For the past several weeks, U.K. consumers have faced an onslaught of financial woes: Inflation is on the rise, interest rates are sky high and the stock market continues to decline. This tumultuous economic climate has many fearing the U.K. is facing another recession. And it has caused many CPG brands to reconsider their marketing strategy on the heels of huge pandemic gains.
Consumers are feeling the squeeze on all sides. A recent ONS report showed consumer prices rose 9/1% in May, reaching a new 40-year high. While natural gas and electricity prices continued to dominate the increases over the past year, food, motor fuel, clothing and furniture also gained.
The chart below shows how much each of those categories contributed to the headline rate of inflation.
Some goods and services are already rising at a double-digit pace. The gains reflect inflationary pressures building at the wholesale level, where the cost of goods leaving factories rose at the strongest rate since 1977.
Adding to the crunch are the ongoing supply chain issues that have impacted brands by global supply chain issues, material shortages, the EU exit and the coronavirus (COVID-19) pandemic.
ONS reports changing consumer shopping habits has contributed towards this decline in levels of stock, with the increasing use of online shopping replacing traditional purchases at high street stores. The COVID-19 pandemic contributed towards this decline as non-specialised store were deemed to be "non-essential retail".
IRI reported that based on historical data from the Great Recession, which began in 2008, consumers bought smaller amounts and stuck primarily to essential items. They valued lower cost goods, opting for discount retailers and goods, and using more coupons.
We’re seeing all the same behaviour changes right now.
Consumers are looking to tighten spending habits everywhere, buying less or trading down in almost every category. In a recent PwC consumer sentiment survey, holidays appear to be more protected than perhaps expected this year, as relatively few people look to postpone. With many missing out over the last two years, it may be one sacrifice consumers are unwilling to make.
Eating out less is one area where the more affluent have looked to cut back, likewise, younger generations have opted for fewer takeaways or deliveries. There is a tug-of-war between the consumer’s desire to buy what they want and the need to make concessions based on the higher prices hitting their wallets. And consumers aren’t just buying less stuff, they are shopping less, which means a loss of the impulse-shopping moments that are critical to retail growth.
With most consumers undertaking some form of cutting back and over a third looking to trade down to cheaper items, eat out less and make fewer purchases in general, retailers and operators must ensure product lines can be adapted to suit varying levels of available income.
Lisa Hooker, Industry Leader for Consumer Markets at PwC UK
With all of this doom and gloom CPGs may be tempted to cut back or eliminate marketing budgets.
Before you head for hills, consider these lessons from recessions and downturns through history:
In 1981, companies that advertised heavily during the recession had 256% higher sales than those that stopped advertising.
For example In the US in 1991, McDonalds cut budget while Pizza Hut and Taco Bell increased theirs. Pizza Hut and Taco Bell grew sales 61% and 40%, respectively, while McDonalds declined 28%. In 2008, Reckit Benckiser increased advertising while competitors reduced theirs. RB grew profits 14% while rivals declined 10+%. And after those losses, it takes 3-5 years of brand building to recover from going dark. So don’t cut costs just because your consumers are cutting theirs. Identify your strategic growth areas and get smarter with your marketing instead.
Brands look to data to trim marketing waste
Because this looming recession seems to mirror the Great Recession of ’08 in many ways, it's not surprising that many brands are turning to similar tactics from that time. Many are looking to highlight the value of their product or brand or creating entirely new value products that fit better into certain shopper segments. But unlike the late aughts, brands now have more powerful data optimised for reaching customers at their fingertips. Data that can help them customise promotions to retain price-sensitive shoppers, as well as promote products that stand out against private label items.
Ultimately, brands are looking at three main areas of focus:
- Protecting their base: Retaining your most valuable customers is critical. As acquisition strategies can be a race to the pricing bottom.
- Sending the right messages: Delivering 1:1 personalisation means messages are more relevant, and are reaching consumers who are actually ready to purchase.
- Optimised strategies with high returns: As marketing budgets shrink, ROI is more important than ever.
Abacus can help brands get more bang for their buck
Epsilon Abacus solutions are designed with consumers in mind. With the Epsilon Alliance, we can reach lookalike customers and we can ensure the customers we reach are the ones most likely to convert.
In times when budgets are tight, brands need to lean into delivering the right messages to the right people. Private labels might win on price, but if brands can communicate the value proposition that most resonates with each person, they’ll be more likely to keep their valued customers at a time where it means the most.
The Value of Data to Marketers
Marketers rely on data. Data helps to validate and/or inform our assumptions and our projections. It is used to build new business cases, to support increases in spend, decreases in spend, changes in merchandise, creative, pricing, staffing, etc. Data is critical across every aspect of a marketer’s business.
At Epsilon, our belief is that the value of data increases when data is used for a variety of applications across an organisation’s marketing and business programs. That is why understanding the many applications of Abacus Alliance data can help you to extract more value from your participation to the co-operative.
As well as leveraging Abacus Alliance data to identify responsive prospecting audiences, many Alliance members access the co-operative’s transactional data to answer questions about their existing customers and other consumers they have interacted with. Below is a quick snapshot of questions that members can answer by leveraging Abacus Alliance data:
- Are they loyal to me or are they also transacting with other brands in my category?
- Are there other categories of products they might be interested in?
- These customers have not purchased from me for a while: Are they still in the market for my product?
- These individuals were gifted one of our products. Are they also actively purchasing in this category?
- These customers have just purchased from us for the first time. How much should I invest in developing them? What is their potential LTV?
While brands are not out of the woods yet, economic turbulence doesn’t need to wipe out years of valuable gains with consumers. Surviving the financial downturn starts with understanding the people who use your products. Answering the questions above will help you to improve your activation, reactivation, and cross-sell efforts and add great value to your organisation.
Send us a message at enquiriesuk@epsilon.com
References: ONS Data, IRI Report, PwC