Turning budget cuts into strategic opportunity
Senior Research Consultant
Where should businesses focus their investment to maximize growth opportunities? This is the question that many companies are grappling within the midst of economic hardship, at a time when budget cuts are the reality for many. Given the economic circumstances and fallout from the COVID-19 pandemic, the importance of prioritizing investment is not a choice, but a necessity. You need to know where to place your bets in order to weather this crisis and bounce back with a growing business.
Learnings from BrandZ™ have shown time and again that strong, powerful brands offer the greatest returns on investment – and just as importantly, recover more quickly during difficult economic times. Especially for companies with large brand portfolios such as Heineken or Philips, this truth suggests an immediate action point: they should direct their investment budget toward their most powerful brands. Coca-Cola, for example, has responded to its steepest quarterly sales drop in 25 years by cutting what it calls “zombie brands” – with the goal of streamlining its portfolio and maximizing the impact of most successful properties.
Strong brands are good at building positive brand associations, which predispose people to buying the brand. These predispositions, however, need to be activated at the Point of Sale (POS), so that they can convert to sales and revenue. To leverage your brand’s potential and protect your future sales, then, you need to strike the right balance between brand development (building consumer demand for the brand) and in-market activation. As with all marketing efforts, the balance between sales activation and brand building depends on the brand’s context.
A comparison of Brand Power and market share can indicate whether you are stronger at pre-disposing consumers to buy your brand (in cases where Brand Power share is higher than market share) – or, whether you are stronger at in-market activations (in cases where your actual market share is higher than your Brand Power). This helps to plan your brand and trade strategy to optimize sales potential.
With Brand Power being a strong predictor of volume sales, brands weighted more toward power than market share (Brand Power > Market share) are falling short of their fair share of the consumer market. It is therefore important to remove barriers to purchase, making sure that predisposed customers can more easily buy your brand. In a disrupted economy where consumer habits are changing, the priority for these brands should be to maximize brand Salience, especially in the retail space.
In addition, these brands need to retain strong physical availability, which means optimizing aspects such as reach, search, distribution, and pricing. Investing in building digital capabilities is also critical, however, in an age of booming e-commerce. For example, during the pandemic the Anglo-Dutch giant Unilever stepped up with their “Ice cream now” home delivery service. By accepting orders at the click of a button, Unilever grew their food and refreshment business in the midst of a lockdown that presented few out-of-home sales opportunities.
Brands with higher volume than what Brand Power would predict (Market share > Brand Power), need to defend this excess share. These brands are doing well at converting sales at the point of purchase, but this excess volume is at risk because it is not adequately supported by the brand’s Power. This makes these brands vulnerable to tactical POS activities from competitors. Investing in brand development activities would be a priority in these cases. This can be done through triggering relevant brand associations that convey the brand’s Meaningful Difference, which remains the best indicator of long-term brand value growth.
In summary, difficult economic times mean smaller budgets and less room for maneuvering. At the same time, brands have an opportunity to crystallize priorities and develop clear strategies to focus investments. It is important to assess what is relevant in your portfolio, directing resources to powerful brands that show the greatest resilience. What’s more, striking the right balance between consumer predisposition and brand activation will offer you the best opportunity growth in today’s unpredictable environment.