Planning for Recovery
How brands can survive Covid-19 repercussions and spark growth
Pre-recession demand guides investment for rapid recovery
Chief Global Brand Analyst
As I write this article in May 2020, the world is in the first stages of a recession, perhaps depression, triggered by the Great Lockdown. The Lockdown has curtailed not only social but economic activity and, as a consequence, we have seen unemployment rocket and sales plummet in many industries. At this stage, with some countries tentatively relaxing Lockdown restrictions, it is impossible to say how long the recession might last. So much depends on whether there is a second or even third wave of the virus and how effective government aid is in deflecting the economic downside of recession. What we can say with some confidence, however, is that strong brands will survive better than weak ones and are more likely to grow faster when an economic recovery does occur.
Strong brands recover faster
One of the iconic charts from the BrandZ™ Top 100 Most Valuable Global Brands ranking compares the stock market performance of strong brands in the ranking to that of the S&P 500. It shows that while all companies were hit hard by the Great Recession, the ones with strong brands recovered quicker and have subsequently grown faster than the S&P 500. This chart does not stand alone. Several analyses confirm that companies which balance improved operational efficiency with investment for the future recover from recession more strongly than peers in the same category. However, a swift recovery is not something that can be assumed, rather it needs to be planned and requisite investments made.
People seek value
Recession makes people seek value not just low prices. During times of recession it is often assumed that people will become more price sensitive and trade down to cheaper brands. While it is true that people may be forced to buy cheaper alternatives that does not mean that they will do so blindly, they will still want to feel that their money is well spent. Take the example of Aldi, the hard discounter, during the Great Recession. In 2008, Aldi had a small share in the UK grocery market and lacked meaning for many UK shoppers. Aldi had to convince UK shoppers that low prices did not mean poor quality and needed to build its emotional appeal. The brand’s “Like Brands. Only Cheaper.” sought to make a direct comparison with big name brands in a direct but humorous way. The campaign is still running and perceptions that Aldi is worth more than it costs as measured by BrandZ™ are now higher than for category leader Tesco.
Invest for the future recovery
Let us take the need to improve operational efficiency as a given. If your company can redeploy funds, where should you invest? As the following examples demonstrate, in part that will depend on the strength of demand for your product or service before recession hit.
Case Study: Delta acted to increase future demand
It might seem strange to hold Delta up as an example of a successful business given the desperate state of the airline industry now, but the sad truth is that 2019 represented the company’s best ever financial performance, the culmination of 12 years of business and brand building. In 2007, Delta emerged from bankruptcy into the highly competitive and low margin US airline market. Restructuring and a focus on lowering the company’s cost base positioned the business well, although the Great Recession caused US domestic passenger traffic to drop by 9 percent. The company then pursued a three-pronged strategy of expanding its network, improving customer experience, and selling premium seats to business travelers.
Airline traffic is highly dependent on the routes flown but as Delta CEO Ed Bastian noted in 2014, the three major US carriers, “have very similar structures and networks. It’s really the quality of the service that matters (because) customers choose which airline they’re going to fly.”
In this case, demand for Delta as a brand was boosted primarily by improved customer experience. While advertising will have played a role in highlighting the improvements made, flyers probably understood the messaging as claims and reserved judgment on their validity. I remember being totally unconvinced by Delta’s claims of improved service, largely based on dissatisfaction stemming from a recent trip on a very old plane. Subsequently, forced to fly with Delta, my experience proved that the claims were not all smoke and mirrors. I was probably not alone. In 2007, less than one-in-five flyers claimed to be totally satisfied with the airline choices available to them. This finding indicates there was plenty of room to gain competitive advantage, and although many flyers are price sensitive Delta targeted the least price sensitive business travelers.
Case Study: Surf and Fairy rekindled demand
Delta’s success lay in improving both demand and availability, but there are plenty of consumer goods categories for which demand still exists but where an individual brand could still gain ground. In this regard, it is worth looking at a couple of examples from the UK, one from Unilever and one from P&G. Both of which reinforce the point that even in a recession, building value is the key to success, not lower prices.
In 2006, Surf detergent was trading on low price and little more and had been losing market share. A Kantar brand strategy study helped identify an unmet need and the potential for a new proposition based on sensory delight. The “Gorgeous laundry for less” campaign was launched in 2007, positioning Surf as a product that could bring fragrance delight to a customer's everyday laundry. Different campaigns focused on different fragrances like Lavender and Oriental Blossom and Lemon and Bergamot, and new format Surf Small & Mighty was rolled out in 2007. As a result, the brand was well positioned when the Great Recession hit. Predisposition to choose Surf improved while that of store brands and value-competitor Daz remained steady. Surf became the UK's fastest-growing CPG brand, generating a payback of £3.82 ($4.75) for each £1 ($1.25) spent on advertising.
While Surf was positioned at the value end of the price spectrum, Fairy dishwashing liquid was at the opposite end. Fairy had a 52 percent value market share, a price premium of 66 percent compared to store brands, and was already bought by 60 percent of UK households. With recession looming, the brand team set out to identify what made the brand meaningfully different to its consumers. The brand’s heritage led them to the concept of “enduring care,” which became the platform for new content that reframed the brand’s longstanding association with value. Media spend did increase, to double its previous levels. Over time, perceptions of value improved, and market share and price paid per pack increased dramatically.
Case Study: With strong demand, Panera took advantage of lower costs
While this might apply to a minority of brands today, there are industries and brands that are expanding, not shrinking—think Amazon, Walmart, Zoom, CVS. During the Great Recession, Panera Bread took advantage of strong demand and lower costs to build its footprint and reach out to new customers. In an interview with Guy Raz, host of the podcast How I Built This, Ron Shaich, CEO of Panera for 36 years, states, “Our concept was still strong. People were still visiting us. We decided to invest our resources in growing even more quickly during the recession. Real estate costs were down 20 percent. Construction costs were down 20 percent. Simultaneously, most of our competitors were ripping costs out of their P&L, trying to chase their costs down as their sales were descending. It was a vicious cycle. We said this is a time to build competitive advantage. And ultimately, we tripled the stock through the recession.”
As well as building stores the company invested more in advertising, introducing its first widespread TV campaign in 2011. Revenues increased and net income tripled from 2007 to 2012.
Success in branding is relative
If these case studies teach us one thing it is that there is no one-size-fits-all solution to riding out a recession and positioning a brand for future growth. Particularly during an unprecedented crisis like the one we face today, brands cannot simply choose to spend more on advertising and assume that they will survive better than the competition, nor is success simply a matter of cutting costs. The solution is going to depend on your industry, the strength of your brand—people’s desire to choose your brand over the competition—and how well you invest the funds that are available to you.
Success in business and marketing is all about relativities. If demand for your industry recovers, so too will your sales—the question is whether your sales rise faster or slower than sales of the competition. Every brand in the same industry is going to suffer (or benefit) in a similar way during this crisis. It is how well you identify and implement the right strategy for your brand that will determine the speed of its ultimate recovery. This is why Excess Share of Voice (ESOV) is important in advertising, particularly during a recession. If your spending on share of voice is greater than your share of market, then the probability is that your market share will grow in future. However, it is a probability, not a given.
Planning for recovery starts now
Let me be the first to admit, I worry that learning from past recessions may not be directly applicable in the context of a global pandemic and associated recession. For a start, no one knows how long a recovery might take, and the combination of social and economic restrictions will undoubtedly have long-term ramifications—if only to increase the number of people buying goods online and streaming content. If people have been forced to change behavior and brands—and if they found the experience better or more convenient—then that change is likely to stick.
However, my suspicion is that the impact will not be as great as people believe right now. Ingrained behaviors are slow to change, and we are social animals after all. I suspect people are already dreaming of throwing a big celebration party, eating out with friends and taking a beach vacation with the kids. The more I have researched examples from the Great Recession, the more I am convinced that relative status, i.e. market share, only changes when a brand actively does something that changes the dynamics of the category. Even if a new normal takes three years to arrive, it will come, and if your brand is to gain share during that recovery you need to start planning now.
Actions to help brands survive, and then thrive
So, facing an unparalleled, pandemic instigated recession, what do companies do? Here are three basic actions to take if your brand is going to survive and then thrive.
- Gain insight
When the world is in turmoil and uncertainty rules, making hasty or ill-judged decisions about why people buy can be detrimental. It is during these times that consumer insight becomes critical in ensuring the right actions are taken. Knowing what your potential customers think, feel and do will help inform the right decisions to help your brand, if not thrive, then recover as quickly as possible.
- Seek opportunities
A disruption creates opportunity as well as threats. If you are to increase the probability that your brand recovers better than the competition, you must assess what the best combination of efficiency and investment will be. Do not make assumptions. What situation does your brand face now, how might it change in future? More than ever, you need to be in touch with your customer and understand how their needs – functional and emotional – might be changing. But beyond that, you need to assess what is most likely to build competitive advantage for your brand in future. Does your strategy need to change in a post-pandemic world? What new distribution opportunities exist? What innovation will be most meaningful? How can you best build brand desire? It is not simply a matter of advertising more; it is about identifying the best opportunity for future growth.
- Prove your worth
During times of uncertainty and financial stress, people turn to the comfort of familiar brands and place value ahead of getting the lowest possible price. Whether it is by innovation, action or advertising brands need to reassure their customers that they have made the right choice and make it as easy as possible for them to stick with the brand rather than reconsider their options.
- Invest more in advertising, if you can
If you cannot, invest more wisely. Spending more relative to the competition only pays off when you invest in the right strategy and content. Media choices are obviously changing and every brand that can still advertise is shifting its investment to in-home media, though Covid-19 related news has become an “no go” area for many brands. As recovery takes hold advertisers must be ready to shift their media choices again, but the biggest challenge is not how or where to reach people but what to say. It is all about tone of voice and making the right emotional connection. Before the crisis, our analysis found that quality of content accounted for 50 percent of campaign effectiveness: it will be far more important today.