is key. If customers don't see your brand they get worried and think you're disappearing.
After you have chosen your relevant value message then spend like crazy into it to build awareness and desirability.
This is where strong brands come into their own in a crisis. Customers gravitate to strong brands and take comfort from them. Like the success of Aldi right now.
On the other hand, true luxury is also seen to deliver value for money.
This leaves the brands that are caught in the middle-that are neither here nor there, they are a good brand but not an incredible brand, or not a brand that has a clear message-that are at risk in a crisis.
Another way to retain customers is through the use of CRM loyalty programs. Consumers often only get rewarded for spending more but rewarding patronage is another way to build closer relationships. Are customers coming to the website often? Are they reading the newsletters? Are they opening the emails you're sending? Are they coming into the stores? How often are they coming?
The fourth R
The fourth R is around responsiveness. How are you going to respond to the crisis? And this is about the allocation of resources to two key capabilities-agility and innovation.
Are you agile enough and are you allocating enough resources to agility to respond to the switching behaviour of customers?
Can you capitalise on the weaker position of your competitors right now?
An example of this is Starbucks' VIA instant coffee. On the surface it appears mad for a coffee shop to launch an instant coffee. But look at the trends. Rather than buy two coffees a day, consumers now limit it to one a day.
They are also spending more time at home, so they are consuming more at home. According to taste tests between VIA and Starbucks coffee made in the store, there is no discernable difference.
Grocery sales are fine right now but restaurants or premium end fast-foods are in trouble.
If you are agile enough, there is also opportunity to respond to the reduced marketing budgets of your competitors and this is where there's a real chance to achieve a larger share of voice.
So if you've got the money to spend, be strategic in when you spend and in what mediums you're using.
Another aspect of responsiveness is innovation. It is important to allocate resources to a pipeline of innovation because although this crisis is expected to be the longest recession in a long time, there is going to be a recovery and you need to be ready for that.
You need to ensure you have a pipeline of products and services that you can roll out when the recovery starts to happen so you can tap into that wave of consumerism as well.
The last R is return on investment
Marketers are under incredible pressure to do more with less, so during recession the first thing most cut is the marketing budget.
This is where you must move to more measurable marketing communications tactics. Concentrate on tactics such as direct marketing, point of purchase marketing and online marketing, using blogs, search engine optimisation and marketing and social media (Facebook, YouTube, Twitter).
But don't forget mainstream marketing either. You still have to build brand awareness or consumers will think you've disappeared.
You don't want to cut the wrong things-things that deliver value or generate revenue.
Saying we're having a recession busting sale doesn't make customers feel good. Telling customers what your brand is doing in their life, how it's going to enhance their life, and what value for money this is and why it's worth spending on, that's relevant whether you're unemployed or not.
We may be guilty of talking our consumers into a recession. That doesn't mean we can't capitalise on this.
Published in BRW, July 17 2008
To discuss Jody's research in more detail you can email her at: j.evans@mbs.edu or read her full bio on the website.
