Having averaged around 2.01 per cent between 1991 and through to early 2022, the Eurozone inflation rate soared to more than 8.0 per cent in May. It's a similar story in the UK, where inflation is expected to rise above the 11.00 per cent mark by the end of the year. All of this points to a cost of living crisis for Europe's consumers. How should this be reflected in the marketing strategies of brands?
Economically speaking it's a perfect storm. Rising demand as the world began to pick itself up in the wake of the pandemic was already pushing up energy prices even before Russia invaded Ukraine. Now sky-high oil, gas and petrol prices are putting upward pressure on the cost of goods and services in just about every economic sector. To add to the problem, the virtual suspension of grain exports from Ukraine has created a worldwide grain shortage.
That's the big picture. From a more personal perspective, a significant number of consumers are having to make hard choices about how they spend their money. And according to Cost of Living research carried out by the Havas Media Group,a majority of consumers - 59 per cent, to be precise - are expecting to cut back on their spending in some areas in order to afford essentials. Equally important, consumers are expecting more of brands. The Havas survey was conducted according to the global media agency's own "meaningful brands" methodology. Essentially, this measures the consumer perception of brands against three pillars: namely functional, personal and societal benefits.
The survey shows that consumer expectations are rising on all three measures, but particularly in terms of functional benefits. These include the quality of the product and delivering on promises, but consumers are mainly focused on fair pricing. Havas says the survey indicates that brands must offer tangible help during the cost of living crisis. But what does that mean in practice? Well, according to Mark Sinnock, Global Chief Strategy Officer at the Havas Creative Group many brands will face a genuine challenge when it comes to retaining customers during a time of economic hardship.
"Our research suggests that 75 per cent of brands could disappear tomorrow and no one would care," he says. By that analysis, only a minority of brands really matter to their customers and many - particularly those selling commoditised products and services - command very little in the way of loyalty. And as Sinnock sees it, consumers will make their own shortlists of brands (not necessarily glamorous, it could be soap powder) and allocate their spending accordingly. What this means is that all brands - and particularly those that don't generate a huge amount of loyalty - will have to work hard to maintain a relationship with their consumers as the cost of living crisis begins to bite. And there is a risk of a consumer backlash. "Consumers hear the message that brands are there for them. But if brands say we are making things better and things are actually getting worse, cynicism may creep in," Sinnock says. That raises the question of what actually can be done? Consumer budgets are certainly under pressure, but then again businesses are also hard pressed. They too face rising costs, which will inevitably be passed on to the consumer. So how can a brand keep its own financial house in order while also being mindful of the financial strains on customers?
Segmenting the Audience
Will Lion is Joint Chief Strategy Officer at advertising agency BBH in London. As he sees it, brands need to look at their audience in terms of how they will be impacted by rising prices. "This affects everyone, but especially lower and middle earners," he says. "So this very much affects how brands respond. We recommend: segmenting your audience by 'downturn' mindset, from most affected to least affected, then applying how your offering ranks from essential to cutting back, and then adjusting your tactics accordingly. From what we learnt in previous downturns and Covid, we think it's important to be understanding, proportionate, direct, positive, and helpful. All well and good,but if the biggest concern of consumers is cost or value for money, is the only response to either cut or maintain present prices, or failing that limit any increases? Sinnock says it will depend on the brand and its positioning. "The must-have brands, the ones that people care about, have the greatest elasticity in terms of price," he says. Other less-well-liked brands may find their customers are extremely price sensitive.
In Sinnock's view, brands are thinking tactically at the moment, with loyalty as a key battleground. "Supermarket chain Tesco's innovations with its loyalty Clubcard have shaken up the market," he says. "We are getting a lot of inquiries about loyalty schemes." One tried and trusted model is encouraging customers to share their data in return for discounts. Amanda Walls, founder and Managing Director of marketing agency, Cedarwood Digital sees scope to attract and retain customers through the service offer."From a strategy perspective, we are seeing a lot of what is termed "value add." In the retail sector, this could take the form of implementing free shipping, or perhaps offering additional gifts or extras which might previously not have been included," she says. James Malia, UK MD at card and gift voucher company, Prezee agrees but warns that it is best to act sooner rather than later. Turning to value-add offers or incentives in the middle of a cost-of-living crisis may be too late. "Brands should be aiming to fix the roof before it's raining - take a proactive, rather than reactive approach to increase customer loyalty. It's all well and good realising you're losing customers due to the cost of living and then trying to win them back with offers but a proactive loyalty scheme will have already planted the seeds for retention long ago," he says.
Will Lion encourages brands to be flexible and practical in their support? "Help people regain feelings of lost control with subscription pauses or budget planning? Invent a lower value essentials range? Ultimately, how can your brand help through action and moral support, not just words?" hesuggests. But what about advertising and marketing collateral itself? Should the messaging begin to reflect the changing circumstances of a subset of consumers. Amanda Walls thinks it should. "Within the tone of voice and content of all marketing materials, clients are notably much more considerate of their consumers' financial situations," she says.
And there is perhaps also an opportunity to link cost of living issues with a wider societal agenda. For instance, baby lotion company Sudocrem is currently working on a PR campaign to encourage its consumers to recycle and reuse baby clothes. There is a double benefit here. It is good forthe environment while also providing customers with a means to cut costs. "Most families are feeling the squeeze and anything we can do to help and support them now and in the long term is important. We always say that we have been " soothing families since 1931" and this is part of our purpose and values, says Pauline Kent, MD ofhealthcare-focused public relations agency, Satellite PR. "Sometimes it's the simple things that make people feel better and actually help; like giving them permission to buy second hand and applauding them for doing so. I wish someone had told me to do that." There's probably a limit to the steps that brands can take to ease the cost of living crisis, but in addition to loyalty schemes and value ad promotions, it should be possible to offer practical help, advice and inspiration at difficult times, while simultaneously reinforcing the brand values.