Marketing promotions in a cost-of-living crisis

Our very own strategist Jamie Kenyon and CSO Louise Martell feature in WARC, giving their sage advice on marketing promotions in the current cost of living crisis.

 

In a time when economic pressures are likely to see consumers cutting back discretionary spend, brands will need to be sensitive about promotion while continuing to remain relevant and top of mind.

  • While those without any children are set to see annual FMCG shopping budgets to rise by £132 at an inflation level of 4%, the rise is £264 for those supporting children above the age of 17, according to data from Kantar Worldpanel FMCG.
  • Data from YouGov Profiles reveals that 28% of the UK adult population are already ‘very worried’ about changes they will need to make to deal with the cost-of-living crisis, and 46% are ‘fairly worried’.
  • Brands hold positions of responsibility in society and should use advertising budgets and messaging to reassure, inform and help consumers navigate the day-to-day.

Why it matters

Soaring everyday costs impact consumers in different amounts. Brands will need to walk a line between staying relevant and top of mind, while also being sensitive to their increasing challenging financial circumstances.

Takeaways

  • Brand owners must acknowledge economic disparity and ensure all aspects of their marketing communications are responsive. This means getting to grips with audiences’ financial reality and aligning all communications to their expectations, priorities and behaviour.
  • Those still able to invest in big ticket items will crave security in their purchases. Brands in this space should bolster trust cues – emphasising protections, approval ratings and testimonials while employing social proof bias in messaging to reassure potential customers.
  • The ‘lipstick effect’ will assume increased importance with consumers placing emphasis on things they have been denied during the pandemic as well as cheaper indulgences.

High inflation racing ahead of wage increases has squeezed incomes for many UK households in 2022. Now, with Russian sanctions compounding soaring energy prices and tax increases soon to roll out in the UK, the cost-of-living crisis is set to further worsen. How, then, should brand owners respond when it comes to brand promotion?

Three key aspects of the cost-of-living crisis have profound implications for marketers.

 

1. The cost-of-living disparity

Hardship will be unevenly distributed. An inflation rate of 3% to 4% is regarded as the tipping point at which shoppers start saving money, with 75% exhibiting greater frugality, according to data from Kantar. But to assume all consumers will seek to save money in the same manner – by swapping expensive products for cheaper alternatives – is reductive and misleading.

While those without any children are set to see annual FMCG shopping budgets to rise by £132 at an inflation level of 4%, the rise is £264 for those supporting children above the age of 17, according to data from Kantar Worldpanel FMCG.

And while 36% of Britons expect to be very or relatively comfortable in term of their personal finances as the cost-of-living crisis takes grip, 33% said they would drop luxuries, according to survey data from YouGov (YouGov Profiles). Some 18% said they would struggle to make ends meet, and 5% that they would go without essentials like food or heating.

In short, household finances are complex and require different responses to periods of economic hardship.

How brand owners should respond

Brand owners must acknowledge this profound disparity and ensure all aspects of their marketing communications are responsive. This means getting to grips with audiences’ financial reality and aligning all communications to their expectations, priorities and behaviour.

Advertisers and agencies with access to YouGov Profiles can make use of the daily questions on personal finances to understand how their target audiences might change shopping behaviours and ensure their messaging is in lockstep.

For example, households already facing significant financial insecurity will look to products which can serve multiple functions while stripping out anything that isn’t considered essential. In this context, advertisers can meet their needs by emphasising product versatility and functionality in messaging.

For less vulnerable shoppers, the emphasis should shift to effectively communicating why it is worth paying more for their products in the face of compelling own-label alternatives.

High-profile FMCG brands such as Andrex and Fairy have been communicating the value of their brands for many years, allowing them to command a price premium and averting category-level commodification. This isn’t achieved through rational messaging, but instead by forging an emotional connection with consumers through distinctive, memorable, and consistent advertising that communicates product superiority in a compelling manner.

Those still able to invest in big ticket items will crave security in their purchases. Brands in this space should bolster trust cues – emphasising protections, approval ratings and testimonials while employing social proof bias in messaging to reassure potential customers.

2. The mental health cost

The second key aspect of the cost-of-living crisis to which marketers must respond is the significant strain on mental health it will create – something to which all brands can and should respond.

Since the start of the pandemic, for instance, the number of people reporting mental health problems has dramatically increased. Some 1.6 million people are waiting for mental health treatment on the NHS and another 8 million cannot get on the waiting list but would benefit from support, according to the NHS Confederation and Royal College of Psychiatrists.

What’s more, as a result of the grim coverage of conflict in eastern Europe and the cost-of-living crisis that will affect almost all UK households to some degree, both of these figures are expected to worsen. Experts in public health have warned of a “second pandemic” – of anxiety and depression.

Data from YouGov Profiles reveals that 28% of the UK adult population are already ‘very worried’ about changes they will need to make to deal with the cost-of-living crisis, and 46% are ‘fairly worried’ (YouGov Profiles).

How brand owners should respond

Brand owners must maintain humanity, warmth, and, where appropriate, humour in communications to provide relief from a constant barrage of bad news and uncertainty. These were key success factors identified by the “godfather of effectiveness” Peter Field in his 2020 analysis of 50 case studies from the 2008 recession to establish the best performing strategies in periods of hardship.

Brands hold positions of responsibility in society and should use advertising budgets and messaging to reassure, inform and help consumers navigate the day-to-day.

Such an approach isn’t just about above-the-line advertising. It should also involve an increased emphasis on one-to-one communications and CRM, offering personalised advice to existing customers to engender good will.

This isn’t to suggest all brands must ditch long-term plans and pivot towards a pure purpose-driven strategy. Consumers will be quick to sniff out any brand seen to be opportunistically capitalising on hardship, so messaging must feel authentic and relevant to an overarching brand identity or offering.

3. COVID-19’s impact on response to recession

Brand owners must acknowledge how the backdrop of COVID-19 challenges convention around consumer behaviour in a recession.

Take cooking in batches, more packed lunches in the workplace, less emphasis on health and fewer impulse purchases as consumers reject experimentation and seek reassurance in what they know. These were consumer conventions during times of economic hardship identified by Kantar’s state of the nation study, based on observed behaviour during the 2008 financial crisis (Kantar Worldpanel FMCG)[1].

During this period, discounters really started to steal share from major retailers (Talking Retail) and the luxury market plummeted (Vogue Business). However, another observed consumer behaviour was increased emphasis on small indulgences and affordable luxuries – famously known as the ‘lipstick effect’. This will assume increased importance with consumers placing emphasis on things they have been denied during the pandemic as well as cheaper indulgences.

With Tui reporting pent up consumer demand and holiday bookings this summer up one fifth on pre-pandemic levels (Guardian), we anticipate that people will look to ringfence their holiday budgets if they can, prioritising spending on getting away and life-experiences with loved ones.

How brand owners should respond

Brand owners should seek to actively capitalise on the lipstick effect. Sectors best positioned to do so include beauty, premium snacks and ready meals which can serve as an affordable alternative to dining out. M&S’ Dine In For £10, born out of the 2008 recession, was and still is a case point.

Advertisers with relevant products or services at appropriate price points should emphasise notions of gratification, indulgence or luxury in messaging.

Behavioural economics will have a role to play. ‘Expectancy theory’ dictates that our perception of something will be influenced by its context and surroundings. Keeping the right company through partnerships and associations is important, as is the use of media and environments that bestow notions of luxury on the brand.

Magnum is an advertiser with strong pedigree in communicating affordable luxury both in messaging and application of behavioural economics. It employs lines such as “as good as gold” while associating itself with upmarket events such as Royal Ascot and using premium Out of Home formats.

Advertisers should play upon the importance of in-person connection and building memories in the context of the pandemic. Aperol Spritz’s ‘Together We Joy’ is an example of a long-standing campaign that has emphasised the brand’s role in bringing people together in the real world.

 

Link to the piece: https://lnkd.in/eWCaYsaz

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