Marketing Through the Depression
The new world economy that has come into existence in recent months is certainly presenting many challenges to marketers. Unfortunately there are two factors at play that are undermining New Zealand marketers’ ability to cope.
The first of these factors is that most marketers are aged in their 30’s and 40’s. This means that none have experienced true economic hardship of the kind that is looming. At best, those of us in this age group can just recall the darkest days of 1970’s New Zealand under Muldoon, a period when overseas goods were usually taxed out of reach but nobody seriously went without. Many of us gently mock our grandparents’ hoarding habits, viewing the Depression with sepia-toned impressions of how quaint it must have been to wear sugar-sack clothes or wear the same suit for 30 years. Likewise, stories of wartime rationing and the famines experienced by developed countries “like us” (e.g. Ireland and the Netherlands) are relegated to The History Channel. Just how distant economic privation is seen to be can be inferred from the success of TV3’s “The Money Man” programme. Its success is in part due to the ready supply of younger people with minimal money management skills – skills that have obviously been lost after a generation of easy credit . So, bearing in mind that marketers are consumers too, it stands to reason that many marketers will be encountering economic conditions for which they have no training nor experience. Any financial advisor will point out that white collar tertiary educated professionals are frequently the worst at budgeting.
The second factor can be seen in much of the media coverage, most of which includes the clichéd copy that “it will get worse before it gets better”. This is a dangerous view to take, and an even more dangerous view to believe in, because any basic appreciation of the situation clearly concludes that that the situation is not going to get better. This belief is not based on issues that remain debateable, such as peak oil, but on pure and simple demographics. The capitalist world economy and the prices charged within it are subject to supply and demand, and supply is decreasing just as demand is increasing. Those of us who grew up with science fiction have enjoyed seeing much of the fiction come to fruition (cellphones, the internet), but can be excused for seeing the current problems as simply the proof of science fiction’s predictive powers - Soylent Green anyone?
So New Zealand marketers have to realise that the situation is not a simple case of holding back price increases as much as possible – this just reduces margins and is unsustainable. Marketers have to review everything they do if their products and services are going to remain competitive. For many brands, the brand-focussed nature of the last few decades’ marketing will have given them a good buffer. Customers who are committed, or loyal, to a brand have been proven to best less price-sensitive. So brands that have focussed on developing a strong brand with which its customers have a solid relationship will find that their brands suffer less from rising prices.
However, this only works to a point. Evidence is growing that being frugal is now acceptable. Now that the price of everything from cheese to petrol is skyrocketing, conversations about saving money are de rigueur, and the sign of shrewdness, not morally fallible poverty. As such, spending more on a brand when a comparable yet cheaper alternative exists will become less sustainable and subject to increasing criticism. Marketers who have spent much of their professional lives ‘adding value’ to their brands now need to examine how they can sell to the price sensitive without comprising their brand equity. Frequently this means launching cheaper lines of existing products, but this area is well and truly owned by house brands.
This leaves marketers with the quandary of maintaining margins from what is inevitably going to be fewer sales. This is where New Zealand marketers can learn from their counterparts in the developing world. Case studies abound of marketers who have had to launch ‘luxury’ products like toothpaste into rural India, for example. In that case, package sizes were reduced in order to reduce the price and increase availability.
Marketers can also review the ways in which they ‘add more value’ to their existing products, possibly whilst controlling costs. For example, current plastic packaging has been cheap enough to be a single-use item, but as prices increase alternatives may be increasingly viable. For example, some years ago one could buy Marmite in threadless glass jars that could be retained as drinking glasses – a classic exercise in adding tactile value to the product, usefulness to the packaging, whilst also reducing plastics dependency. Marketers who have been going against customer wishes over the years and exchanging glass packaging for plastic could do well to re-examine their actions.
The penultimate suggestion in this week’s column is for marketers to review the manufacture of their products. For example, dairy might be replaceable by soy substitutes, or local suppliers contracted to overcome overseas supply problems (for example, readers may be surprised to know that rice can be grown successfully in New Zealand).
Finally, there will be many marketers for whom the current (and future) situation offers some clear opportunities. These are the businesses whose products have traditionally been the cheaper, sometimes second tier options. House brands have already been mentioned, but also worth noting are the growth potential for pork (in lieu of chicken); home theatre (in lieu of driving to the cinema); bicycles (for cycle-commuting); broadband sales (to enable tele-commuting); domestic holidays (rather than overseas trips); camping equipment and so forth.
Some of the world’s biggest brands succeeded through their shrewd management during the Great Depression of the 1930’s, especially by maintaining advertising, which actually become more effective than ever as competitors reduced adspend (successes of the Depression included Kelloggs, Proctor & Gamble, Camel cigarettes and Chevrolet). The situation is somewhat different today, but the lesson is that every situation will have its winners. Who that will be out of New Zealand’s brands and marketers depends very much on their ability to adapt.