A fast-changing world: How brands should respond to the cost-of-living crisis
Recent research shows that 75% of brands could disappear tomorrow and no-one would care. The truth is that only a minority of brands really matter to consumers and that most – especially those selling commoditised products and services – command little loyalty. As societies around the world battle a cost of living crisis, brands need to work hard to maintain a relationship with consumers. The good news? Businesses have been talking about purpose for years. Now they have an opportunity to put their money where their mouth is.
What is causing the cost of living crisis?
In short, a perfect economic storm:
- When societies around the world opened up after the pandemic, demand for goods increased. Some businesses struggled to get goods – especially from overseas – to their customers. This caused prices to rise.
- Continued lockdowns in China have made it difficult to import goods to the West and elsewhere.
- In the UK, the aftermath of Brexit caused additional supply chain disruption.
- The war in Ukraine has caused the price of gas and oil to increase.
- The virtual suspension of grain exports from Ukraine has created a worldwide grain shortage, affecting food prices.
These factors – particularly the increase in gas and oil prices – are causing costs for manufacturers and retailers to rise, directly threatening profit margins. Since companies cannot absorb these costs indefinitely, they are passing them onto customers – which is why prices are rising.
This presents a challenge for marketers. What is the right message when consumer budgets are under pressure? And for businesses which transact across borders, how do you tailor your messages to suit different markets, when the impact of the crisis varies from country to country?
What do consumers expect from brands?
In May, a poll commissioned by the Institute of Practitioners in Advertising and carried out in the UK by Opinium showed that consumers do see a role for brands during the cost of living crisis. When UK consumers were asked how brands could support them, the most popular ways cited were:
- Keeping prices fair (57%)
- Freezing prices on value-range products or services (36%)
- Offering more value for money promotions (33%)
- Rewarding existing customers’ loyalty (30%)
- Increasing the number of promotions (28%)
Conversely, consumers were least in favour of brands:
- Entertaining and making customers laugh and smile (5%)
- Engaging directly with customers to develop new solutions and ideas (8%)
- Offering affordable customer finance (10%)
Also in May, Marketing Week reported that:
- More than a third (38%) of shoppers said they had already started to swap tried and trusted brands for supermarket value ranges or cheaper alternatives
- 24% have cancelled subscription services such as Netflix
- 33% have cut back on large expenses like holidays abroad
- 33% have cut their spend on non-essentials like eating out
- 35% are driving less
- 23% have cancelled donations to charity
- 53% are considering delaying important life events, such as weddings
So how should marketers respond?
Expect longer purchase cycles
Inflation and the uncertainty it causes interferes with purchase cycles. Consumers take longer to buy more expensive items, as they spend more time researching both online and offline before committing their hard-earned cash. In this inflationary landscape, it’s worth revisiting your purchase funnels to check that your assumptions are still relevant.
Revisit your keyword strategy
Given the context, we can expect value-related search terms to become more relevant. Anyone who searching for a product using cost-related keywords is usually quite far down the buying funnel, since they’ve reached the stage of comparing prices and product features. So review your keyword strategy to see if there is scope to target potential customers who are looking for cheaper alternatives when shopping online.
It might be useful to segment your audience by ‘downturn’ mindset – that is, from most affected to least affected – then adjusting your tactics accordingly. Bear in mind that how audiences search for your product in different countries will vary by language and culture, so use a Local In-Market Expert to guide you.
With the proportion of zero click searches growing, convincing people to click through to your site from the SERP is important. Make sure your page titles, meta descriptions, and images are optimised to maximise your appeal to your audience in the present context.
Provide useful or helpful content to customers
With household budgets under pressure, consumers are looking for information to help them make cost savings across the board. Using ‘money saving’ content as a ruse to sell more products probably won’t go down well, but genuinely useful tips or advice which can make a difference to people will help improve sentiment towards your brand – which could pay dividends when the crisis eases. How you approach content marketing will depend on your product, your target audiences, and your target markets.
If you decide to provide advice to those who want to reduce their spending, be careful how you execute this (especially across languages). When Ovo, the energy supplier, provided tips for reducing energy bills that included recommending customers hug their pets, it caused a PR backlash. Whilst the sentiment was positive, the execution was thought to lack empathy.
Focus on value
Even luxury or high end brands can create messaging around value or quality, although care must be taken not to appear tone-deaf. If your product offers great quality or durability, customers may be willing to pay for something they feel will help them save more in the future (avoiding the ‘buy cheap, buy twice’ adage). Or they may be willing to pay for other product benefits that chime with their values, such as sustainability, provenance, or a charitable outcome. The challenge is to remind your consumers of the value you add to their lives beyond mere price. Demonstrating value, rather than merely asserting it, will set your brand apart.
Provide tangible support
Examples might include helping customers to spread costs, incentivising payment by Direct Debit, moving to a subscription model, discounting bundled packages, scrapping delivery charges regardless of the size of the order, providing premium offers for regular customers and so on. Perhaps you can help customers regain a sense of control by offering subscription pauses. You could also encourage customers to share their data in exchange for discounts. That said…
Take care with consumer credit options
In May, with the cost of living in mind, the UK’s Financial Conduct Authority wrote to consumer credit firms warning them not to play down the risks of borrowing when marketing to customers who might turn to credit to spread the costs of purchases. If you already use credit solutions such as Buy Now, Pay Later on your website, you’ll be aware of the regulated guidelines about what you can and can’t say to customers when buying via credit. The FCA’s warning shows they are watching. If you transact across borders, it’s important to be mindful of regulations in different markets too.
Be transparent with your customers and show empathy
If your prices are going up, be honest – explain why costs are rising. Don’t pretend these are your best prices if they are not. Don’t try to mislead with jargon or bamboozle with numbers and percentages. Simplify and then allow customers to make up their own minds.
If you are able to offer small discounts or minor cost savings, it’s important not to exaggerate these. Inflation is probably affecting your whole category so small price differences between you and your competitors may seem a big deal for you but might be negligible to customers facing bigger financial challenges. Again, showing empathy is essential.
Hold your nerve and keep going
Be wary of knee jerk reactions and remember your long term strategy. It’s tempting to review your marketing budget with a critical eye when times are tight and simply decide to put activity on hold. Often this is a mistake. During economic crises, media prices can become more attractive, which means your budget can go further – especially if your competitors take a cautious approach and decide to pull back. Remember, share of voice increases when there are fewer voices. It’s important to continue to invest in your brand – previous recessions show that brands which do so are more likely to maintain their price premium, even when prices are increasing across the category.
The crisis will be felt differently across product categories
Brands in high frequency, low value categories will play an important role in helping consumers survive and react to changes in available income. Whilst the easy answer is promotions and short term discounts, this is not without risk: they may stem immediate losses but when prices rise again, you’ll not only have made less money during the discounted period, but you may lose customers whose only attraction to you was driven by discounts.
For brands in lower frequency, higher value categories, the challenge is to justify the cost of your products – for example, by doubling down on experience and quality and reminding customers of why your product is useful to their lives. As consumer incomes fall, there will inevitably be a reduction in big-ticket luxury goods purchased. However, as we know from the ‘lipstick effect’, smaller luxury purchases are likely to remain resilient as people continue to treat themselves, albeit to a lesser degree. This will represent an opportunity for brand categories in this space.
There is no one way to navigate this crisis but showing empathy with your customers and thinking long term will maximise your chance of success. If inflation continues to rise and products become more expensive as a result, remember that everyone in your category is going through the same disruption. No brand is going to be at a significant disadvantage relative to the next (although you may be at risk from a brand in an adjoining category).
Finally, the recent trend for brands to stray from their core purpose by adopting often abstract positions on socio-political issues might jar with immediate consumer concerns about day-to-day affordability. This is probably a moment to hold back on some of the loftier brand claims.
. . .
If you’re looking for an international digital marketing agency to help you navigate the crisis, Oban can help. To find out how, get in touch.
Oban International is the digital marketing agency specialising in international expansion. Our LIME (Local In-Market Expert) Network provides up to date cultural input and insights from over 80 markets around the world, helping clients realise the best marketing opportunities and avoid the costliest mistakes.