The hare and tortoise nature of brands in times of recession

It’s no accident, for example, that numerous entrepreneurial admen can trace their greatest success to start-ups that coincided with an economic downturn. The so-called “Third Wave” was a case in point. The tag was coined (or rather purloined, from Alvin Toffler) by Butterfield Day Devito Hockney, but it came to embrace a constellation of other talents such as Rainey Kelly Campbell Roalfe, Duckworth Finn Grubb Waters, Woollams Moira Gaskin O’Malley and Howell Henry Chaldecott Lury, all of whom launched in and around the deeply unpleasant recession of 1990/91. Also worth noting, while we’re there, is i-Level. Launched in 1999, it was the only digital agency of significance to retain its independence and emerge strengthened from the last recession – the dotcom bust.

And the reason for these successes? Doubtless there were a range of personal considerations behind each launch. But their success was also due to a common factor. In straitened times, value for money is at a premium. If you can keep your nerve, exploit declining office rentals, not to mention the flood of competitively-priced talent on the market, and strip out the cumbersome bureaucracy hobbling big agency networks, there will be a surprising number of clients prepared to share the risk with you (outstanding competence and creativity being a given).

What can be said of agencies equally applies to their clients. Get your proposition right and a recession, which severely imbalances the conventional playing field, can give you a once-in-a-lifetime opportunity to forge ahead of the competition. But what exactly do you need to succeed?Well, clearly a strong, resilient brand with clearly enunciated attributes is a necessary condition. But it is not a sufficient one: even strong brands make mistakes, and that can be an opening for nimbler rivals.

Let’s take a look at three such strong brands (tentatively, because we are not yet three quarters into the current recession) and examine how they are faring. They are: Tesco, Diageo (owner of Johnnie Walker, Guinness, Gordon’s Gin etc) and Reckitt Benckiser (owner of Airwick, Cillit Bang, Nurofen, Strepsils etc).

Tesco, arguably the UK’s most successful brand, has definitely stumbled. True its financial performance has been reasonably robust, given the circumstances. But the figures camouflage a fumbling grasp of radically changing economic conditions. Only last week, Tesco found itself trundling out another 100 discount lines in a belated attempt to fend off not only Lidl and Aldi, but Asda and Morrisons, which have been playing a more astute recession game.

To explain Tesco’s dilemma, I cannot do better than quote analyst Jaime Vazquez of JP Morgan. “We believe it has overextended its brand by segmenting customers excessively, and the launch of the discount brands has just delved further into the segmentation theme that has served Tesco so well in the past 15 years, but we think it is hurting now.” That said, I wouldn’t write Tesco off as a case of sclerosis just yet: the better-positioned challenger brands still have a lot to prove.

Superficially, Diageo looks equally challenged by new economic circumstances. It has just downgraded its profit forecast for the year and warned of a contraction in global drinks sales. And yet, the underlying picture is not nearly so gloomy. In a recession, you would expect consumers to do with alcoholic drinks exactly what they do when they go into Tesco: trade down. In fact, the evidence so far is that Diageo’s premium brands strategy is holding up surprisingly well. Witness, for example, increased sales of Guinness (once a classic declining brand) during the first financial half.

A seemingly relaxed and confident Paul Walsh, chief executive, ascribed – on the Today programme last week – the continuing popularity of his company’s rather expensive brands to careful segmentation and consistent investment over the years. But that, he said, was no excuse for letting up on this commitment during a recession, particularly in the critical area of advertising support.

To my mind, however, it is Bart Becht, chief executive of Reckitt Benckiser, who has so far demonstrated the most competent generalship in the battle to beat the recession. After a decade of unbroken growth, RB is still capable of delivering sales at twice the market rate.

Becht has always run a tight ship, but there’s a lot more to RB’s success than cost-cutting and a lean management structure. RB prides itself on its innovation, its speed to market and its ferocious focus on a very small number of “power brands” – 17. Contrast this, unflatteringly, with Unilever’s performance (as analysts have been). Unilever complains that it is suffering at the hands of cheaper supermarket own-label brands. Becht says that may be true, but it is a strategic irrelevance; the point is to win share in the market as whole. And that’s exactly what he is doing