To spend or not to spend, that is the brand question
By Charles Foster - Oct 24th, 14:54
During a downturn brands should reinforce the attributes that make them appealing and differentiated in the eyes of existing customers.
Though brand value in SA’s top brands has declined, they are on average weathering the macroeconomic climate better than most. This matches what BrandZ data has historically shown: companies that invest in strong brands during difficult times tend to return to growth faster and more successfully than those that don’t.
Over the past few years, SA marketers have had more than ample justification for being cautious about supporting their brands. Consumers have been challenged on multiple fronts from a VAT increase and high inflation to fuel price hikes and higher education fees. As a result, real disposable income has not kept pace with inflation. And with consumers having less money to spend, brands have had their hands full maintaining their revenue.
At a macro level in SA, the business climate is certainly challenging. We are seeing various government commissions exposing hair-raising stories of corruption, investigative reporters publishing books highlighting frightening revelations about the Zuma years, and the country is poised on the brink of a downgrade because of Eskom’s continuing travails. Add in a 3.2% contraction in GDP in Q1, and we can safely say that when it rains, it pours.
Be that as it may, evidence suggests that businesses are becoming immune to bad news and that the cautious optimism heralded by the election results has resulted in media spending that has remained relatively resilient. Traditional spend in early 2019 was effectively flat over the same period in 2018 with minor shifts towards retail, multimedia, and health and beauty.
Nonetheless, spending is only a single data point. It also matters what you’re promoting. Are you taking a brand-first strategy or are you simply advertising price cuts and value plays? Within the SA advertising community, there is a consensus that there has been a noticeable shift towards promotional advertising, with brands pushing short-term buttons. It has become rare to see ads designed to build brands. As a result, we’ve seen consumers increasingly preferring retailers’ private-label goods to branded ones. In 2017, cheaper generics reached 21.1% of retail sales.
The SA BrandZ results show that the top 30 brands’ brand contribution scores, a metric that assesses the brand independence of financial results, had an average, brand-for-brand increase of 1.1%. This shows that SA’s best brands are largely pursuing a balanced strategy with enough investment to maintain the brand, but not enough to increase its value.
So, what are marketers to do? The effects of an economic downturn will vary for different types of products and service categories, so it’s vital to understand consumer strategies in order to look for growth.
We know that people are likely to postpone high-ticket items such as cars and household appliances. Habitual purchases like groceries are likely to be re-examined as shoppers become more price-sensitive (and this is where we see store brands entering the consideration set). On the other hand, affordable luxuries may see an increase as people trade off travel and designer clothes in favour of cheaper indulgences like chocolate, alcohol, and cosmetics. We also note that service categories like telecommunications are usually less affected than others since most recessions are relatively short.
The key to success during a downturn is to remain focused. Brands should reinforce the attributes that make them appealing and differentiated in the eyes of existing customers and focus on four things: competition, brand, customer, and communication. If you have a strong, successful brand, continue doing what has worked for you so far. If your brand is in a relatively weak position, try systematically exploiting the strengths you have while addressing your weaknesses.
During recessions, consumers and marketers alike must make the best of a bad situation. While not every brand will cut marketing spend, those that do will find themselves at a disadvantage when the recession ends. Marketers need to make the most of every rand spent in support of their brands if they hope to maintain strong consumer relationships. Those that succeed should then be well-positioned to take advantage of weaker competition when the good times return.
So, while SA brand builders will continue to feel the aftermath of the lost years for some time to come, we see that SA’s top brands are investing cautiously, while slowly but steadily increasing their revenue in local currency terms. And there is light at the end of the tunnel – not least in the form of changing political winds. Let’s hope, as the philosopher Friedrich Nietzsche once said, SA brands live up to the idea that “What does not destroy me, makes me stronger”.
Woolworths carves out market share in SA
27/11/2019 - 10:11
In Australia, David Jones's sales declined 2.1%, with the company saying a store refurbishment contributed to the decline.
Push and pull strategies work together to keep consumers coming back for more
26/11/2019 - 10:20
The retail sector is under increasing pressure as consumers have shrinking disposable income in a strained economy. Maintaining share of wallet is critical. Relying solely on a push route to market strategy from manufacturers into retailers is not enough to get consumers buying products. A pull strategy needs to coexist with the push to drive brand consumption. Integrating these strategies requires intelligent and insightful decision-making. This, in turn, requires data generated through smart technology which provides line of sight across the value chain from manufacturer to distribution, retailer to the consumer.
Today’s customers are loyal to speed and convenience, not brands
25/11/2019 - 11:15
Consumer expectations are rapidly shifting as technologies such as mobile, geolocation, social media and increasingly, Internet of Things devices and wearables, connect people to a world of easily accessible information and convenient services. With the ability to browse, compare and order with a few swipes and taps, consumers are becoming trained to value convenience and service above nearly anything else.
Gearing FMCG manufacturing for the red season spike and maximising profits all year round
25/11/2019 - 11:03
As we enter the festive season, demand for Fast-Moving Consumer Goods (FMCG) increases rapidly, often leaving manufacturers scrambling to fulfill orders from their distribution channel. If demand cannot be met, then loss of revenue is inevitable. However, over-production is not an ideal solution either, as it can leave manufacturers sitting with unsold stock that costs money to store.
Black Friday not necessarily a “black & white” decision for small business growth
25/11/2019 - 10:52
Black Friday, once only a North American marketing frenzy, has become a critical entry in the calendars of South African retail business owners.