marketing in a crisis
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Marketing in times of Recession
John Fowler Senior Vice President
Director of Knowledge & Strategic IntelligenceMcCann Worldgroup EMEA
Riga19 September 2008
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Marketing in times of Recession
‘Who can benefit most?’
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Marketing in times of Recession
‘Who can lose least?’
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Because as previous recessions have shown -there will be few winners – and many losers
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Creating Ideas that Create Demand
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A straight forward and meaningful mission for McCann Worldgroup
“We create marketing ideas and communications programmes that generate
demand for our clients’ brands, products and services in order to help deliver
continued business success”
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We Create Demand
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We Create Demand - in a world where nothing
stands still
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We Create Demand - in a world where nothing can be taken
for granted any longer
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We Create Demand – where costs rise and prices change –
every single day
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We practise the Art and Scienceof Demand Creation …
… in times which are changing fastwhen we all face unprecedented economic turmoil
when all consumers face many new decisions
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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.
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Let’s take a very quick look at the context
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How did it happen?
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Where are the markets pushing things?
• Central banks• Can’t do much more – can they?• Governments take on even more risk
• Financial fallout• IMF estimates US$1,000bn in losses• Only US$250bn so far • Where is the rest?• Banks raising capital – or in fact are failing to do
so •
• Impact on global economy• Credit conditions remain tight in N America• Credit conditions start to tighten in Europe
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What’s dragging us down?
• Consumers suffer• House Prices• Inflation in everything• Costs of Borrowing• Too much credit
• Central banks have little room to manoeuvre
• Governments have limited scope for action
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Could a street near you look like this - soon here in Riga?
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Any good news…….
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…this is not 1990 all over again – Yet!
Why 2008 is not like 1990?
• Economic boom across Europe has much been less pronounced – more gradual
• Nominal interest rates are much lower and could be slashed to rock-bottom levels
• Inflation is also much lower
• Labour market flexibility is greater – right across Europe
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However - this has happened since I’ve been in the Baltics
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And is there more to come?
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And it is not just the Anglo-Saxon world which suffers
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And now in Russia – new ‘capitalism’ is failing.
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What does history tell us about things that happen during recessions?
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Hope for the Best.
But plan for the Worst.
This is the policy that I personally have followed during difficult economic times in 1974 and 1990
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Is this is a recession?
Well – it is starting to feel like it now!
And if it’s not a recession, it is a period of real uncertainty … which is just as bad – provoking a
real concern for the future
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In one small island off the coast of Europe – in the last year
• Cost of food has increased by 7.8%• Bread +9%• Meat + 9%• Milk, cheese, eggs, yoghurt + 20%
• Cost of energy has increased by 11%
• Petrol has increased by 24%
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And by the way … property prices are falling
- 6% 2008 vs. 2007
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And in this same small island
Salaries have increased by 2.1%
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Does this sound familiar to you?
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So something has to give …
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.
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What changes can we expect in consumer attitudes and actions?
• Focus on necessities?
• Rejection of luxuries?
• No more fun, no more entertainment?
• Fewer holidays?
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At times of recession do people ….
…. spend less?
…. save money?
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Well – history indicates that they do both
• 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
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By the way looking at history is not always helpful – just compare 1988 vs. 2008
Prioritising purchases
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".
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But looking at history is not always helpful – just compare 1988 vs. 2008
Prioritising purchases
"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.
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My question to you
• How close is this to the realities of your country?
• Have you consumer attitudinal research on which to base any new decisions that you may be contemplating?
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Do you hear the Consumer Language
We are feeling the pinch
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Consumer Language
I am now making every penny count
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Consumer Language
I am tightening my belt
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Here are some facts – not just hypotheses
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Consumers are Trading Down
People are buying cheaper food
Discounters Aldi and Lidl and frozen food chain Iceland have increased their market share in the last 12 months. Aldi has seen its sales increase by 20.7 per cent in the 12 weeks to June 15th.
Aldi is a client of the Manchester office of McCann Erickson
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And now the rival retailers are moving quickly
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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?
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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
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Consumers are Trading Down
Buying cheap clothes
In the UK, Primark in the last six months has increased sales by 25% – so you can imagine what has happened to the share price of Marks & Spencer …. and other traditional clothing retailers
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Yes – down they go!
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Consumers are Spending more time at home
If that’s the case – why not promote your brand with that reality in mind. Don’t find the trend.
Sainsbury’s has reported that its premium ‘Taste the Difference’ food products were doing well, as customers cut out restaurants in favour of eating at home.
ASDA has also noticed that people are buying cheaper food on weekdays, but splashing out on delicacies at weekends.
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Consumers are ‘Nesting’ – making their home feel good for them
If consumers are spending more time at home they want their environment to be inviting.
It is cheaper to paint a room than move house, as can be seen by an increase in sales of paint and carpets and general DIY- which suggests an element of ‘nesting’.
This can be looked at against the decrease in the sale of radio and television sets - as long as the old equipment works there is no need to renew it.
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More consumers are buying more on-line
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.
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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.
• Necessity is indeed the ‘mother of invention’
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Rewarding themselves
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).
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So - who are going to be the Winners
Those retailers - with a strong and developing online presence but also with a focus on consumers looking to down trade - will be best placed.
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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.
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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.)
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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.
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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
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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.
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Who will suffer?
Mid-range shoes and clothes retailers
Mid-size supermarkets
Number 3 or 4 brands in a market
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Who will prosper?
• Brand leaders – who continue to act like leaders
• Challenger brands who continue to challenge
• The cheapest possible brands and stores
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Cutting marketing and advertising budgets will only be profitable in the short-term and ultimately the brand will emerge weaker
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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.
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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.
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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.
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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.
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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.
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Tips for surviving in tough times:
• Don’t cut the budget:
Recessions offer what may be unprecedented opportunities to market in an environment of relatively less noise as others cut back.
• Maintain or increase strong launches.
Even in the deepest recessions, things that truly appeal to consumers will still flourish.
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Tips for surviving in tough times:
Beware that discounting can be addictive
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.
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Now it may hurt me to say this … but
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.
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A fact
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.
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Another fact
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.
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Yet another fact
• 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
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A final fact
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.
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Implications
Volatility is on the rise and change is accelerating
Are you ready for this?
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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?
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Implications
Markets, products and services will continue to be subject to continuous pressure to change
Will you be changing?When are you changing?
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Implications
This all points to the need for greater innovation capability and management – and an overall flexibility
Are you ready for this?
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A final point to show how
Everything changes Everything
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The new Reality
How about this for ‘fall-out’ from the current crisis ….
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The US Government has saved the AIG Insurance company from bankruptcy by buying 80% of the company for a mere $85,000,000,000.
Yessir, that’s 85 billion dollars!
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AIG is the proud sponsor of Manchester United football club
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So now – the USA tax-payers are the proud sponsors of Manchester United
(incidentally the team are not playing very well at the moment)
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Which amuses me - because I am a supporter of rival club Manchester City
Who they have just been bought by a mammoth Arab development corporation – and had a major victory in Cyprus last night.
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And the fans now dress like this
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Thank you very much.
Best of luck to you all.
And please remember ….
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Hope for the best.
And plan for the worst.
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That’s what I do ….
And I’m still around