Top Brands Staying Strong in Downturn

According to Millward Brown’s Top 100 Most Valuable Global Brands of 2009 Report, the top 100 global brands have increased in value by 2% to $2 Trillion over the past year. Despite the global financial downturn, the top brands seem to be immune to the economic turmoil, if you trust Millward Brown’s analysis. Some top brands seem to be excelling in the downturn like Apple and Amazon, while others have tumbled like Disney and Starbucks.

One of the biggest surprises is Apple’s success despite the economic environment. Despite smaller wallets, consumers are still managing to pay for relatively expensive iPods and iPhones which sometimes require expensive AT&T data plans. This supports Millward Brown’s analysis that the top brands are striving. This may be because consumers are looking for the most value for their money. They may sacrifice going to Starbucks for a month and make their coffee at home so that they can afford a new iPhone.

According to the report:

“Customers are not holding their breath during this economic volatility. They are adjusting their coping strategies, while remaining determined to purchase brands that contribute to the pleasure, quality, purpose, and security of their lives.”

One of the biggest questions companies want to know, is whether the recession will cause a lasting change in the way consumers buy. One noticable change is the avoidance of conspicuous consumption as people try not to appear insensitive or greedy. Luxury brands still grew 10% in value, although this can be largely accounted for by growth in demand in China.

“Consumers are not in the mood for greed. And greed is not required for success. Once we are on the other side of the economic slowdown, consumer spending will pick up. But perhaps slowly, as people internalize the lessons of our recent boom and bust history. They will want quality, intelligently created, well-designed products. But they may not want one in every color.”

The study suggests that even when money is tight, consumers will still spend on the strongest brands. Consumers know what they can expect from strong brands and are still willing to pay premiums for this assurance. The exception are brands that are perceived as unnecessary luxuries like a trip to Disneyland or a 4 dollar coffee.

Interim Management Question: Will Decreased Consumer Spending Habits Last?

Will the recession lead to a lasting change in buyer behavior (in B2C) or will consumers revert back to old buying habits when the recession ends?

I think it will be all over the map. If you are an individual who prefers to buy a Pontiac, you will not have the choice of returning to your old buying habit. But this really isn’t the answer to the question, it only serves to demonstrate a point. The recession will change what options may be available and will certainly impact individuals perception of risk. Buzzwords such as value and frugality are currently in vogue. High end shoppers have most recently preferred that their newly purchased items be packaged in generic, no name bags. Along with an economic crisis there is a big spotlight on the condition of the environment. Living with less is being paralleled with a commitment of making less of an impact on the environment. There appears to be so much chaos occurring in the financial markets that a focus on individual financial fiscal management appears to be a focus for “not only” the more prudent/educated and knowledgeable types, but there appears to be a concerted effort on the part of the various government agencies to protect the less informed and uneducated populace. The surge of activity related to finding economically viable alternative energy will yield many new options for transportation and basic energy grid requirements. I don’t believe that we’ll go back to vehicles of the past just because we get pockets of reprieve from OPEC.

Bottom Line – Don’t rely on consumers to revert back to their old buying habits because by the time the option exist, they’ll probably forget what those “old” buying habits were. Will people start buying houses again, certainly. Will new house designs and sales strategies be different from where they were 18 months ago. You bet. Will consumers in conjunction with government watch dogs take a more conservative approach to credit card debt? I think so.

Max Clough
Interim Management Executive
seattle@oneaccordpartners.com

From an investment perspective… I hear deal makers speak as though the recession is episodic and therefore that we’ll revert to previous approaches to buying/selling companies.

The fundamentals got distorted the last 10 years and the norm going forward for consumers to business leaders alike will be to create and consume goods and services of value that produce tangible benefits.

Peter Klinge
Interim Management Executive
peter.klinge@oneaccordpartners.com
801.755.6820

Our basic economic order is built on a Keynsian Economic model – basically a “debt mentality”. As long as our economy has access to capital…it will spend. Yet, given the radical financial changes, a conservative approach will likely influence consumers, and more importantly businesses, for years to come. Ultimately – debt, yes, same old habits…not for a long time.

Jeff Rogers
Interim Management Executive
jeff.rogers@oneaccordpartners.com

This economic downturn is termed a “recession” but there are structural changes that make the “recession” different. There are some fundamental & dramatic shifts in banking practices (% equity to credit) that will change real estate and purchasing requiring loans. Also credit card companies are actually losing money due to non-payment so expect a tightening on credit applications, more discipline on payment dates & higher interest rates to offset non-payment losses. So bottom line as people go back to work & their disposable income recovers they will go back to previous low dollar consumer habits, but on higher dollar purchases requiring credit there are structural shifts in the credit providers that will ultimately restrict demand on goods and services permanently changing their habits. What we will not know for awhile is the degree of negative affect this structural shift will have.

Dale Hintz
Interim Management Executive
dale.hintz@oneaccordpartners.com
972-824-6923

Consumers have changed. They’ve been shocked by the reality of their situation – trees don’t grow through the sky…everything has a topping out and consumers now see that they are broke!

Consumption will be less conspicuous and savings will continue to grow as a percentage of GDP.

Jackson Weaver
Interim Management Executive
seattle@oneaccordpartners.com

Perception is Everything

by Paul Travis, Interim Management Executive

I was reminded of the importance of packaging a few weeks back at the Pyramid Ale House in Seattle. As an alternative to coffeehouses, this place is one I find very convenient for “holding court” (serial meetings) in Seattle — how can you go wrong with free parking, wi-fi, and convenience to major highways?

Presuming the glass on the left were full with the same beverage, which would you reach for?

Nearly everyone I’ve asked has said the one on the right. Reasons: it looks more shapely; easier to hold; and by far the winner, there’s more beer.

Fact is, the glasses have identical capacity — 16 oz! (Out of disbelief, I tested — pouring from one to the other).

In the information-marketing world (books/tapes/etc) it is well known that a CD in a cardboard envelope tops out at about $19 whereas the same CD and a booklet in a plastic “folio” container can get as much as $49.

How much more could you charge for the beer on the right (well-marketed, of course)?

Remember, you can create value through differentiation within your own product line — most of which drops right to the bottom line.

So, how can you improve your packaging today?

Paul Travis is a veteran interim management executive with OneAccord who helps companies create screaming value propositions. He can be reached at Paul.Travis(at)oneaccordpartners.com or 206.910.2222. To learn more about Paul Travis, you can view his profile at OneAccord or his blog 2020 Marketing.

Recessionary Consumer Behavior: Harvard Business School Video

Recessionary consumer behavior is discussed in this video with Professor John Quelch of Harvard Business School. He also talks about 4 types of consumers who are reacting in different ways to the economic environment, whether current consumer behaviors will become permanent, and whether you should invest in marketing during a recession.

Buyology: Can Brain Scans Provide More Accurate Insights Into Consumer Behavior?

by Charles Sipe

Buyology is an interesting book because it describes a completely new approach to marketing research. Instead of traditional methods of research such as surveys, or focus groups, Buyology explores a new frontier in marketing research, neuromarketing.

Specifically, Martin Lindstrom, describes scientific studies in which subject’s brains are scanned to see what parts of their brain lights up when exposed to certain marketing stimuli such as a brand logo or an advertisement. When different regions of our brain are active, the increased energy requirement means an increased flow of oxygenated blood to that region, which the fMRI can detect and display in a visual format. Lindstrom uses data from these studies to disprove commonly held beliefs in advertising, such as the effectiveness of subliminal advertising and that warning labels on smoking packaging can actually encourage smoking.

According to the book, roughly 90% of consumer buying behavior is unconscious, which is part of the reason Lindstrom believes nueromarketing can a more effective method to find out what consumers really want and reduce the number of product failures.

“Markers and advertisers on the other hand have spent over a century, throwing spaghetti at the wall and hoping it will stick. The fact is that most marketing, advertising branding strategies is a guessing game…Until now marketers and advertisers haven’t really known what drives our behavior so they’ve had to rely on luck, coincidence, chance, or repeating the same old tricks all over again. But now that we know that roughly 90% of our consumer buying behavior is unconscious, the time has come for a paradox shift.”

I think this book is a very interesting read, though it is difficult for most marketers to implement fMRI studies without thousands or millions of dollars to spend on this new field of marketing. However, it looks very promising, as marketing becomes more science and numbers driven in the future.

You can download a free chapter of Buyology at the Martin Lindstrom website.

The Consumer in Control

by Greg Verdino

If “the consumer is now in control” is the most often cited truism in new marketing, then “marketers need to shift from push to pull” is surely a close runner-up.

True enough, but here’s the rub. I’ve heard more than a few people in our industry elaborate on this statement by explaining that, “marketing used to be about pushing messages out to consumers, but now it’s about pulling consumers to the brand.” Um, ok but no.

Pull is not about pulling consumers in; it’s about giving consumers a reason to pull us in. Remember truism #1 – they’re in control; they (not we) decide where they go and what they experience. We’ve lost the right to pull consumers anywhere (if we ever really had that right at all.)

Pulling consumers toward our brands is really just the desired result of push marketing – we interrupt consumers as they go about their business and hope to redirect (or pull) them into some kind of brand experience. It’s still old marketing.

Pull means that we to go to them, join their communities, give them reasons to voluntarily draw us into their personal media experiences. We’re not interrupting them. They’re opting into us.

So next time someone asks you about the shift from push to pull, remember that “push marketing” is what old marketers did, “pull marketing” is what new consumers do. Different? Yes. But this is how the game is played today.

This article was originally posted at gregverdino.typepad.com and is licensed under the Creative Commons 3.0 License.

When Behavior Contradicts Attitudes

by Charles Sipe

Often times positive attitudes lead to behavior that mirrors the attitude. For instance, whether you like Obama or you like McCain, you probably voted for them. However positive attitudes don’t always predict behavior accurately. For instance, most American’s think it is important to eat a healthy diet, however two out of every three Americans are overweight (1). Most American’s think it is important to save for retirement, however our national savings rate was recently below zero, while Europe’s savings rate is about 20% and Japan’s savings rate is about 25%.

Why does behavior often contradict attitudes? One explanation is Lewin’s Equation, which describes behavior as a function of the person and the environment B=f(P+E). In other words environment often has a strong influence on our behavior.

For instance, if we personally have the belief that education is important, but all our friends think it’s a waste of time and encourage you not to study, then you may skip school or drop out. You may believe it is important to donate to charity, but if you’re broke it is difficult to donate money to the causes that are important to you.

Often marketing assumes that if we can just improve the attitude of our brand, more people will buy from us. However there may be many environmental influences that make this ineffective. I really like the Geico commercials, but I buy my insurance from Esurance because they cost less. I really like Miller, but all my friends don’t, so I end up buying Coors a lot.

As a result, focusing all your marketing resources on attitudes can be ineffective. Spending lots of money on entertaining television commercials could mean more people have a favorable attitude about your brand, but it doesn’t necessarily mean they will buy from you. If environment is a big factor in the behavior of your consumers, it is smart to invest in improving the environment side of the equation. This can include focusing on only the consumers that are in an environment that is conducive to buying from you. Pay per click ads target people who have the means and the desire to buy. Rewarding existing customers focuses on the people who have already displayed the desired behavior. Word of mouth campaigns can create a favorable environment by using social influences of an individual’s peers.

The 5 Cent Hot Dog and How Value Attribution Affects Consumer Behavior

by Charles Sipe

Sway by Ori and Rom Brafman is a brilliant book about the forces than lead to irrational decision making. Understanding these forces can have many marketing applications since marketing often involves persuading customers to act irrationally.

One very interesting topic from Sway that relates directly to consumer behavior is value attribution. Basically this is when an individual is primed with a signal that forms a strong belief of the value of the item that sticks in the mind.

There are several fascinating examples of value attribution in action that are described in Sway. The authors tell a story of a Coney Island hot dog salesmen who attempted to undercut the competition by selling hot dogs for 5 cents instead of 10 cents back in the 1910’s. However, the pricing strategy didn’t work because people assumed there must be something wrong with them if they are only half the cost of the typical hot dog. Therefore people had associated a low value to the hot dogs even though they were made with real beef and tasted just as good at the 10 cent hot dogs.

There are numerous other examples of individuals who irrationally base value on one aspect of a product or person, even though additional information is present that contradicts their assumption. Sway describes an experiment in which a world renown violin player played a difficult piece on a million dollar violin at the subway while wearing jeans and a hat. Over a thousand people passed by and almost no one stopped to listen. NBA players who were picked later in the NBA draft played less minutes than players who were selected early in the draft, despite having statistics that were just as good.

The tendency of consumers to value something based on little information is very common. How can marketers use this to persuade individuals to make a desired buying decision? One method is dressing up an average product with superior packaging. Charging a higher price than competitors, having a celebrity endorse a product or advertising a single attribute that is superior to competitors can also sway consumer to assume a high value.

Executive Insight: Study Shows People Willing to Pay More When Products are Touched

A new study shows that simply touching a product can increase the price consumers are willing to pay for it.

From Retail Customer Confidence:

Researchers from The Ohio State University and Illinois State University tested how touching an item before buying affects how much they are willing to pay for an item. A simple experiment with an inexpensive coffee mug revealed that in many cases, simply touching the coffee mug for a few seconds created an attachment that led people to pay more for the item.

While this is pretty intuitive and retailers have been using tactics that increase the feeling of ownership for years, it is interesting that there is evidence that touching an item increases its value in the eyes of the consumer. Increasing the sense of ownership can have a tremendous effect on the perceived value of an item. In the recent book Predictably Irrational, the author asks Duke students who were lucky enough to win a lottery for basketball tickets to sell their tickets. The students who had already established a sense of ownership of the tickets would only sell their ticket for about a thousand dollars. Conversely the author asked students who had lost the lottery how much they were willing to pay. These students would only pay a couple hundred for tickets.

Retailers can take advantage of this effect by making it easier to consumers to touch products on the sales floor. Instead of stacking boxes for display on the sales floor they could take the products out of the box or from behind the glass so that consumer can hold the actual product in their hands. Apple, which has one of the highest sales per square foot, does a really good job of allowing people to touch their products.

Photo by Ping Ping

Managing the Environment: The Broken Window Theory’s Effect on Consumer Behavior

by Gareth Kay

There’s a ton of good stuff out there about how people really do things, and how behavior really spreads (Mark clearly has contributed a huge amount to this). And as someone working in advertising, it’s often quite depressing learning that it’s not what we do that really matters, but what people do to what we do; that advertising hasn’t got the strong influence we might like to think it does (shock horror, people don’t do what we tell them or think about things how we ask them to).

So, is there a role and future for communications? Well, perhaps there is but it’s a little different to what we tend to think. This week’s New Scientist has an excellent article about some research at the University of Groningen that empirically proves the ‘broken window’ theory. Here’s an excerpt:

In the most striking experiment, Keizer left a €5 note protruding from a fully addressed envelope that itself was poking out of a mailbox. The team discovered that people were less likely to steal the money if there was no graffiti or litter on or around the mailbox.

With no litter or graffiti, 13% of the passers-by stole the money. Thefts doubled to 27% when the mailbox was daubed with graffiti, or to 25% when it was surrounded by litter. “It’s quite shocking that the mere presence of litter doubled the number of people stealing,” says Keizer.

In another experiment, motorists returning to collect their cars were three times more likely to trespass through an illegal, 200-metre short-cut to the car park if bicycles had been illegally locked to railings next to the forbidden entrance.

A massive 87% took the short cut when they saw the illegally parked bicycles, despite a police sign saying “No Trespassing”. This compared with 27% trespassing when the bicycles were not locked to the fence.

Another experiment in a cycle park bearing a clear anti-graffiti sign, revealed that cyclists were twice as likely to leave litter if the researchers had daubed graffiti on the walls. The team attached bogus flyers to the bikes’ handlebars to put the owners in a situation where they had to decide whether or not to litter.

So, perhaps we should think about communications as being more about environment management, creating an environment where people are more likely to behave in a favorable way. About seeding the right environment where behavior is more likely to take hold. Which puts us squarely back in the culture business…

Image by Nesster

You can read more great marketing content by Gareth Kay at his blog Brand New.

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