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5 Important Tips to Protect Your Brand in an Economic Storm

Daily economic news in Canada and around the world is replacing my desire for suspense novels. Every day, we are seeing new financial lows and ominous warning signs to make any brand get nervous. Household indebtedness is an important number to watch because it tells us how much disposable income consumers have to spend on our brands.

 

Canadians are leveraged through the Teeth

Statistics Canada reported that the ratio of household credit-market debt to disposable income rose to its highest level of 163.7%!  Total credit-market debt reached $1.89-trillion in the third quarter another record. Mortgage debt makes up 65% and the other 35% is consumer credit, such as credit cards, car loans, personal loans, etc.  If we assume most of this debt resides with people aged 20 to 65 years of age, the average consumer debt (not including mortgages) is $25,744. The Bank of Canada sounded the alarm that household indebtedness and imbalance on the housing sector are key vulnerabilities to the financial sector. In particular there is a segment of younger households with debt-to-income of 350% or higher!

So what does this all mean for brands? The ultimate outcome is consumers have less disposable income to spend on brands. Decrease spending on brands means decrease profits.

But looking just at the wallet isn’t the only thing we have to be concerned about. We also need to understand what consumers are thinking and feeling. Are they optimistic or pessimistic about their future and money supply? Some economists say consumer expectations concerning economic conditions tend to be a self-fulfilling prophecy. If they expect doom and gloom, the economic conditions worsen because they stop consumption. But in most cases they just follow reality.

A Storm Is a Brewin!

There are a number of possible storms that can trigger a negative change in consumer consumption such as:

  • A recession or economic downturn with loss of employment
  • Physical disaster or state of war
  • Increased interest rates
  • Increased government taxes
  • Hard to borrow money or obtain credit
  • Housing bubble burst
  • Fear and political instability

All or none of these could happen. If I knew, I wouldn’t be writing this article. I would be too busy spending my millions from my last successful financial prediction. If any of these storms appear, brands need to be prepared and take the necessary steps to respond to the market and adjust their brand strategies appropriately.

 

Consumer Mindshift in a Storm

In a time of uncertainty and fear of losing one’s job or investments, consumer purchasing habits will change and in some cases drastically. Most brands have a knee jerk reaction not dissimilar to their customers by cutting costs, including advertising, reducing prices and postponing new investments. Harvard Business Review has analysed historical market downturn data since the 1970s identifing four distinct psychological groups of consumers in hard times:

Slam-on-the-brakes

This is the group that is directly hit with financial pain and reduce all types of spending. It might be futile to go after this group if they truly are strapped for money or credit.

Pained-but-patient

This group tends to be the largest group who aren’t as pessimistic as the slam-on-the brakes but they too economize in all areas. As the bad news gets closer to home they can easily migrate to the slam-on-the-brakes group. Let’s hope it’s not the middle class. MoneySense estimates 60% of Canadians fit in the middle class (based on 2013) and have an average family income between $40K to 125K (a difference of 200% from the lower-middle to the upper-middle).

Comfortably well-off

Like the title describes, these consumers feel secure to ride out the difficult times but are more selective and careful about their purchases, it’s less about their pocket-book but more about image. This group is generally part of the top 5% income bracket.

Live-for-today

This group is less concerned about the downturn (if they are aware of it) and make little changes in their buying habits focusing more on experiences rather than stuff (except technology like smartphones, tablets, etc.). The only way this group’s consumption pattern will change is if they become unemployed. This is the group that has great parties every weekend. I want to be friends with these guys.

Remember, these are just generalizations but can help in setting your brand strategy when the economy gets difficult.

The main issue that brands need to address is price and value if they want to connect with the largest group (pained-but-patient) unless they feel they can survive with the top two groups. WPP, the world’s largest multinational advertising agencies, says in a study that brands need to face the reality of the situation and address customer needs by showing a sense of honesty and care. There are intelligent ways to acknowledge the problem and to reinforce your brands positioning and relationship. Similar to customers, brands must make difficult decisions with limited resources. But most importantly, don’t stop communicating to your customers in some way or fashion.

 

5 Tips to Manage an Economic Storm

Here are some possible tips for your brand to get customers to pull out their wallets, debit cards and credit cards during economic challenging times:

 

Create Added Value

Justify price – demonstrate superior performance and value, product comparison, and testimonials, are some examples.

Add features and services – free support & servicing, check-ups, extra quantity, extended warranties, free shipping or setup, and choice of colours, are some examples.

Economy sizes – buy more, get more – you are positioning savings, retaining sales and not sacrificing value. This is the Costco model of buying bulk.

Do it yourself – The Ikea model. The perception that you have to assemble it means you will be saving money – or just creating more pain at home – “what do you do with all the extra bolts and screws they give you or should there be extra?!”

bounty 25 thicker

The Screaming Deals

Create urgency that this is the best-time to be buying your brand. Pull out all the starbursts, yell and scream – “We have a deal for you!” Art directors will cringe at the thought of this but it does work. Everything from price discounts, promotional and special offers, contests and giveaways. Remember, all you are doing here is renting customer loyalty in the short-term but it will help keep the cash flowing.

ford employee pricing

Reduce Risk & Barriers

Show that you brand cares and understands the situation customers are facing in difficult financial times. Provide alternative payment options – nothing down, don’t pay until next year, zero percent interest payments, free financing, no-credit-check, job loss protect, etc.

hyundai offer

New Innovations and Technology

Make consumers forget about the bad times and create excitement towards a new product with never seen features or never experienced benefits. For many brands this might be difficult to accomplish in a short-time frame. But you can adjust your brand to have new efficiencies or reduce costs. Reduced costs can be accomplished many ways such as production efficiencies, cheaper ingredients, smaller package size, single servings, and slimmed-down basic version with no bells or whistles. So if you can’t wow your customer into buying your products, then reach out with an offer they can’t refuse. Chances are they will end-up buying the more expensive version but the less-expensive version got them through the door.

There have been many new products successfully launched during difficult financial times such as Rice Krispies, Plymouth and the iPod.

ipod

A Beacon in the Storm

The smart brands not only weather the storm but they continue to strengthen their brand relationships. Remember that your best customers can be your best backer during difficult times. With the help of social media they can quickly be mobilized to get your brand message out – from a simple customer referral program to getting “likes” for a new product. Always talk about the value your brand brings –the rational and psychological. Tap into the concepts of small indulgence, sharing and helping. Do random acts of kindness like Starbucks did with #TweetACoffee campaign where people were encouraged to buy a friend a coffee using twitter, or Coca-Cola’s #WishUponACoke campaign in Dubai where they fulfilled wishes for immigrant workers who left home for a job.

 

Weathering the Storm

John Hayes, American Express CMO said at the American Marketing Association’s MPlanet 2009 conference “Consumers are more likely than ever to award their hard earned dollar to those brands that provide the greatest value, build the strongest relationship and connect in the most meaningful way.”

Keep an eye on the economic weather and have a plan ready if a storm should hit. Remember as you scrutinize your customers to determine if they can pay, they too will be watching your brand on how it also handles tough times.

 

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Can You Put Your Trust In Brands?

Is brand trust in a crisis? Brand trust is earned through consistently delivering on the brand’s promise. Brand trust is the only way you can build loyal brand advocates. But the global trend is working in the opposite direction. Young & Rubicam BrandAsset Valuator reveals that consumers trust in renowned brands continues to slide. In 1997, consumers indicated that they had a high level of confidence in 52% of brands. By 2008 that percentage dropped to 22%. The Edelman Trust Barometer confirms the same trend with their annual survey. In 2015, for the first time since the end of the Great Recession of 2007-08, their survey signaled a major decline in trust with 16 of 27 countries dropping below their acceptable 50% level into the “distruster” category. For example, Canada went from a 62% trust level in 2014 to 47% in 2015. A drop of 15%! What’s going on?

 

In the climate of austerity are we starting to see brands cutting corners or blatantly deceiving consumers to protect their bottom line. Since 2007-08 the world economy hasn’t been the same and the recent financial instability in China will continue put pressure on brands to perform.

 

 

Profits vs Brand Equity

 

Professor Klaus Schwab, founder and chairman of the World Economic Forum, explains that “There are four prerequisites of the company’s survival; profitability, growth, risk protection and earning public trust.” While we may expect people sometimes to lie, like athletes, actors and most certainly politicians, we don’t expect brands to lie. Why would global companies risk their brand equity by outright lying to their customers?

 

Volkswagen VW, the world’s largest carmaker (past tense) did exactly that when they lied about their emissions tests through cheating software. Why would a mega brand risk its reputation? Profits seems to be the ultimate goal. Jointly Germany car manufactures, actively promoted to Americans that diesel was the future to meet tougher US emission standards. The only way VW was able to compete and live up to the promise was to lie. The arrogance that they thought they wouldn’t get caught is scary, especially since they publicly promised to be the ‘greenest’ car producer in the world by 2018. The lie allowed VW to claim their diesel engine were superior – selling over 12.6 million of them. The fact that buyers used to pay a $2,700 premium over gasoline engines for VW diesels meant an additional $34 billion in VW’s bank account. But the real problem was the fact that their engines emitted nitrogen oxide pollutants up to 40 times above US standards. This environmental damage can’t be fixed.

 

Alan Hilburg and Tracey Linnell say distrust is very expensive. “Low-trust brands pay a ‘trust tax’ in multiple forms, including higher transaction costs and unwanted legislation. The broader and faster the low-trust reality spreads, the deeper the effect of the higher tax.”

 

In a CNN Money report, the financial service holding company Credit Suisse estimated the cost of the VW diesel emissions scandal could exceed $86 billion. About the same GDP value as a country like Ecuador. Volkswagen is facing a very big trust-tax notwithstanding that they are trying to attract customers today through deep discounts.

 

Recently, another scandal was released by CBC Marketplace revealing that Starbucks and Tim Hortons are misleading their customers. They claim the paper cups collected in their in-store recycling bins are being recycled but are actually going into landfills. It seems these paper cups have a plastic lining that requires an additional step in the recycling process, which costs money. So why would two big brands like Starbucks and Tim Hortons mislead their customers to think that they are being environmentally responsible?

 

What’s the impact of a paper cup? CBC estimates that Canadians use over 1.5 billion disposable coffee cups in a year which is equivalent to more than half a million trees. The environmental impact is significant. I don’t know what the cost of recycling a coffee cup is but it is obviously worth more than the truth. But we will have to see if consumers make them pay.

 

Who Makes These Decisions to Lie

 

There is an apparent financial gain that can be significant over time. But who analyzes the brand risk? In an Intangible Asset Market study by Ocean Tomo, they state that in 1975 intangible assets were just 17% of the market value of the S&P 500. Today, intangible assets are 84% of the market value of the S&P 500. What are intangible assets you ask? They are intellectual property (patents, trademarks etc.), goodwill and brand equity. Most of which is built on a foundation of trust.

 

Here are four factors that may be driving some brands to disregard consumer trust as a license to operate:

 

Brand Proliferation

 

Every day we are seeing new brands entering into the marketplace. The explosion of new brands, globalization and intense competition are major problems for brands. According to a Datamonitor report, 58,375 new products were introduced worldwide in 2006, more than double the number from 2002. The reality is consumers have more choices and more choices means more competition for brands, which means more pressure on profits.

 

Moral: Brand equity is important and should be cultivated and protected.

 

Loss of Message Control

 

Brand reputation and image are now firmly in the hands of the consumer, as they control the conversation via digital channels. Nielsen’s Global Trust in Advertising Survey of more than 28,000 Internet respondents in 56 countries said that 92% of consumers around the world trust recommendations from friends and family above all other forms of advertising; an increase of 18% since 2007.

 

Moral: Brands must integrate into digital channels to communicate with customers on their terms.

 

Disconnect with Technology

 

The Edelman Trust Barometer says that the major factor in depressing trust is the rapid implementation of new technology that’s changing everyday life. Of people surveyed 54% were very cynical about new technology, stating “business growth or greed/money are the real impetuses behind innovation.” The problem with most innovations introduced to the market is little work is done to explain to the consumers why this innovation is a good thing in the first place. Genetically Modified Organisms (GMO) are a good example. GM seeds were introduced to farmers to help them increase yields but for the average consumer what did this mean? What was good about inserting a gene from one plant to another and how would consumers benefit from this. Then add, misinformed activists and their scare tactics to label these ‘Frankenfood’ and consumers start getting concerned.

 

Moral: Brands must speak down-to-earth consumer language.

Companies are Greedy

 

There is an inherent belief that faceless corporations are bad and their sole purpose is to make money anyway they can. Greed is what makes the world go round. The famous legal thriller author John Grisham emphasis this belief in all his books which have sold over 275 million copies (2002) world-wide. Every time a bad apple brand gets caught this distrust is reinforced. Janelle Barlow, co-author of Branded Customer Service explains, “Consumers have come to expect advertising and promotions to overstate, to over promise, and to frequently not deliver.”

 

Moral: Take advantage of this belief and build a caring brand (Six reasons why brands should care)

 

The Truth Won’t Get in the Way of a Good Story

 

James Heaton President & Creative Director at Tronvig Group says “It’s just too easy to lie. The attraction is too great, the professional confidence in the gullibility of the consumer is too well-established, the benefits to the company of a ‘visionary and future-oriented’ brand are too immediate and bankable to pass up for the sake of such unsexy things as brand integrity.”

 

The moral of this story is brand’s need a strong governance model to uphold the brand’s core values. This foundation ensure all business decisions are based on those values. Building strong and lasting brands takes time and resources. Lying is one of the quickest ways to ruin a beautiful brand relationship. The real shame in all of this is there are many brands built and operated by honest people that pride themselves on being authentic and truthful.

 

Kees Schilperoort, managing director at Xfacta, a brand consultancy, said it best, “In Brands We Trust, and trust is a must. Because brands that lie, die.”