Preparing For The Upturn
by Nic Hall, TNS
Recent studies conducted by TNS have clearly shown us that consumers are adjusting their behaviour to cope with either their real changing circumstances, like salary cuts or losing their job, and/or their degree of concern about how the global financial crisis (GFC) will potentially impact them. We have uncovered ten basic coping strategies which impact on behaviour. These strategies apply across all categories but are modified by category and vary by purchase occasion. They also vary by country since the impact of the GFC is not the same everywhere. So for example some of the most obvious ways people can cope are to purchase non-essential items less frequently and/or to delay purchase of certain items altogether.
In most FMCG categories, purchase has not been delayed and absolute spend has not radically declined. In some categories, such as certain food items, spend is actually increasing as consumers choose to eat at home rather than eat out. Another example of increased spend is that consumers will aim to make themselves feel better by choosing premium priced products as small treats. However frequency of purchase, particularly in the less essential categories is declining.
As mentioned, strategies also vary by occasion. So for example Mum may cut back on the cost/quality of ingredients for everyday meals but she will still buy the best for a special occasion dinner.
Whatever the strategy, consumers are seeking to achieve the best value for money in each category and on every occasion. Whilst people may be more conscious of price during the GFC, value for money does not simply mean buying cheap. Rather what it means is optimizing spend so that the products purchased best fit the consumers’ needs on a particular purchase occasion.
History tells us that recessions do not last forever and this one will be no exception. Already there are some positive signs of an upturn and although it may be too early to be overly optimistic, savvy marketers need to be thinking now about how they will manage their brands through the upturn and beyond.
Perhaps what is different this time though is how the consumer will come out of the recession. There are two really fundamental differences this time. The first is that consumers are blaming companies, and particularly banks, rather than governments, wars or other forces for the crisis. The credibility and integrity of large companies have been questioned as never before. Levels of trust and consumer confidence have been severely dented. The second major difference is the degree to which consumers are able to connect with each other and to share their grievances and experiences. Web 2.0 has brought consumers together in a way that was unimaginable during the last recession. One false move by a company or brand can instantly be communicated to millions of people across the globe. We also know that consumers trust each other and that recommendations they share often, if not always, carry more clout than anything the company can say.
What all of this means, is that companies need to embark on proactive relationship building with their consumers. It is not sufficient to simply ride out the crisis and hope that things will return to normal in a couple of year’s time. Companies need to engage with consumers, to understand their issues and to enlist them in the process of rebuilding their reputation and the reputation of their brands.
Our feeling is that consumers are expecting brands to react in some way. Those that don’t and choose to ignore their target consumers in this recession will potentially suffer great damage to their reputation, particularly now as word of mouth is such a powerful force. A lot of trust has been lost and conscious effort must be made to regain this trust.
The question which remains mostly unanswered is ‘what actions are consumers expecting brands to take?’ Our coping study has suggested that consumers realize that they need to play their part. They know there is no such thing as something for nothing and so are prepared to make trade-offs along with the manufacturers. The notion of working together with your target audience is a very powerful one as consumers can easily tell each other about brands which have and have not done this. We have also seen in past recessions that technology is adopted faster and more widely – suggesting that the consumer forums opened up by Web 2.0 will only increase in penetration and their power to influence. For all of these reasons, now more than ever, we need to know what consumers are saying to each other about our brands and the ways in which they are reacting to the recession.
The point of view we have always held, and continue to hold in this recessionary environment, is that needs both emotional and functional, drive behaviour. Meeting needs in a clear, relevant, and unique way generates the commitment and excitement that drives both trial and long term relationships.
We believe that consumers’ attitudes or life mentality, in a broad sense, may modify behaviour but that it would be wrong to categorise people into groups with different attitudes and to assume that within each of these groups behaviour will be uniform across all categories. Attitudes may affect the way you live your life and to some extent influence purchase decisions but often they correlate poorly with behaviour.
At an overall level we have always believed that we need to understand the market dynamics in which our clients do business, in order to make the most appropriate recommendations from every study. The GFC is simply another market dynamic and as such we need to take care not to somehow treat it differently to the way we would treat any other dynamic. The real danger is that we over react and/or see the GFC as something completely different and so make inappropriate recommendations based on short-term thinking.
So how can and should brands be reacting? Every brand has, or should have, a clearly defined position, targeting specific needs, at specific consumers on specific occasions. There is no fundamental reason for this to change during a recession. In fact poorly thought out, tactical changes which undermine the brand’s basic position may be extremely damaging in the long term as we emerge from the recession. Having said this, the brand can and should tap into the prevailing consumer mood.
We carried out a NeedScope study which has shown us that consumer response to the recession is not generic as different consumers use different emotional strategies to cope with the changed circumstances. Some react with anger, others with a sense of helplessness.
Some take it in their stride, others look for ways to ensure that this will never happen to them again. Clearly it is a time when consumers reconsider their brand and consumption choices seeking more value, thrift and savings. Brands cannot continue as if nothing has happened and must acknowledge, empathize and respond as they are expected to do. Responding with price reductions and indiscriminate promotions will cause more harm than good. For one, competitors will follow suit and the gain in share will be temporary, but even more importantly we have seen from past recessions that it is very hard to revert back to pre-recession pricing as we emerge from the downturn. From past recessions we have learnt that brands that remained true to their positioning withstood the downturn better. So Virgin, the archetypal Rebel defies you to ‘Screw the Recession’ by taking charge of your plans; Deloitte’s continues to confidently assert ‘Global Recession or Opportunity’.
Hyundai, the archetypal Friend in need…’ extends a supportive offer addressing the fear that many consumers face during this time of uncertainty – that they may lose their jobs. Hyundai, unequivocally assures them that they will not have to repay installments in case of such a contingency and the car can be brought back and returned to the showroom.
All of these examples are of brands that have reacted in a powerful way to the recession that is completely consistent with what they stand for and what makes them relevant to consumers.
As a strong framework for helping to manage and build brands, NeedScope is an excellent way to understand how consumers are reacting to the ways in which brands respond to the recession.
Historically, recessions have been a period of accelerated innovation. Companies which react by investing in innovation rather than simply taking a series of tactical steps are likely to emerge more powerful. Innovation does not mean adding yet another pointless flavour to your existing range. It means truly meeting consumer needs with a relevant product or service.
What has perhaps surprised all of us is the consumer reaction degree of resilience of the average consumer and how positively/proactively they have reacted to this situation. There is some ‘doom and gloom’ certainly fuelled by the media in some countries, but on the whole consumers have remained remarkably positive. We should not forget that whilst many people may lose their jobs, the vast majority do not. In fact delaying purchase of ‘big ticket’ items may in fact put more spare money in their pockets for other goods which they may not have had in better times.
We now know a fair bit about how consumers have reacted to the recession but what we need to know more about are how they are going to react going forwards. What purchases will they still be making, what are they going to delay? Which categories stand to benefit from the recession and why? Which categories will hurt most and why? What can brands do to capitalize on these trends or to minimize the damage?
What we also don’t know yet is how many of these new behaviours will become entrenched? Will consumers return to their pre-recessionary behaviours once it is all over or will their newly learned behaviours become more permanent? Unless brands make an active effort to be part of the new behaviours they risk long term damage to their market share. We believe that the biggest mistake a brand can make is to assume that once the recession is over it will be back to ‘business as usual’. We also believe that there is a fundamental shift in touch points. The recession has highlighted to consumers the need to seek out information and to try new channels. For marketers, seeking to reduce budgets, it has accelerated the move to digital media. We need to seek ways to reaudit consumers’ touch points with our brands and to ensure that spend going forward is optimized in such a way as to address these new realities.
To summarise, our view is that companies need to think differently. Rules are being broken, some of them never to return in their old form. We can help our clients to understand the new rules and how they impact consumer behaviour, and so help them to emerge as winners when the GFC is finally over.