Cost of living, inflation and interest rates are all placing pressure on business and consumer budgets right now.
While we’re on record arguing the lack of logic in cutting marketing spend (read that article here), we don’t for a second pretend that businesses can afford to continue marketing the way they have been previously. Navigating these challenges is not about having blind faith in what has worked previously. Nor is it blindly increasing your advertising spend and thinking more activity means more results.
It’s about finding where the opportunities are and positioning your brand to capitalise.
The impact on customers
Economic pressures impact consumer behaviour, and as our customers are at the centre of all marketing efforts, any change in their behaviour needs to be paid close attention.
Shift in habits and priorities
With tighter budgets, people’s spending priorities and behaviours change.
For luxury brands, people tend to reduce their discretionary spending and the focus for luxury purchases tends to be on timeless, high quality items that are seen as investments. For this reason, the ultra high end luxury goods are generally less vulnerable to economic pressures (source: verbbrands.com).
For durable goods brands, while many products are necessary purchases, the type of purchase behaviour changes. Major purchases are postponed, and customers increasingly opt for repairing existing items, or look to purchase cheaper/second hand models.
For FMCG brands, there are increased demands for essential items and increased rates of switching to private label products. Consumers also tend to buy in bulk to save money more than they would otherwise.
Increased price sensitivity
With tighter budgets customers are increasingly likely to shop by price, swapping premium brands for cheaper alternatives. With trials of different products forced upon them, customer perceptions of these brands also change.
Research from McKinsey during the global financial crisis, found that 34% of switching customers said they no longer preferred higher-priced products, and an additional 41% said they preferred the premium brand but it “was not worth the money”.
Shift in demand for value
The same research from McKinsey also identified that 33% of bottled-water users discovered they no longer needed some of the benefits the higher-priced brands provided.
Understanding the drivers of value for your customers, and how these have changed is critical to positioning your brand effectively.
The marketing opportunities
The change in consumer behaviour, and other businesses cutting their marketing budgets provide the savvy marketer with some opportunities.
Retain your existing customers
Research from the Ehrenberg Bass Institute has shown that customers tend to display similar levels of loyalty towards all brands in a category, regardless of loyalty programs, engaged social media audiences or email nurture strategy (yes this is even true for the ‘cult’ following of Apple, Nike, Disney).
So while it’s impossible to retain all of your customers, the objective here is to remove any reason for customers to leave that otherwise wouldn’t. The first step to doing this is working out if your retention rate is a problem.
Ask yourself – is your retention rate similar to the category average?
If it’s significantly lower, identify and fix the cause. This will help to protect the existing customer base and maintain revenue levels as best as can be.
If your retention rate is similar to the category average, don’t throw good money at trying to retain customers. All of the available evidence suggests that you will be wasting your precious budget.
Your bigger problem, and where you should direct your time and resources, is that you need more customers. So spend your money trying to find them.
Buy more share of voice for less
With less advertising competition the cost for advertising will decline, allowing your marketing budget to stretch further and reach more people. In addition, with less advertisers competing for your customers attention, your brand’s share of voice will increase.
Why should you care about your share of voice? Binet & Field found in their 2013 study ‘The Long & The Short Of It’ that market share growth is strongly related to extra share of voice (ie. the share of voice minus the share of the market).
So if your brand can maintain a larger share of voice than your current share of the market, your market share will grow in the long run.
The incentive is clear. Those who can afford to continue advertising, and grow their share of voice, will achieve greater returns from their advertising while competing brands sit on the sidelines.
Be nimble to changing customer needs
Does price sensitivity create opportunities to produce a cheaper option for customers? Does your existing, cheaper product make more sense as the hero of your advertising? Or do you need to shift advertising efforts to a new platform your customers are now using?
Through the Covid pandemic, more people spent more time on digital platforms and brands followed suit. By contrast, less people spent time outdoors and the outdoor advertising expenditure (and effectiveness) reduced.
A word of warning – brands who have a sound brand strategy and strong knowledge of their customers have a far greater chance of being nimble and successful. Those who’ve neglected their brand or customers, risk making costly mistakes either through a misunderstanding of customer needs or making a decision that clashes with existing brand perceptions.
Conclusion
While economic headwinds are tough times for businesses and customers alike, they are not without opportunity. Of course, not all brands are in a position to pursue these opportunities despite their best intentions.
For those brands that are, and can recognise the opportunities at hand, seize the moment while your competitors sit on the sidelines and your brand will grow.
