September 2008, Issue 497
Julie Bazinet, Steve Saxty and Belle Frank
In financial markets as in marketing, perception is often reality. Today, while all economists may not agree that we are officially in a recession, consumers are increasingly pessimistic about the state of the economy and are behaving as though we are in one. As the cost of oil and food continues to climb, and property values continue to plunge, consumers are looking for ways to save and also maximise value when they do spend. For marketers, dropping prices is always an option, but this often does nothing more than undermine margins and brand equity. So, how do we go about 'recession proofing' our brands for the realities of today?
If successful brands are those that generate consideration and loyalty, in good times and bad, all brands would be wise to invest in these qualities during recessions, when consumers are much more selective about what they purchase. The dotcom bust, 9/11, corporate scandals and the war in Iraq all contributed to the recession of 2001–2002 and shook consumer confidence in government, business and other institutions, including brands.
Based on information from Young & Rubicam's model, BrandAsset® Valuator (BAV), we are able to understand what happened to brands during this period in order to help our clients protect themselves from today's economically depressed environment. Our data suggest previous periods of downturn were marked by a strong focus on value, accompanied by a decline in brand trust, credibility and loyalty. Brands that were able to stay on top of their game mastered delivery of those qualities.
By the beginning of 2008, easy credit had accelerated the real estate market, and encouraged consumers and lenders to speculate on ever-increasing levels of home equity. For many, the gamble did not pay off. The resulting credit crunch and consumer interest in value applies pressure on brands. In order to compete in today's market, BAV indicates that a brand must reframe value through leadership, vision and performance if it is to stand out amid limitless competitive brand options. It must also maintain its trust and credibility while doing so. The bar has been raised!
Y&R's BAV (see Appendix) allows us to assess the role of brands as part of our culture; we can get a picture of the values of a society by considering what drives its most successful brands at various points in time (1).
DECLINE IN CONSIDERATION AND LOYALTY
In the late 1990s, consumer confidence was on an upswing, fuelled by the dotcom frenzy. Interestingly, we saw in BAV that emotional loyalty, defined as a preference for a certain brand over all others, moved upwards in line with consumer confidence indices. The spike in emotional loyalty during the late 1990s/early 2000s can be attributed to the aspirational quality of many higher-end branded products that were suddenly within reach of a wider range of consumers. But, in 2002, exacerbated by the terrorist attacks of the previous year, emotional loyalty crashed, along with the financial markets. From 2000 to 2002, emotional loyalty and preference as measured in BAV declined by 27% and 20% respectively, whereas the typical change year-on-year is approximately 5% (see Figure 1).
Figure 1: Brand loyalty
CHANGES IN DRIVERS OF CONSIDERATION AND LOYALTY
According to BAV, 'good value' was a key driver of brand consideration and loyalty from 1999 to 2002, along with 'high quality' and 'socially responsible'. Given the realities of the time, it is not surprising that value, quality and responsibility became so important for consumers. However, what is even more interesting is how these drivers changed as the economy recovered. From 2005 to 2007, drivers of consideration like leadership and performance were more than twice as important as they were during the recessionary period, indicating that consumers had begun rewarding brands that helped them navigate the overwhelming amount of choice and information available today (see Figure 4).
Julie Bazinet, Steve Saxty and Belle Frank
In financial markets as in marketing, perception is often reality. Today, while all economists may not agree that we are officially in a recession, consumers are increasingly pessimistic about the state of the economy and are behaving as though we are in one. As the cost of oil and food continues to climb, and property values continue to plunge, consumers are looking for ways to save and also maximise value when they do spend. For marketers, dropping prices is always an option, but this often does nothing more than undermine margins and brand equity. So, how do we go about 'recession proofing' our brands for the realities of today?
If successful brands are those that generate consideration and loyalty, in good times and bad, all brands would be wise to invest in these qualities during recessions, when consumers are much more selective about what they purchase. The dotcom bust, 9/11, corporate scandals and the war in Iraq all contributed to the recession of 2001–2002 and shook consumer confidence in government, business and other institutions, including brands.
Based on information from Young & Rubicam's model, BrandAsset® Valuator (BAV), we are able to understand what happened to brands during this period in order to help our clients protect themselves from today's economically depressed environment. Our data suggest previous periods of downturn were marked by a strong focus on value, accompanied by a decline in brand trust, credibility and loyalty. Brands that were able to stay on top of their game mastered delivery of those qualities.
By the beginning of 2008, easy credit had accelerated the real estate market, and encouraged consumers and lenders to speculate on ever-increasing levels of home equity. For many, the gamble did not pay off. The resulting credit crunch and consumer interest in value applies pressure on brands. In order to compete in today's market, BAV indicates that a brand must reframe value through leadership, vision and performance if it is to stand out amid limitless competitive brand options. It must also maintain its trust and credibility while doing so. The bar has been raised!
Y&R's BAV (see Appendix) allows us to assess the role of brands as part of our culture; we can get a picture of the values of a society by considering what drives its most successful brands at various points in time (1).
DECLINE IN CONSIDERATION AND LOYALTY
In the late 1990s, consumer confidence was on an upswing, fuelled by the dotcom frenzy. Interestingly, we saw in BAV that emotional loyalty, defined as a preference for a certain brand over all others, moved upwards in line with consumer confidence indices. The spike in emotional loyalty during the late 1990s/early 2000s can be attributed to the aspirational quality of many higher-end branded products that were suddenly within reach of a wider range of consumers. But, in 2002, exacerbated by the terrorist attacks of the previous year, emotional loyalty crashed, along with the financial markets. From 2000 to 2002, emotional loyalty and preference as measured in BAV declined by 27% and 20% respectively, whereas the typical change year-on-year is approximately 5% (see Figure 1).
Figure 1: Brand loyalty
During this time, brand usage surpassed brand preference (see Figure 2), an indication in our data that buyers were becoming less emotionally attached to brands. We found that many consumers went from being loyal to a single brand to being open to a variety of brands. This behaviour can be explained by the vast increase in the number of available brands and the amount of information about them available on the internet, coupled with the economic reality that more consumers were now being forced to rationalise their purchasing decisions.
Figure 2: Brand usage
DECLINE IN CONFIDENCE AND TRUST
From 2001 to 2005, brand imagery characteristics such as 'trustworthy', 'reliable', 'high quality' and 'good value', as attributed to brands by consumers responding to the BAV survey, declined continuously, to eventually stabilise at a mere 65%, on average, of their pre-recession levels (see Figure 3). It is not that these attributes declined because they became less important. Quite the contrary, it is more likely that, in consumers' minds, brands simply failed to deliver them. Technology brands in particular took a big hit on these attributes during the last recession, which is not surprising given the dotcom bust. This suggests that today's marketers have to focus on building credibility and trust in order to endure the current economic climate.
From 2001 to 2005, brand imagery characteristics such as 'trustworthy', 'reliable', 'high quality' and 'good value', as attributed to brands by consumers responding to the BAV survey, declined continuously, to eventually stabilise at a mere 65%, on average, of their pre-recession levels (see Figure 3). It is not that these attributes declined because they became less important. Quite the contrary, it is more likely that, in consumers' minds, brands simply failed to deliver them. Technology brands in particular took a big hit on these attributes during the last recession, which is not surprising given the dotcom bust. This suggests that today's marketers have to focus on building credibility and trust in order to endure the current economic climate.
Figure 3: Brand imagery
CHANGES IN DRIVERS OF CONSIDERATION AND LOYALTY
According to BAV, 'good value' was a key driver of brand consideration and loyalty from 1999 to 2002, along with 'high quality' and 'socially responsible'. Given the realities of the time, it is not surprising that value, quality and responsibility became so important for consumers. However, what is even more interesting is how these drivers changed as the economy recovered. From 2005 to 2007, drivers of consideration like leadership and performance were more than twice as important as they were during the recessionary period, indicating that consumers had begun rewarding brands that helped them navigate the overwhelming amount of choice and information available today (see Figure 4).
Figure 4: Leadership and performance
SPECIFIC CHALLENGES FOR TODAY
Data from the last recessionary period highlight the importance of value as a basic requirement for consumer brand sustenance. However, as the Detroit carmakers can testify, addressing this consumer need simply by dropping prices is no guarantee of long-term prosperity.
Therefore, a wider reframing of value must become at least one part of the equation. Low price alone has not proven to be enough to build a strong brand. We know that now more than ever, it is important for brands to demonstrate leadership, vision and high performance if they are to meet consumer expectations. To attain optimal loyalty and consideration, brands must guide and inspire consumers in their quest to offer more value. The following are five approaches that different brands have employed that have helped them achieve these goals.
1. Highlight the Value Proposition that Enables your Brand to Stand Out
Marketers can change the way consumers think about their brand by reframing their value proposition. During the last recession, luxury brands like BMW and Mercedes achieved growth, at a time when one might assume they would face declining sales. By highlighting their total cost of ownership and offering fixed maintenance costs, they managed to achieve volume growth, as buyers became attuned to value rather than sticker price.
More recently, the V8 brand was able to reframe its value by reminding buyers that a serving of V8 is nutritionally equivalent to three servings of vegetables; it also costs less, and has the additional benefit of zero spoilage. For buyers who are feeling the pressure to save on rising grocery bills, such a message has resonance.
2. Remove Cost while Adding Additional Benefit Appeals
Often, there are opportunities for a brand to remove or reconfigure aspects of its product, but to do it in a way that does not reduce value – or that even increases it. For example, Poland Spring water recently changed its packaging, saving on both cost and materials, while simultaneously creating a leadership proposition that is environmentally appealing.
For retailers like Best Buy which sell large products that are difficult to transport home, such as large-screen televisions and washing machines, drop-shipping orders (shipping them directly from the manufacturer) can save money and hassle for both store and customer. The retailer's shipping and warehousing costs are reduced, and the buyers get quicker and cheaper delivery with less risk of damage to the product.
3. Empower Customers with Trade off Options
When faced with limited financial resources, consumers inevitably make trade-offs when they are looking to purchase products or services. Therefore, another strategy for increasing value is to provide consumers with trade-off options that they otherwise would not have.
Dell was a pioneer in employing this approach. Historically, PCs were sold as standard packages through retailers. During the recession of the early 1990s, the company was able to focus on its direct-to-consumer sales model, thereby eliminating the cost and competition of selling through the retail channel. The direct model not only allowed Dell to pass some of these savings to its customers, but it now became possible to customise each computer in a cost-effective way. Customers benefited not only from a lower price point, but also from a product that perfectly matched their requirements, providing Dell with much competitive leverage and a huge boost in sales volume.
4. Build Loyalty by Connecting with Customers' Core Beliefs and Personal Values, as well as their Need for Value
One of the most fundamental ways to connect to consumers is for a brand to differentiate itself from competitors and build loyalty by providing a benefit that would be emotionally compelling on its own and then boost it further by offering financial value.
Recessions can be brutally challenging for retailers. However, Target Corporation has experienced phenomenal growth since the recession of the early 2000s by promising and delivering 'cheap chic' to its customers. The affluence of the late 1990s had whetted consumers' appetites for increasingly upscale brands, but the economic reality of the job market meant that, for many consumers, such products were out of reach.
Still, consumers yearned for them, and Target was savvy enough to provide them at a price point almost anyone could afford – a smart marketing approach that made consumers feel smart. The resulting effect on Target's brand has been significant. Target's brand equity had always trailed Wal-Mart's in BAV, but this strategy has helped the brand become stronger each year. Finally, in 2007, Target overtook Wal-Mart to become the strongest retail brand in America, while Wal-Mart, whose positioning had focused almost exclusively on price, remains a strong but stagnant brand.
5. Consider what your Brand can do for Someone Else
There are of course times when a more thorough retargeting is needed to help brands weather the challenges of difficult economic times. For some brands, a customer base that is too small or one that becomes unable to afford the product might force a rethink about how to engage a wider audience.
In 2000, General Motors faced a declining domestic middle-class market for its Buick range, as US buyers sought either lower-priced vehicles from rivals Honda and Toyota or more upscale brands. The surprising decision to export a few thousand units to China to recoup fixed costs of production met with considerable Chinese enthusiasm, and sales took off because the brand was regarded as affordable, American and classy. As sales remained flat in the domestic market, GM began investing in products tailored to Chinese tastes, and sales continued to increase. In 2006, China became Buick's largest market, surpassing sales in the United States.
PROTECT YOUR BRAND ASSETS
The current economic downturn is driven by different factors from those of the last recession, and consumers have raised the bar in terms of what they expect from brands. Our data show that consumers increasingly want their brands to deliver leadership, vision and performances as well as value.
Luckily, this time around, advances in online communication, distribution and eco-friendly packaging, to name but a few, suggest that brands have infinitely more options to reframe their value propositions and connect with their customers than ever before.
The 'do nothing but cut prices' approach, as Taco Bell employed during the last recession, only weakens a brand, according to BAV data. And beware of this tactic, for its impact can be, and often sadly is, a long-lasting one.
Brands that have the agility to deliver optimal value to their customers, even if it requires substantial change in how they operate or communicate, may not only survive the recession better but even thrive in it.
APPENDIX 1: BRANDASSET® VALUATOR
BAV is a huge database on brands. Since 1993, Y&R has surveyed over 500,000 consumers across 44 markets about more than 35,000 brands. BAV gauges consumer perceptions on brand health and imagery, relating them to brand usage, consideration and loyalty. In each market, BAV measures brands relative to all other brands.
1. B Frank and M Sussman: Brand health measures your mother would love. Admap 492, March 2008.
Julie Bazinet is associate director, analytic brand planning, at Y&R.julie.bazinet@yr.com
Steve Saxty is SVP, group planning director, at Y&R.steve.saxty@yr.com
Belle Frank is EVP, director of strategy and research, at Y&R.belle.frank@yr.com
Data from the last recessionary period highlight the importance of value as a basic requirement for consumer brand sustenance. However, as the Detroit carmakers can testify, addressing this consumer need simply by dropping prices is no guarantee of long-term prosperity.
Therefore, a wider reframing of value must become at least one part of the equation. Low price alone has not proven to be enough to build a strong brand. We know that now more than ever, it is important for brands to demonstrate leadership, vision and high performance if they are to meet consumer expectations. To attain optimal loyalty and consideration, brands must guide and inspire consumers in their quest to offer more value. The following are five approaches that different brands have employed that have helped them achieve these goals.
1. Highlight the Value Proposition that Enables your Brand to Stand Out
Marketers can change the way consumers think about their brand by reframing their value proposition. During the last recession, luxury brands like BMW and Mercedes achieved growth, at a time when one might assume they would face declining sales. By highlighting their total cost of ownership and offering fixed maintenance costs, they managed to achieve volume growth, as buyers became attuned to value rather than sticker price.
More recently, the V8 brand was able to reframe its value by reminding buyers that a serving of V8 is nutritionally equivalent to three servings of vegetables; it also costs less, and has the additional benefit of zero spoilage. For buyers who are feeling the pressure to save on rising grocery bills, such a message has resonance.
2. Remove Cost while Adding Additional Benefit Appeals
Often, there are opportunities for a brand to remove or reconfigure aspects of its product, but to do it in a way that does not reduce value – or that even increases it. For example, Poland Spring water recently changed its packaging, saving on both cost and materials, while simultaneously creating a leadership proposition that is environmentally appealing.
For retailers like Best Buy which sell large products that are difficult to transport home, such as large-screen televisions and washing machines, drop-shipping orders (shipping them directly from the manufacturer) can save money and hassle for both store and customer. The retailer's shipping and warehousing costs are reduced, and the buyers get quicker and cheaper delivery with less risk of damage to the product.
3. Empower Customers with Trade off Options
When faced with limited financial resources, consumers inevitably make trade-offs when they are looking to purchase products or services. Therefore, another strategy for increasing value is to provide consumers with trade-off options that they otherwise would not have.
Dell was a pioneer in employing this approach. Historically, PCs were sold as standard packages through retailers. During the recession of the early 1990s, the company was able to focus on its direct-to-consumer sales model, thereby eliminating the cost and competition of selling through the retail channel. The direct model not only allowed Dell to pass some of these savings to its customers, but it now became possible to customise each computer in a cost-effective way. Customers benefited not only from a lower price point, but also from a product that perfectly matched their requirements, providing Dell with much competitive leverage and a huge boost in sales volume.
4. Build Loyalty by Connecting with Customers' Core Beliefs and Personal Values, as well as their Need for Value
One of the most fundamental ways to connect to consumers is for a brand to differentiate itself from competitors and build loyalty by providing a benefit that would be emotionally compelling on its own and then boost it further by offering financial value.
Recessions can be brutally challenging for retailers. However, Target Corporation has experienced phenomenal growth since the recession of the early 2000s by promising and delivering 'cheap chic' to its customers. The affluence of the late 1990s had whetted consumers' appetites for increasingly upscale brands, but the economic reality of the job market meant that, for many consumers, such products were out of reach.
Still, consumers yearned for them, and Target was savvy enough to provide them at a price point almost anyone could afford – a smart marketing approach that made consumers feel smart. The resulting effect on Target's brand has been significant. Target's brand equity had always trailed Wal-Mart's in BAV, but this strategy has helped the brand become stronger each year. Finally, in 2007, Target overtook Wal-Mart to become the strongest retail brand in America, while Wal-Mart, whose positioning had focused almost exclusively on price, remains a strong but stagnant brand.
5. Consider what your Brand can do for Someone Else
There are of course times when a more thorough retargeting is needed to help brands weather the challenges of difficult economic times. For some brands, a customer base that is too small or one that becomes unable to afford the product might force a rethink about how to engage a wider audience.
In 2000, General Motors faced a declining domestic middle-class market for its Buick range, as US buyers sought either lower-priced vehicles from rivals Honda and Toyota or more upscale brands. The surprising decision to export a few thousand units to China to recoup fixed costs of production met with considerable Chinese enthusiasm, and sales took off because the brand was regarded as affordable, American and classy. As sales remained flat in the domestic market, GM began investing in products tailored to Chinese tastes, and sales continued to increase. In 2006, China became Buick's largest market, surpassing sales in the United States.
PROTECT YOUR BRAND ASSETS
The current economic downturn is driven by different factors from those of the last recession, and consumers have raised the bar in terms of what they expect from brands. Our data show that consumers increasingly want their brands to deliver leadership, vision and performances as well as value.
Luckily, this time around, advances in online communication, distribution and eco-friendly packaging, to name but a few, suggest that brands have infinitely more options to reframe their value propositions and connect with their customers than ever before.
The 'do nothing but cut prices' approach, as Taco Bell employed during the last recession, only weakens a brand, according to BAV data. And beware of this tactic, for its impact can be, and often sadly is, a long-lasting one.
Brands that have the agility to deliver optimal value to their customers, even if it requires substantial change in how they operate or communicate, may not only survive the recession better but even thrive in it.
APPENDIX 1: BRANDASSET® VALUATOR
BAV is a huge database on brands. Since 1993, Y&R has surveyed over 500,000 consumers across 44 markets about more than 35,000 brands. BAV gauges consumer perceptions on brand health and imagery, relating them to brand usage, consideration and loyalty. In each market, BAV measures brands relative to all other brands.
1. B Frank and M Sussman: Brand health measures your mother would love. Admap 492, March 2008.
Julie Bazinet is associate director, analytic brand planning, at Y&R.julie.bazinet@yr.com
Steve Saxty is SVP, group planning director, at Y&R.steve.saxty@yr.com
Belle Frank is EVP, director of strategy and research, at Y&R.belle.frank@yr.com
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