As UK inflation rose to 1% in September, and the pound weakened further, the effects of Brexit were felt up and down the country – most keenly by Marmite lovers.
Marketers are scrutinising price rises and consumer confidence post-Brexit, with the backdrop of a feared recession. The British Retail Consortium has warned that failure to strike a good deal in 2019 will push up retail prices. The 2008 recession already weeded out the weak retail brands (Woolworths, Blockbuster, Borders) and made the strong brands stronger (Primark, John Lewis). As business magnate Warren Buffett advises – “Be fearful when others are greedy, be greedy when others are fearful”.
Over the years, research studies have confirmed that the best strategy in terms of long-term ROI is, unexpectedly, to increase marketing expenditure during an economic slowdown. The Profit Impact of Marketing Strategies (PIMS) database identified that companies that cut marketing spend enjoyed superior Return on Capital Employed (ROCA) during the recession, and 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.
Whilst this may seem counter-intuitive, it figures on three factors:
Relationship between share of market (SOM) and share of voice (SOV) – the higher your SOV to SOM, the more likely you are to grow.
Relationship between brand size and profit margins – a brand that increases share during a recession stands to benefit from the multiplier once the economy rebounds.
Reduced “noise” during recession provides opportunities – potential to cut through in a less cluttered atmosphere.
Former P&G CEO AG Lafley concurs that he has “a philosophy and a strategy. When times are tough, you build share”.
For retailers looking to boom there will be opportunities to pursue in domestic tourism as families avoid more expensive trips abroad due to the falling pound (supermarkets will be the biggest winners here). Summer events and pushing a ‘Brand Britain’ agenda can appeal to home nationals and foreign visitors alike. For the latter, British retailers, especially luxury brands, are hoping for a boost from tourists on post-referendum shopping sprees; at Westfield’s west London centre, spending by Chinese visitors was up 53% on the previous year in August. The Brexiters wanted a more outward looking Britain so, as Europe edges to pull the door to, and a falling sterling makes goods produced overseas more expensive, brands that can draw attention to British provenance (River Island uses a special ‘Made in Britain’ label), will look for advantage.
There was a wave of nostalgia in advertising in the last recession with Hovis, Persil, Sainsbury’s, and Virgin Atlantic to name a few all leveraging that ‘warm and fuzzy’ feeling we long for in uncertain times. Whilst this doesn’t guarantee success, it aims to strengthen confidence in trusted brands, can provide consumer reassurance and maintain loyalty (and possibly also tap in to the ‘early-onset nostalgia’ millennials are said to be afflicted by). However heritage brands can be disrupted if new brands are skilfully able to orient themselves around customer needs. In 2008, ASOS profits leapt 117%, the following year Net-a-Porter’s rose 300%, and Shop Direct launched Very.co.uk.
As always, demonstrating value is key; if people have a limited amount of money to spend, they go where they
feel they will get better prices, products and service. They shop around more – creating opportunities
for brands to steal share, if they deliver compelling brand offerings.