What is there to be happy about?
Enjoy Christmas while it lasts – when you drift back to work in the New Year, the world could be a much tougher place.
A credit crunch, galloping inflation in energy and raw material prices and declining consumer confidence all presage hard times ahead. How will brands react? That depends in large part on the severity of conditions and shifting consumer trends.
The first thing to forget about as you tuck into turkey dinner is rising raw material costs – they will only give you indigestion. Cereal prices are soaring and milk has gone mad – there is no longer any need for supermarket price fixing on dairy. The wet summer has devastated fresh fruit and veg and pushed up prices.
Manufacturers are passing on this cost inflation to retailers in the form of higher prices. Remarkably, some shopkeepers are themselves absorbing the rises rather than passing them onto customers and risk losing them to rivals.
But shoppers are being hit in the wallet by some of their favourite brands. The brand owners are under pressure to improve their offering and justify the price rises. This will require a new ethos of “smart marketing”.
Meanwhile, you should take care while opening those presents – they may be among the declining number of consumer goods you get this year. If banks reveal more hidden disasters lurking in their vaults, this could hike the cost of borrowing. Paying off your mortgage and getting easy credit will become harder.
A miserable Christmas will be a first for many of today’s crop of marketers. It is 15 years since the last recession and many are too young to remember those grim days.
They have spent their working lives in an era of booming house prices, easy credit and bounding technological leaps. But when they switch off their iPhones, drain their Innocent Smoothies and put those zero-interest credit cards back in their wallets, brutal reality will intrude.
They could be in for a shock, if some of the darker warnings about the ensuing economic turmoil come true.
One notable facet of the coming downturn is that, unlike the slump of the 1990s, it will arrive after a long period of fierce price competition amongst retailers. Some packaged goods marketers report that they have already had to behave as if there were a recession.
But now the value economy is in for a nasty shock. To add to increasing commodity prices, low-paid workers in the Far East are waking up to their power and demanding higher wages, raising the prices of no-frills Asian goods.
It looks as though the underpinnings of the value revolution of recent years – championed by the likes of Tesco, Primark, Easyjet and others – could be worn away.
Manufacturers will start sneaking in price rises by gradually reducing the proportion of stock they sell on discount. But they will eventually have to switch marketing strategies away from value and promote the quality of their goods to validate the rising prices. There could be a lot more “new and improved” relaunches and some clever value engineering.
Smart marketing in such an environment will require considerable imagination and insight into consumer trends. Help is at hand from an area that has been much on people’s minds this year – green marketing.
If you can find a way of making your brand more environmentally friendly this will probably cut costs at the same time. Then you can get away with increasing the price by promoting a premium green positioning.
One example is putting wine into plastic bottles rather than glass ones. Sainsbury’s has tried it and Wolf Blass has pioneered the use of plastic Down Under. It reduces packaging costs and importantly makes the bottles lighter and thus cheaper – and less carbon intensive – to transport.
There is no shame in such a move these days as most people seem convinced of the necessity for reducing carbon emissions.
Creative thinking like that might make Christmas just a little less dismal. Though we would advise that you banish all thoughts of the turmoil ahead until well after your yuletide hangover wears off.
David Benady
