Print this article
Articles archives:
Islamic Brands Ready for Take-Off
Managing Brands in a Changing World
Managing Brands in the Retail Industry under Economic Uncertainty
Building Your Brand through Effective Press & Media Relations
Building Brand Obama
Is Branding Morally Right?
Lifestyle Branding: Integrating Relevance Into The Customer-Brand Relationship
Can Asian SME's perform in the Global Branding Arena?
Intel Corporation's Re-Branding
Co-Branding: Nike Runs With Apple
Sport as a Brand Vector
Branding for Survival in Asia
Tracking and Valuation
Brand Communications and Naming
Managing your Brand Successfully
Branding for SMEs
A Winning Brand Strategy

The global economy has never experienced such a massive crisis since the 1930s. This phenomenon has pulled the breaks on consumer spending across various retail sectors. For instance, retail sales (excluding motor vehicles) in Singapore for the month of March 2009 exhibited a decline of 6.9% (compared to March 2008). In addition to that, gross savings ratio has gone up in most countries, rising to as high as 47% in Singapore and 50.3% in Malaysia. And over in US, the Consumer Confidence Index dropped to an all time low in January this year. This illustrates that majority of consumers have become more cautious of their spending habits. Such a pattern of consumer behavior is certainly a major concern for the overall retail industry.

However, the future does not necessarily need to appear bleak for retailers. For instance, Mulberry, a British maker and retailer for leather goods, recently reported an increase in sales of its handbags. In a similar vein, Prada reported that it saw a rise of sales that approximated to 5.6% in all its directly operated stores. This is despite the sharp downturn in sales experienced in the luxury goods market. Similarly, in the mass market retail segment, Dairy Farm, that owns major brands such as Cold Storage, 7-Eleven, Guardian, and Giant, has also experienced an increase of 13% in sales for its financial year that ended in December 2008. This shows that despite the economic downturn, people have not stopped spending altogether. Rather, they are still consuming products and services, albeit more selectively and cautiously given the ample choice that they have in the marketplace. The challenge for retailers and brand owners is to appeal to consumers by managing their brands better.

From a brand management perspective, keeping brands appealing and relevant during a recession will require managing the relationships with the customers more closely. After all, a brand is synonymous to a relationship. In order to manage the brand –customer relationship better, brand owners and retailers need to comprehend the psychology of consumers during a recession. In other words, it is crucial to determine (1) the changing mindset of customers (recession psychology), and (2) how recession psychology affects different segment of customers towards across different product categories. The understanding of these insights will be instrumental in helping brand owners and retailers of different product/service categories manage their brands and relationships with their customers more effectively during this recession.

Understanding mindset changes of customers
Consumers, in general, experience changing consumption needs as they journey across different stages of their lives. On this premise, their lifestyles will change accordingly to accommodate these changes. Some of the key factors underlining life stage changes concerns events that cause change in (1) stress levels (2) resources and (3) personal identity of an individual. The current recession marks a critical, yet undesired event in most consumers’ lives. It has induced certain amount of undesired stress to individuals primarily due to retrenchments, uncertainty in job security and loss of investments. It has also impacted on individuals’ financial resources for those who have to endure salary cuts, lost of jobs, and major losses in their financial investments. Similarly, individuals who have to re-adapt to new working environments or assume new roles (i.e. from working mother to homemaker) will experience a change in their “identity” and role in their social structure context which in turn influence a shift in their lifestyles. It is at this critical life stage that customers will re-evaluate their relationships with brands they are familiar with and determine whether these brands are still relevant to them.

Understanding behavioral changes of customers
The changes in consumer mind set can range from mild to severe. For individuals who are severely impacted by the recession due to loss of income, their mindset change will gravitate towards being more sensitive to prices of various products/services in the marketplace. Those who are moderately affected by the recession, and have poor sentiments towards the near future, may be rather price sensitive towards purchasing essential items but willing to give themselves a treat by occasionally purchasing higher end or luxury brands. This will help fulfill some of their hedonistic needs through self indulgence. However, there is also a minority group of individuals who are almost unscathed by the recession. This group will likely maintain their level of consumption close to pre-recession period, while being more selective in what they purchase.

Based on these attitudinal changes in consumption patterns, retailers and brand owners will need to manage their brands according to their target audience. They should ask “how much are my target customers affected and how drastic will their attitudinal changes be?”

Managing brands
Leveraging on the brand portfolio
A key mistake for retailers will be to immediately reduce prices of their products with huge price discounts. This will lead to diluting the image of a brand. It is essential that retailers and brand owners determine the nature of their products and the customer segment that they serve. With this information, they can then determine the exact needs of respective target customers that require attention. Given this, retailers and brand owners should reevaluate their brand portfolios and determine whether it is feasible to make price adjustments without hurting the image of the brand. If major price adjustments are not practical, then brand owners and retailers can consider introducing (1) line extensions for customers who are trading down to lower price products or (2) new brands offering lower price points. For example, Dell has introduced line extension to some of its notebooks to below S$1000 to entice price conscious customers. Another example will be Starbucks’ recent announcement of offering instant coffee. In the luxury sector, Miu Miu (diffusion brand for Prada) is currently perceived as an attractive, and a more affordable proposition endowed with Prada quality at a lower price.

Another option for household and grocery retailers is to introduce private label brands. Findings from market research demonstrate that customers are most likely to adjust their spending patterns on essential items (e.g. grocery and house hold items), probably due to the frequency of consumption of these items. In the case of NTUC Fairprice (Singapore), it was reported recently that they have enjoyed a rise of 20 percent in sales for their private label brands.

Streamlining the brand portfolio
Some retailers are inclined to possess a huge collection of brands within their portfolio. In the current recession, there will be certain brands that have lost their attractiveness to a major group of customers due to the changes in their lifestyle and purchasing habits. This can translate to huge brand management costs when certain brands contribute to slow moving inventory. Retailers should perform an audit on the various brands that they carry, and delete brands that are not attractive anymore due to the changes in customers’ behavior.

Focus on value
There are also a large group of consumers who are not severely affected by the recession. This group of consumers may have a smaller disposable budget or have increased their saving habits. Nevertheless, they could be keen to make a purchase when the sale proposition is value for money for an attractive brand. This is particularly applicable for brands that offer strong experiential or/and symbolic benefits such as skin care, cosmetics and luxury items. This is because brands of these product categories command certain aspiration value, coupled with loyalty built over time. Given this, there is a higher hurdle for brand switching. This strategy is extremely useful when price reduction will dilute the value and image of a brand, particularly when the economy recovers from the downturn. In short, it gives customers the perception that they are getting more value from a brand without needing to pay more.

Value can be communicated by services that are packaged around products. There are several methods to project value to customers while retaining the price point of a product related to a brand. For instance, retailers could offer progressive payment services for their brands or gift with purchase schemes. Progressive payment services are particularly popular for brands in the electronics category while “gift with purchase” tend to be more popular for cosmetics/skin care brands. In a similar vein, value could be manifested through the timeless appeal of a brand. For instance, De Beers promoted that “diamonds are forever” which created a healthy demand for diamonds in the US market. Mulberry on the other hand introduced designs that are more classic and less frivolous to manifest its timeless appeal.

Focus on intangible benefits – emotion sells
For the affordable luxury and luxury market, there is still hope for growth as demonstrated by Prada and Hermes. Despite reduction of consumer income, there is still a need for them to satisfy their hedonistic desires.

On this premise, retailers and brand owners should focus on the intangible benefits associated with brands such as the emotional benefits attached to a brand – emotional consumption. It is essential that appealing emotional triggers are built around a brand, such as fulfillment, enjoyment, respect, success, etc. With such benefits packaged around a brand, customers will be more willing to indulge themselves with a brand that could give them the emotional pleasure that could be invoked during consumption. An example will be Dove, a luxury chocolate which introduced an advertisement (in China) with the tag line “Follow your heart” to suggest that one should pursue an emotional fulfillment of pleasure with the brand during consumption.

This entire emotional experience can be made highly salient when the customer’s entire purchasing journey is made pleasant and targeted at key emotions associated to the brand. To achieve this, the entire brand experience has to be built into each customer touch point. Some of the key touch points that are essential to retailers are store ambience, the attitude of the sales personnel, presentation of product, advertisement, customer service and newsletters. Apart from this, it is also important to sell the message to customers that they should reward themselves with some self indulgence despite the gloomy economic climate. In such times, consumers need a “feel good” factor to compensate for the anxiety and negative sentiments surrounding the economy.

Build and sustain customer trust
It is important that brands continue to engage their customers to build trust and relationship. Particularly for high involvement product,s (e.g. cars, television, luxury goods, etc), customers want to feel a sense of assurance that the corporate brand behind the product will be around to provide post-purchase service and support. In the case of Dell, they assure their customers by saying “Depend on Dell for simple solutions in tough times”.

For retailers that possess a customer loyalty programme, they should leverage on it to sustain and build their relationship with their customers. If a large segment of their customers are badly affected by the financial downturn, they could use various innovative ways to attract them with value bundles and educating them to shop smart (and save money). This will show their loyal customers that the brand is concerned with their financial difficulties, and is willing to make adjustments to help them through the crisis. For instance, in Singapore, there are several retailers that introduce GST (tax) free days to help their customers to save.

Building relationships with customers do not necessary have to rely on expensive print advertisements. Brands could leverage on the power of Web 2.0. Particularly for brands targeting the younger age group category, customers can be engaged via on-line social networks (e.g. Facebook, Myspace), blogs, YouTube, and etc. These are less expensive ways for brands to keep in touch with their customers and cultivate a relationship with them. For the case of Swatch, they have gone one step further to create their own exclusive social network and blog for their customers to interact and share their Swatch brand experiences within a community.

In general, managing brands in good and bad economic climates are not significantly different. To manage brands effectively is to manage the relationship with various customers. On this premise, it is imperative that brand owners are sensitive towards the changes in their customers’ lifestyle and to adjust accordingly to cater to these changes.