I remember the Bank of England base rate rising and rising in 1991, peaking at 15%. I was living a life unencumbered by a mortgage and had never experienced anything like it before, so I felt more like a witness to the failing economy than a victim of it. Nothing much changed for me.
Meanwhile, others calculated and re-calculated their monthly mortgage payments and worked out what compromises they would have to make to get through this. In 2022, we are in another period of uncertainty, and it looks as if things will get worse before they get better, with the cost-of-living crisis, rising inflation, war in Europe, and the aftershocks of the pandemic to deal with.
When the fizz goes out of the economy it can end up elsewhere (but it doesn’t always)
Inflation reached 8.8% in the recession of 2008/9. People traded down to cheaper alternatives and brands responded by offering lots of promotions to attract cash-strapped shoppers, a tool only recently spared by changes to the imminent HFSS restrictions. Despite this, champagne shipments to the UK held up much better than they did during previous recessions and sales rose overall. The rise in sales was steepest in home and non-vintage consumption. It was measured home-treating, people still rewarding themselves to get through tough times. We could well expect similar in 2022 as people move from eating and drinking in restaurants and bars to treating themselves at home again, a behaviour even more established because of the pandemic. On the flip side, research shared by Harvard Business School in the USA concluded that people generally were 30% less price-sensitive in 2019 than they were in 2006, and therefore less likely to abandon favourite brands that raised their prices and seek cheaper replacements. As always in marketing, one size rarely fits all.
Mind the experience gap – start people-first
Most marketers didn’t experience the rollercoaster ride of 1991, the individual and combined effects of recession, high interest rates, and the cost-of-living crisis. They’ve missed seeing that people don’t do exactly what you expected when money really is tight and there is no end in sight. There is an experience gap, both in the general population and in marketers, but there’s therefore a clear role for brands and marketing to play in helping people navigate this.
Through any time of economic difficulty there will be different groups of people driven differently by both their individual economic realities, and how they respond to those realities; from the unaffected economically (approximately 40% currently) to the struggling (currently estimated at 20%, although this estimate seems low to me), and those in the middle (40%) who must control their personal finances to a certain degree, and make measured choices on where they do and don’t spend their money.
These three groups and their behaviours need to be understood, particularly their different circumstances and different responses to these circumstances. Those currently unaffected have the luxury of maybe changing some of the stores they shop at, travelling to them and trading down slightly, but still within more premium options, influenced by the general economic pessimism rather than personal difficulties. Those in the middle will obviously make more meaningful and conscious choices than the financially unaffected. Those truly struggling will not only have to trade down severely, they will also have to choose abstinence, with the distressing stories we have already heard about choices between food and heating.
Understand different situations for different people and what it means for your brand
By understanding your bullseye audience’s situation, the effect of different economic factors on them, and their choices in trading down, you will understand their coping strategies and what you need to offer them; from focussing on a value offer for those having to find meaningful savings, to brands that are uncompromisingly premium or offering lesser at-home premium experiences.
In a challenging economic environment, brands need to convince shoppers that they are worth paying more for or be the compromise that people can choose when they need to, even within premium categories. Convincing buyers not to compromise will mean investing in telling people why they should spend more, both overtly and intrinsically, both emotional and rational hooks, but recognising that the emotional hooks are usually more effective, and the role of rational hooks is usually to justify an emotionally driven choice. As always, in both good times and bad times, brands need to understand the lives of the people they want to connect with. They can then use that to stand for something meaningful and make a real difference in people’s lives.