It’s no secret that the global recession has devastated many industries. And while some have recovered, consumers continue to feel the pain in a variety of ways, leading them to fundamentally alter their brand buying behavior.
The unemployment rate remains stubbornly high at levels above 9%, with no evidence that it will decline any time soon. That translates into 14 million Americans without a job. Another 7% of consumers are under-employed, meaning that they can’t find full time jobs, while a further 1% have simply decided to stop looking for a job. The negative impact on consumers’ spending power has been brutal. A recent report from Sentier Research shows that average U.S. household income has fallen by 10% from December 2007 through June 2011. Even for households headed by a full-time worker, median income has fallen by more than 5%.
At Comscore, we’ve been able to quantify the impact that this loss of spending power has had on brand choice. To do that we have been tracking consumers’ response to the question: “Do you buy the brand you want most?” We began the study in 2008, just before the recession hit home and we’ve updated it in each year since then. We examined brands in the health & beauty aids, over-the-counter (OTC) medicines, food, household products and housewares categories. The results aren’t pretty. In 2008, about 54% of consumers said they bought the brand they wanted most. By 2010, this had dropped to 45% and fell further to 43% this year. Declines were observed in every category, with the overall decline being most severe in the OTC medicines category where preferences fell by 17 points and least in the household category, but with a 6 point decline nonetheless.
So, if consumers aren’t buying the brand they want most, what are they buying? It turns out that consumers are often switching brands when another “peer” brand is on sale, with 38% in 2011 saying they did this compared to 33% in 2008. But, they also more frequently turn to buying a cheaper product -- generally Private Label -- to save money. About 19% of consumers switched to Private Label in 2011, up from 14% in 2008.
Marketers are reacting in a variety of ways to this new economic reality. Some are introducing lower priced brands. P&G, for example, recently announced a bargain price Gain dish soap in an effort to retain those consumers whose incomes have dropped, causing them to fall from the middle-America demographic segment to the lower income sector.
Yet another result of the new economy is a shift by manufacturers to introduce smaller product sizes. But, this can also cause consumers to shift brands. When Comscore asked those consumers who had noticed a downsizing in the brand they usually bought if it caused them to switch to another brand, 14% said it usually did with another 54% saying it occasionally did. That means about two thirds of a brand’s franchise is at risk with this downsizing strategy. That said, when asked which cost-controlling action they would prefer to see, 62% more consumers preferred to see smaller sizes over a price increase. So, brand marketers would appear to be backed into a “damned if you do, damned if you don’t” corner when pursuing either a price increase or downsizing strategy today.
One bright spot for marketers is the growing realization that digital advertising can be an extremely effective way to drive top-line growth but at a lower cost. In fact, the IAB reports that online advertising grew by a staggering 23% during the first half of this year, well ahead of the 3% growth reported for all measured media. Both search (+31%) and display-related (+27%) advertising registered impressive gains. Research we’ve conducted at Comscore has shown that digital is beginning to be used by consumer packaged goods (CPG) marketers as a substitute for print to communicate price and promotion messages. At the same time, evidence is accumulating that digital is also a powerful branding technique on a par with other more traditional media. Information Resources has reported an average 8% lift in brand retail sales over the course of a year as a result of TV advertising. This matches the sales lift Comscore has observed from digital advertising over the course of a three month period. The faster sales lift from digital traces to a greater use of price and promotion messaging when compared to TV but also because digital’s superior targeting ability allows more ad impressions to be delivered against a target audience in a given period of time.
Looking to the future, it’s evident that the economy will continue to be a challenge for brand marketers for some time because, unlike previous recessions, the economic situation isn’t likely to improve quickly. The Department of Labor reported that the number of long-term unemployed people – those without a job for 27 weeks or more -- actually increased to 6.2 million in September from 6.0 million in August. It’s clear that we have entered a “new normal” for brand marketers that features, for the foreseeable future at least, cash strapped consumers. While this suggests we’ll continue to see strength in digital ad spending, it’s also apparent that for brand marketers the future is going to be a bumpy ride.