Lots of people are sharing tips on how to survive in this global recession. Bartering is on the upswing. Value brands seem to have an edge.
It’s easy to get caught up in a wave of new strategies. It’s also just as easy to get in over your head.
Here’s some worthy advice from a consortium of researchers who urge companies to plan beyond today’s crisis.
To me, their best insight is: “The current rush to adjust brand positioning, production and pricing based on deep recessionary conditions fails to provide strategic direction based on longer-term demand and consumer expectations.”
It’s time to take a breath and remember that short-term tactics during this recession should still jibe with your long-term strategy.
Researchers Offer 3 ‘Recession Strategies’
They also warn that emerging pricing and promotional strategies are weakening national brands and producing no winners.
In today’s difficult and uncertain economy, manufacturers and retailers need to adopt three specific strategies to protect themselves and increase profitability, according to the early findings of a group of consumer research experts.
1. The first strategy is to offer unprecedented value to shoppers, says Hoss Tabrizi, managing director of Strategic Marketing Sciences, Newport Beach, Calif. “The evidence is overwhelming - Wal-Mart recently reported that a majority of its growth is coming from top-quartile consumers who previously did not shop there,” he says. “High-end consumer goods are in a state of free-fall. Spending is being redirected towards value.”
2. “Manufacturers and retailers must partner to pass along everyday price decreases reflective of input cost declines,” notes Dan Graham, the San Juan Capistrano, Calif.-based vice president of consulting services for Dechert-Hampe, Northbrook, Ill. Traditionally, about 60% of price decreases by manufacturers have been passed along by retailers, he explains, adding that “Overreliance on deep discounting is an inefficient mechanism for winning and retaining customers.”
3. The third strategy is to continue to track long-term consumer trends and develop new products and plans to meet evolving trends, says Ben Ball, senior vice president, Dechert-Hampe. “Keep your eye on the horizon,” he urges. “And don’t rely on backward-looking consumer research and analytics, as this information is likely to be a poor proxy for future consumer behavior.”
Dechert-Hampe and Strategic Marketing Sciences, in conjunction with three other analytic and consulting firms, are launching a major research initiative aimed at measuring future consumer behavior and developing specific strategies that can be used efficiently and effectively by manufacturers and retailers (www.emergingconsumerconsortium.com). With so much uncertainty about how long or how deep this recession will be - and how to market both now and after the economy recovers - there is a real need for insightful and action-oriented research, say Ball, Graham and Tabrizi.
Unprecedented occurrences are making it difficult for marketers to find their footing, Tabrizi notes. After a huge run-up over the past year, commodity prices are back down again. But vendors have been more inclined to deal off higher list prices or offer more trade funding rather than actually lower prices to retailers. As a result, shelf prices remain high. This in turn has driven a 10% to 15% jump in price elasticity, as consumers shut their wallets if they think prices are too high.
Retailers, meanwhile, are battling with vendors for lower prices and more promotion, while they ratchet up private label in nearly every category. “Promotional lift from traditional trade deals - features, displays, TPRs - spiked in 2008 and is continuing to break new ground,” says Graham. He adds that price cross-elasticity coefficients, which measure the impact of one brand’s impact of price change on other brands’ volume, are up substantially.
Notes Ball, “Advertising budgets are being redirected to in-store marketing and trade deals. Virtually every manufacturer and retailer is playing a game of chicken - even as it becomes obvious that everyday price rollbacks represent the last, best hope of winning back consumers. However, manufacturers understand that a list price decrease is unlikely to get passed through to the consumer, so their preferred strategy is to maintain the current high base prices and offer value by dealing back through deep discounts. The issue with this particular hi-lo strategy is that consumers quickly learn that full list prices are artificially high and that they have the opportunity to buy comparable brands or private label items at a discount.”
Tabrizi, Graham and Ball believe that the emerging pricing and promotional strategies are weakening the major national brands.
“At this stage in the business cycle, it is critically important for manufacturers and retailers alike to develop long-term strategies capable of addressing the new consumer realities,” says Graham. Here are the questions he believes must be addressed first:
1. What is my brand’s new price elasticity and promotional response? How will this change as economic conditions change?
2. What is the new consumption equilibrium as a result of the loss of access to credit?
3. Is my brand/store impacted by the loss of credit, or is this dynamic actually helping me by inducing my consumer to buy our products because of their relative value?
4. Will retailers partner with manufacturers to address consumer need for value?
“Price and promotional responses are increasing as a result of consumers’ need for value,” says Tabrizi. “However, the marketing community should understand that these spikes may well be driven by their own pricing and promotional tactics that induce value purchasing.”
The researchers believe that the new consumer spending equilibrium will be lower, in good part because the days of easy credit may well be over forever. But they warn that the current rush to adjust brand positioning, production and pricing based on deep recessionary conditions fails to provide strategic direction based on longer-term demand and consumer expectations.
“The quantitative measurement of the next level of spending equilibrium will involve a close examination of major consumer trends ranging from the aging of the boomers to the focus on sustainability,” says Ball. “The latter trend is widely perceived to be in a holding pattern due to the consumers’ need to focus on saving money. However some retailers, like Wal-Mart, are proving the ‘clean and green’ can equal ‘lean and mean.’”