We Create Demand - in a world where nothing stands still
We Create Demand - in a world where nothing can be taken for granted any longer
We Create Demand – where costs rise and prices change – every single day
We practise the Art and Science of Demand Creation … … in times which are changing fast when we all face unprecedented economic turmoil when all consumers face many new decisions
So Demand Creation - and in today’s world perhaps Demand Consolidation is a more realistic phrase - is what I shall use as the basis of this morning’s presentation and any subsequent questions and conversations.
It is not surprising that consumer confidence is falling
Consumers are more fearful about their financial future, as they struggle with soaring food and fuel costs.
In June 2008 the GfK NOP Consumer Confidence Index - which is based on people’s views of their own finances as well as wider economic conditions – found that the overall confidence index sank by five points in July to a reading of minus 34, on a par with the lowest level since the poll began in 1974.
The record low of minus 35 was reached in March 1990, immediately before the start of the last recession.
What changes can we expect in consumer attitudes and actions?
Which means they start to spend a lot less – because they feel compelled to save for even more difficult days ahead
But of course they do not stop buying
They start to buy different things in different places
And they prioritise their purchases
By the way looking at history is not always helpful – just compare 1988 vs. 2008
Consumers have to buy certain household essentials - but in 2008 their perception of what is a necessity as opposed to a luxury has changed fundamentally compared to 20 years ago.
A recent report on ‘Minimum Income Standards’ stated that the definition of a minimum standard of living was not merely the amount of money needed for survival, and now included " more than just food, clothes and shelter ".
But looking at history is not always helpful – just compare 1988 vs. 2008
"It is about having what you need in order to have the opportunities and choices necessary to participate fully and properly in society”.
The research found that all groups of consumers felt that a car was a luxury but that all groups felt that a mobile phone and a microwave were now an essential.
If you are a retailer – that’s a very clear possible course of direct action to take. If you are a supplier – can you be part of that kind of action? – by offering some of your products as part of a new range?
If you are a retailer – that’s a very clear possible course of direct action to take. If you are a supplier – can you be part of that kind of action? – by offering some of your products as part of a new range? Because if you don’t – rest assured that someone else will
In 2007 online purchasing rose 35% to £14.7bn, a growth rate 10 times higher than the retail market as a whole and is predicted to hit £44.9bn in 2012.
Out-of-town shopping centres are bearing the brunt of the consumer slowdown, with high petrol prices persuading shoppers to stay closer to home. Some saw double-digit sales decline in the week to June 21st compared with strong performances in local High Streets and Online.
There is a ‘make-do and mend’ feeling among all levels of consumers
Big-ticket items are suffering - sofas & cars.
Halfords, which sells car accessories and repair materials, has said that they are benefiting from people holding onto their cars for longer.
Halfords has also reported an increase in the purchase of bikes as some customers embrace a healthier and greener lifestyle.
Consumers also feel that there are some things that they should be able to buy that are non-essential - that are either seen as those things that they are entitled to such as wine and chocolate or items that are a straight reward such as a lipstick
Even such items as a holiday are seen as a necessity and currently we have seen holiday purchase remaining steady - but it could well be that the two week sunshine break in the Canaries becomes one wet week camping in the English countryside. (If people can afford the petrol to get there).
Those retailers - with a strong and developing online presence but also with a focus on consumers looking to down trade - will be best placed.
Marketers must …. form even stronger partnerships with their customers
The price-cuts announced by Tesco and ASDA in order to halt the migration of shoppers to cut-price supermarkets such as Aldi and Lidl are severe.
Marketers must …make sure the consumer trusts the company
Will this see an increase in the number of corporate ads that companies run such as the recent ads from Exxon that explain their credentials in the current climate?
That of providing energy for everybody but developing ways to make their business as ‘ green ’ as possible.
And Eon and British Gas and EDF are now doing the same.
(some say this is cynical – promoting the use of energy under a green-cloak. So far this year the energy companies have spent over £100 million – the UK government has just launched an energy-saving with a £6 million budget. Irrelevant, people say.)
Marketers must … communicate their initiatives to their consumers
Ocado - a leading grocery home delivery service
It has launched an advertising campaign in which it advises customers to avoid the high cost of travelling and order from home.
It is estimated that the average family spends ‘a couple of hundred pounds’ a year travelling to the supermarket. Ocado has recently launched a service where customers can pay a flat fee for unlimited home deliveries over a given period.
Marketers must be able …. to react quickly to short term opportunities
Haven Holidays who offer camping holidays in the UK take advantage of the consumers’ desire for a cheaper family break This is being both ready attitudinally as well as physically
Marketers must …. maintain a good database so that loyalty can be rewarded
The major supermarkets and their suppliers cannot hope to maintain their profit margins in the wake of a serious price war and companies’ bottom lines will suffer accordingly.
It is suggested that the price cuts being offered by the supermarkets could spark the most aggressive price war for 25 years.
The use of customer data to reward customers can help to maintain a loyal customer base.
Cutting marketing and advertising budgets will only be profitable in the short-term and ultimately the brand will emerge weaker
At a time of uncertainty people will go to where they feel safe and secure – they will buy their trusted brands. But they will need to be reminded to do so. So it is advisable not to slash budgets.
It is better to maintain advertising Share of Voice at or above Share of Market – and if other brands are cutting their budgets, the longer-term benefit of maintaining Share of Voice will be even greater.
Key Marketing Arguments for continued spend in a weak economy
If competitors cut spending, that will create opportunities for those who don’t
Consumers don’t ‘go away’ during a recession, they grow more conservative
Opportunity for new entrants to encourage brand switching to cost-saving alternatives
Studies have found that increasing or maintaining expenditure during a recession tends to correspond to better rates of sales growth in future years.
Key Marketing Arguments for continued spend in a weak economy
One major analysis has compared the results achieved by companies that increased, maintained and reduced marketing spend during previous recessions.
While companies that cut marketing spend enjoyed superior Return on Capital Employed ROCE during the recession, they achieved inferior results after the recession ended.
During the recovery, the ‘spenders’ achieved significantly higher return on capital employed and gained an additional 1.3 percentage points of market share.
Historical Example of a Brand that maintained spend in a downturn
Nestlé ran the Nescafé Gold Blend ‘romance’ advertising campaign for ten years until 1996, encompassing the recession of early 1990s.
The company claimed that this enabled the brand to achieve leadership, to maintain a price premium and to attract new buyers who might otherwise have bought a cheaper brand in the downturn.
Effectively they maintained their relationship with their consumers – and their consumers rewarded them for it.
Unless the price reductions are truly strategic – eg, you a full-time discount retailer or you run one-time event to drive traffic towards your brand - you could live to regret it.
Go with the flow
Some of the most successful recession-era launches were natural offshoots of the conditions created by or causing the crisis
High petrol prices spawned fuel-efficient cars; interest bearing current accounts sprang from high interest rates in the 1970s and 80s; or remember the days of low petrol prices which gave birth to gas-guzzling SUVs and 4x4s.
Make sure your suppliers and agency partners are delivering good value to you – but please remember that they are businesses as well, with profit targets to meet.
Also - ensure that they are getting the best out of their suppliers – and perhaps you can help each other
And because all the media are certain to be offering good deals – as their revenues are under pressure as well – make sure that your agency pushes them ever harder to make your continuing investments go even further.
McGraw Hill found that business-to-business companies that maintained or increased their marketing during the 1981-82 recession grew during and after the recession at a far greater rate than those who didn't maintain or increase marketing spending.
The research firm of Meldrum & Fewsmith studied all post World War II recessions and found that advertising aggressively during recessions not only increases sales but it also increases profits, and at a far greater rate than those firms that cut back during the recession.
American Business Media found that maintaining share of mind during an economic downturn directly related to current and future sales and that maintaining share of mind costs much less than rebuilding it after a period of marketing inactivity
According to Coopers & Lybrand, business-to-business marketing during a time of economic difficulty solidifies your client case - portrays you as stable, takes business away from less aggressive competitors and positions your firm well for post-recession growth.
Implications Volatility is on the rise and change is accelerating Are you ready for this?
Implications Underlying consumer needs and desires will remain Do you know what they are in your country and how they apply to your market sector?
Implications Markets, products and services will continue to be subject to continuous pressure to change Will you be changing? When are you changing?
Implications This all points to the need for greater innovation capability and management – and an overall flexibility Are you ready for this?
A final point to show how Everything changes Everything