By Maile Buker & Simon Waters
With US GDP growth slowing from 2-6% per quarter in 2021 to -0.6% for Q2 2022 and another big interest rate hike on the horizon, the tail end of this year is providing mixed economic news. Job openings continue to rise despite improved employment figures indicating companies’ difficulties finding and retaining workers. In addition, many companies are also confronted with changing customer expectations, ranging from a more seamless online to brick-and-mortar journey to a renewed consumer price sensitivity.
This potential recessionary environment, inflation, talent acquisition challenges, and the changing customer raises essential questions about growth for Consumer Packaged Goods (CPG) companies as they enter the year’s final quarter.
The Customer Has Changed. Has the Marketing Team Kept Up?
For many consumer brands, one of the recent changes is that the value-seeking customer is more dominant. In a recent (July 2022) survey of 600 U.S. grocery shoppers, 74% said they are now value shoppers, a significant shift from pre-inflation periods. Therefore, the marketing team must understand the shifting consumer buying behaviors and preferences and what that means for the company’s product lines, messaging, and customer journey. For example, adding a value-priced line extension or bulk packaging options will resonate with the price-conscious customer.
Additionally, while more brands will compete on price, there are opportunities to win with a digital customer experience. Since the pandemic, curbside pick up and delivery have allowed light or no-touch shopping from a mobile device. While the products still sit on shelves, the changing customer experience mandates that “shelf space” also become digital.
Increasing Ad Spend Positions Brands for Growth
Pulling back on advertising or in-store promotions may be tempting, but the traditional battle over sufficient shelf space could end up hurting the brand in the long run. Increasing a company’s commitment to brand advertising, even during a recessionary environment, does not harm the company’s profitability but increases market share both during and after a downturn, as the well-known depression-era battle between Kellogg and Post elucidates. While Post reduced expenses, including advertising, Kellogg increased its ad spend twofold, including the radio promotion of a new cereal named Rice Krispies. As a result, four years into the depression, Kellogg’s profits had increased by 30%, and it rose to become the dominant player in its industry.
More recently, during the 2008-2010 recession, many CPG brands dialed down advertising and price discounting — a risky strategy that can lead to brand equity erosion. One notable example is that Beech-Nut was a challenger to Nestlé’s Gerber. Rather than rely on price discounting, Beech-Nut launched a new range of innovative Toddler products and partnered with Disney through a license, creating a very efficient and effective marketing strategy. The Disney characters featured on Beech-Nut’s packaging provided a huge shelf impact without heavy advertising investments, driving the brand to a strong Number Two position in the category. For Disney, the Beech-Nut partnership was ultimately a great win. When many shoppers were seeking value then, Walmart created a new Infant Care area of their store. In addition to apparel and other Disney-branded Infant Care products in their new space, the new Disney/Beech-Nut Toddler range helped increase the traffic into the section. This helped grow Disney’s Infant category sales across all product segments. It was a win for Disney, a win for Walmart, and a win for Beech-Nut. So, a recession unexpectedly requires a renewed commitment to the company’s brand and product lines.
Executive and Marketing Teams Must Identify Challenges on the Horizon
A challenging economic environment also impacts how brands should work with digital marketing agencies and how to restructure agreements. Rather than a traditional retainer, think about pivoting to a pay-for-performance agreement that incentivizes growth.
A brand’s messaging must become especially clear now amid a possible downturn. The customer, from whatever channel they are experiencing the company’s products, must understand quickly what the company and its hopefully well-known products are offering. Defending the company’s Share of Voice (SOV) amid a recessionary environment, as the Kellogg anecdote above shows, will maintain that relevant messaging to the consumer. It can also be cheaper to invest in the SOV in a downturn since some competitors will likely pull back their advertising, so less spending will be required to defend one’s brand while maintaining the SOV.
While avoiding the brand-killing belt-tightening on ad spending and grabbing that share of the market, a recessionary environment offers a company the critical opportunity to evaluate its current operational configuration and hone in on inefficiencies that need to be improved. A CEO must address any operational processes that require enhancement. They and executive and marketing teams must identify additional markets for their products. The important decision-makers must also enumerate unproductive SKUs—especially those not essential to the company’s value proposition—and eliminate them. A lean product line will live to fight another day.
Alternately, the executive team must be open to new, relevant products that add value to the brand and the company’s value proposition and profit to the bottom line. As Kellogg’s depression-era strategy demonstrates, the right products with the right advertising and corporate initiative will be profitable.
A Recession May Be Coming. Is the Company Ready?
CPG companies have traditionally dealt with recurring issues around shelf space, pricing pressures, and the like, but now they are dealing with new challenges. E-commerce is continuing to create opportunities for more CPG players to enter. As a result, fulfillment by Amazon is both a blessing and a curse for CPG brands.
Established CPG companies must evaluate their processes and the playing field to prepare and thrive in the difficult months ahead. Many of today’s CMOs lack the firsthand experience to navigate a recession cycle and the short, medium, and long-term strategies to “thrive” and not just “survive”.
Resilience in marketing and product decisions—rather than a managed retreat under budgetary constraints—is the order of the day. The ability to quickly pivot, whether in talent acquisition or marketing strategies, will determine the company’s share of voice and share market for years to come. An aggressive marketing strategy that understands the changing customer journey has optimized internal operational and product leanness and is willing to go on the offense will set up the company for success during challenging times.