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As inflation bites and prices rise, what strategies should brands adopt?

inflation

Coca-Cola has announced plans to increase its marketing spend to build brand value and "earn the respect of price points." In slightly plainer English, the company is seeking to retain consumer loyalty while adjusting prices upward in the face of surging inflation. So, should brands be allocating more to their marketing budgets and if so what strategies should they adopt?

These are unsettling times. Even before the Russian invasion of Ukraine, the prices of raw materials, components and commodities were rising as supply failed to keep up with demand. Now, of course, Europe is coping with a massive hike in oil, gas and food prices and there is no relief in sight - at least in the immediate future. Consequently brands - most of them at least - are having to raise their own prices at a time when consumers have less to spend. In this climate, it is a temptation to trim marketing budgets in order to reduce costs and protect profits.

That's a worry not just for brand managers - who might find themselves working within more constrained budgets -but also for marketing, advertising and PR agencies. So much of a worry in fact that Britain's Institute of Practitioners in Advertising (IPA) took out a display ad in the Financial Times newspaper earlier this month, urging brands to maintain their advertising spending. The message was a simple one with the strapline: "Come Back in a year and tell us if cutting your advertising budget was a good idea." From an industry point of view, it was a timely piece of messaging. While the IPA's Bellwether Report says UK marketing budgets rose in the first two quarters of 2022 the increase wasn't universal and a reduction is expected in the second half of the year. Not surprisingly, the industry association argues that budget cuts would be self-defeating.

Loss of market share
Alan Young is Executive Creative Director of St Lukes, a creative agency that works with a wide range of consumer brands, including the Daily Mail, Ocado, Butterkist and Great Western Railways. While acknowledging that some - or perhaps many - brands will consider paring back their marketing spend, he agrees with the IPA that this could result in a loss of market share over the longer term."Coca-Cola has been very wise," he says. "When some brands cut back those who continue to spend have a louder voice in the public square." Why does that matter? Well, when times are tough, a consumer might save money by purchasing supermarket-own brands rather than premium rivals. As the financial situation improves, maintaining mindshare should result in those consumers returning to the premium end of the market.Alternatively, those same consumers might simply stick to those premium brands that step up their marketing.

But don't those consumers carry on buying or return to favourite brands anyway? Not so, says Jason Cobbold of BMB Agency. "The thing about brand equity is that it erodes over time," he says. "Brands need to ensure that memories don't fade." This effect was very much in the mind of Coca-Cola CEO, James Quincy when he spoke to reporters and analysts this month. "Consumers tend to pull back on "high ticket items. They then start saving on the lower ticket items and they trade down in categories that have weaker leader brands, " In that respect, advertising protects market share in affordable categories but also drives bigger ticket sales in the longer term. "Stored up demand is very important," says Alan Young. "Mercedes would target people at 12 years old knowing that they might not get around to buying a car until they were 50."

New Strategies for New Times
Let's assume for a moment that brands opt to maintain or increase their budgets in order to stay in the minds of consumers. Do they then carry on much as before or do they change the message and adopt new strategies? There is a case for sticking with a tried-and-trusted approach. "Consistency is key, wind rain or shine," says David Burgman, CEO of Raptor, a student marketing agency specialising in experiences. He cites his client Pot Noodle. "The message 'cook less and get out more' won't change. But Alan Young says there has been a shift in consumer priorities. As he points out, many companies have been promoting their own stated values - such as a commitment to the environment or the wellbeing of the workforce."Brands will now have to shift the focus from their values to the value of the product," he says. "The focus needs to come back to the consumer who wants to know what's in for me."

And as Cobbold observes, recessions tend to focus the minds of brand managers. Often empathy with the customer is the key to success. He cites the example of supermarket chain Tesco, which has adopted the mantra "Every little helps'' in its advertising. The message is that the company is on the side of the customer. It offers small savings on individual items that feed through to a much bigger value offer based on putting the shopper first. "The Every little helps campaign was born out of the great financial crisis," says Cobbold. The alternative, says Cobbold, is to move away from value as defined by price and focus instead on what a brand really means to its customers. "You see two responses," says Cobbold. "You focus on value or aspiration and desire. You stay lofty and premium.

Skip Black Friday
But what about special offers? In times of recession, you might think price-slashing promotions would be a key tool, but that's not what Sjef Kerkhofs, Managing Director of social media marketing company Daily Dialogues is seeing in the marketplace. "One other interesting effect is that we see much less aggressive product promos," he says. Multiple clients of ours have decided to almost fully skip Black Friday for instance, because they can't offer the big discounts anymore due to inflation and also the upcoming recession. So the message is more nuanced. "We also see a different tone of voice and messaging in campaigns. Much less about prices, much more about purpose, added value, brand values etc," he adds.

But should brands be addressing the cost of living directly in their ads? Explaining their price rises, perhaps, or talking about how tough things are. Nicole Adolph, strategist at advertising agency, Wunderman Thompson, strikes a warning note."Brands run the risk of sounding patronising or out of touch by highlighting in their advertising how bad things are or will be - if you need further proof just think about all those ads that came out as lockdown was announced," she says. "The brands that provide relief or utility fare better in the eyes of consumers.What are you doing to make life easier? Are you lowering prices? A new product that lightens the load or an existing product that works a little harder?"

Changing Channels
There is also, says Kerkhofs, a shift to digital channels and away from the above-the-line options."For more and more clients, prices of these ATL channels are becoming simply too high. So, they tend to skip ATL, even for branding." Digital opens the door to another strategy - namely hyper-targeting. Demand for a particular product is not going to drop away entirely, but it may be more popular with a subset of consumers. Alan Young says these can be micro-targeted through digital channels. Equally, demand may shift - for a time - into affordable offerings from the brand and this can also be factored into targeted campaigns."If I were Chanel, I would concentrate on lipsticks rather than shoes," says Young. Spending may also shift to experiences. For instance, Coca-Cola is investing more in its Magic Weekends - a series of events celebrating mealtimes - which in turn complements its global Real Magic marketing strategy. If the IPA predictions are correct, marketing and advertising budgets are likely to fall in the second half of 2022, but perhaps more importantly, they are likely to move to the most appropriate channels as brands decide on strategies and key target audiences. 

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