24

Jun

The New Normal

Currently people are adapting to the pressure of the economy. They are becoming savvier with their money. The amount of media dedicated to this topic has pushed it to the forefront of most marketers’ minds. Recently this conversation has started to change with subtle indications of economic recovery. The media is starting to ask what will the post-recession consumer look like?

For some the belief is that the recession is having a temporary impact on the consumer. The yearning for prosperity will force the customer to ‘snap back’ to normal. Although this sounds great for businesses who aren’t coping at the moment, it is flawed by the assumption that people learn nothing from experience. On the other end of the spectrum is the view that the recession will create a ‘new normal’. This is based on the fact that the consumers are not ‘weathering the storm’ but are actively adjusting. According to M&C Saatchi research 54% of the Australian population have experienced a reduction in the value of their superannuation and a further 39% in the value of their shares/investments. The perceived reduction in prosperity has lead people to changing where they buy, invest more time in research etc.

This is not a new phenomenon. If history is to be the judge of how the post-recession consumer will act it confirms the ‘new normal’ perspective. For example, the post 1940s depression consumer who taught themselves and the generation beneath them to not ‘squander’ – using leftovers, hand-me-downs, and only buying what was necessary etc.

Added to this shift is the immense influence of business. As the customer changes, businesses are reacting and restructuring. Companies looking to survive are trying to find a lower cost of doing business whilst increasing profit. This adaptation includes reducing pay/bonuses, rethinking their supply chain, squeezing vendors, reduction and redistribution of marketing budget etc. The measures being taken by business to survive are changes that cannot be undone overnight. In fact they are helping permanently change behaviour and create a ‘new normal’.

So what does this mean?

If consumers will be fundamentally changed by the current economic situation business decisions should always be made with the ‘long-term’ in view. This would suggest that companies should avoid recessionary tactics (ie. Price or continuous sales) in favor of those that will win customers during and beyond this phase.

Although the end of the recession is some time off the ‘New Normal’ is something to keep in mind now.

1074 days ago Short URL Comments

Recession/Retail

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23

Jun

Re-Thinking the Recession

Originally Published: Febuary 2009

The recession has become an unavoidable topic. Over the past few months analysts and business consultants have become more confident that the telecommunications industry will remain largely unscathed by the economic slowdown. So far this has been true for carriers but not so for handset manufacturers. Unlike a carrier’s service a new handset is not seen as a necessity. In a recent survey the US National Retailers Federation found that consumers believe that they cannot live without their internet service (81%), basic cell phone service (64%) and cable TV service (61). However 85% believe that upgrading their phone is not essential. This change in behaviour has been further exemplified through the Q4 sales results of Nokia and Motorola with declines of 12% and 51% respectively*.

Although this sounds like the regular bad ‘recession’ news, it is not all that bad.

Currently only two Telco are noticeably taking on the recession slump in handset upgrades – Orange (UK) and T-Mobile (USA). Both are creating opportunities for themselves by re-configuring how consumers buy handsets. For example, this week T-Mobile launched their ‘Equipment Installment Plan’. The plan allows customers to break up the cost of a phone across four months, instead of paying the full purchase price upfront. It is like lay-buy for handsets. In keeping with times there are no finance fees, interest or start-up fees. Another example is Orange UK, who launched their Blackberry Pearl 8120 on PAYG consumer plans. Unlike T-Mobile, the handset needs to be paid upfront (£145) but the ability to PAYG gives cost-cutting customers a reason to upgrade.

So, what exactly is the advantage of helping handset manufacturers move stock?

Orange and T-Mobile are trying to make it easier to put a handset within reach because giving the consumer what they want (but might not be able to afford under current category conditions) gives the Telco’s a competitive advantage. It allows them to up-sell existing customers but also attract new customers from other networks where they could not afford to upgrade.

This is an opportunity that could be applied to the Australian market. Although not officially in recession consumers are still feeling the financial a ‘pinch’ either first hand or through the media’s influence. Still consumers do not want to compromise their current lifestyle – handset upgrades included. So by helping customer maintain the way they live, a Telco is able to create a competitive advantage (and help themselves).

T-Mobile PAYG Blackberry

T-Mobile PAYG Blackberry

1075 days ago Short URL Comments

Innovation/Recession

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23

Jun

Brand Equity in an Economic Depression

Originally Published: October 2008

Famed investor Warren Buffett understands the value of the brand. As a shareholder in Kraft, Coca-Cola, Anheuser-Busch, Wrigley’s etc, he sees these entities as ‘low risk’ for himself and his company, Berkshire Hathaway, because they have enormous brand equity. Buffett understands that brand equity is important as it means that his investment can sustain its pricing even when the economy goes into recession. To quote Kotler: ‘Great brands are the only route to sustained, above-average profitability’. So the question  - if brand equity is a potential buffer to recessional effects, why would the marketing budget be the first place to cut costs?

Obviously in the age of short-term management and focus in delivering interim profit, cutting marketing costs makes the business look good (without creating any instant problems). Unfortunately, the positive impact on the bottom line doesn’t last as cutting marketing costs will eventually erode market share and thus ability to compete on more than price; this is especially true in mature markets where it is easy to be dragged into a price war. It seems that contrary to popular belief, a recession is the best time to invest in a brand. According to research in the UK, investing in brand during recessionary periods can help build market share and make traction against competitors (especially those following the ‘budget cutting’ philosophy).

When looking back on previous economic recessions, although contextually different to the current situation, many now well known brands (and products) chose to invest during a time of uncertainty with big payoff (CNN, MTV, Wikipedia, IBM etc). The most famous example would be Apple, who launched their first iPod in 2001 around 40 days after the September 11 attacks, when the economy and consumer confidence were down. The advantage of investing or maintaining marketing spend during a recession is that a company has the ability to build their brand (or product) in an environment where its competitor are most likely to be cutting costs. This point is especially important in the telecommunications market, where there is fierce competition but the market is so mature that it is a ‘zero-sum’ game. Investing during this current recession can help make traction against competition that a brand hasn’t been able to touch before.

To quote Sergio Zyman, former chief marketer of Coca-Cola: ‘Marketing money is like fuel in a car. You take the fuel out of the tank, the car stops. You take the marketing out of the brand, the brand stops’.

Source: NTC Publications for London Business School, 'Advertising in a Recession', 1999

Source: NTC Publications for London Business School, 'Advertising in a Recession', 1999

1075 days ago Short URL Comments

Recession

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