There was a time when accusing a marketer of moving their brand downmarket would have been considered a major insult. These days, it’s more likely to be a compliment on their smart strategy. As consumers are counting every penny in a recession, companies have to adopt new initiatives to woo reluctant customers.
Brands in every sector are launching new ranges of products or services focusing on low-value variants of their core portfolios. They hope that this can keep people spending on their goods or services, without losing the branding element that customers know and love.
This month, coffee chain Starbucks has launched an instant variant, Via, which claims to offer the “same flavour and value” as its in-store drinks. While mass-market brands such as Nescafé have long been associated with lower cost instant coffees, Starbucks is more often perceived as an upmarket option, with products such as caramel frappuccinos.
The decision to launch Via, which will appear in supermarkets as well as Starbucks branches, is a sign that the coffee company wants to be perceived as less premium to attract people who are turned off by the company’s high prices. Chief executive Howard Schultz admits it is a “considered bet for us”.
Starbucks is not the only one to discover that basic works better. Tesco was one of the first companies to adopt this strategy, launching its Discount Brands line in September 2008. The range of 350 products include new, invented brand names such as Trattoria Verde and Packer’s Best. It invested more than £100m in the scheme and is adding almost 100 new products this month.
But after Tesco has done so much to move away from its original downmarket philosophy of “pile it high, sell it cheap” towards the softer “every little helps”, does this really make sense?
Tesco commercial director Richard Brasher claims that the strategy offers people suitable cheaper branded products to match otherwise luxury tastes. He says: “We want to help our customers have it all in an uncertain world.”
“As customers tighten their belts, they tend to shop around for the best prices,” he says, adding that using the branded ranges helps provide what customers “have come to expect from Tesco”.
It is not just retailers that are making trading down a more acceptable philosophy. The decline in disposable incomes has hit the leisure sector hard. Arne Sorenson, president of Marriott Hotels’ European operations, says that his hotel group is trying to respond to consumers keen to trade down by promoting short-term offers through its current advertising campaign.
“With less corporate business the mix of our occupancy is changing. We have modified our marketing approach in 2009 to focus less on image advertising and more on short-term heads in beds,” he says. “We can’t motivate business customers to take a trip they don’t need, but we can help stimulate leisure travel and increase share.”
Rival hotel chain Travelodge, however, believes that consumers will see through more upmarket competitors offering these kind of deals. Guy Parsons, UK managing director of Travelodge, says: “The rip-off room rates offered by our mid-market competitors in the major business markets of the UK show the savings that can be made by switching to budget hotels.”
He suggests that people are more likely to turn to established low-cost hotels rather than looking for deals from firms trading down. Parsons says the offers will not be enough to persuade consumers they can make “substantial savings”.
In the car market, corporations such as General Motors are also moving away from adding premium elements to standard models in favour of models with fewer frills. A company spokesperson points out that with falling sales, it is clear that “interest isn’t in luxury marques. Our focus has to be the traditional cars seen on forecourts to survive”.
These sentiments are echoed by cosmetics brands L’Oréal and Chanel, which say luxury sales are declining. While the cosmetics firms are not necessarily creating whole new ranges of lower cost variants, they are considering their distribution methods to bring their brands to a less premium audience.
Consumers might be used to seeing L’Oréal concessions in Boots, but they can now see the group’s brands stocked in low-cost retailer Lidl.
The restaurant sector is one where some of the biggest consumer migration is being seen, away from upmarket eateries to those offering value for money. While most business sectors are slashing jobs to survive in the recession, fast food restaurants are adding jobs.
As consumers trade down from gourmet burgers and premium pizzas, fast food companies are taking advantage by offering vouchers for cheap meal incentives in newspapers and promoting “value saver” options in stores. Jill McDonald, senior vice-president and chief marketing officer for McDonald’s, says: “McDonald’s has captured the mood of the moment because we are seen as an affordable and accessible brand, which makes us well-placed to help consumers get through the recession.”
McDonald argues, however, that if other brands are going downmarket in a recession, this cannot be said of her own company. As consumers lower their expectations of what they can afford, she says that McDonald’s is succeeding by improving its products and services.
“Rather than going downmarket, we’ve upgraded the restaurants, the customer experience and the menu. The investment we’ve made makes for a rather potent cocktail of success. We’ve upgraded our brand if anything,” she claims.
But rival KFC argues that focusing on basics and value is the way to go. Chief executive Martin Shuker says that the company is lucky enough to have the right products at the right price to appeal to cash-strapped consumers. “It’s not any different to the usual offering but it provides consumers with a form of comfort when they are out and about,” he says. “In these difficult times, the focus has to be on value and helping out consumers.”
Technology brands are also trying to appeal to consumers looking for a brand-name bargain. Taiwan-based electronics brand Asus has recently launched a more basic notebook range called Eee. Asus chairman and chief executive Jonney Shih says: “The Eee family is our acknowledgment of the back to basics approach. While we have the luxury options, we are aware of the global economic climate and the damage that does to consumer spend.
“The Eee range offers value to consumers wanting to spend under £200 with the option to upgrade later. Like any company, it’s all about meeting demand despite economic circumstances.”
Mobile phones, known for adding extra features with every new model, are also moving downmarket – Nokia has created a low-cost smartphone handset for about £150, while Vodafone is due to introduce “very basic” own-branded phones.
In the media sector, the move away from launching multiple glossy magazines to freesheet papers appeals both to consumers and advertisers. Ian Clark, managing director of thelondonpaper, says that freesheets sum up the mood of the nation: “We are perfectly positioned to accommodate the tough climate we are in, by offering mild content a consumer would want at the end of a hard working day. We are also able to meet advertiser requirements in terms of attracting the right audience, which is why we are 44% up on ad sales from last year.”
So will moving downmarket continue throughout 2009? Businesses are unlikely to push more premium campaigns, products or values when people are looking for more value than ever before. Burger King’s new slogan, “You’ll feel like you robbed us” is just another sign that this trend is set to continue for some time yet.
The companies that are able to cut prices, specifications or services without appearing to lose their essential values are those which will triumph this year. Whether in traditional low-cost sectors like fast food or more aspirational areas like cosmetics, one thing is clear – being frugal is in fashion.