We must swallow bitter pill of austerity

The term austerity derives from the Greek word for bitterness. It’s the perfect encapsulation of the decade ahead for British marketers. We may have survived the great financial storm of 2008, but the flooding that follows the initial down-pour are now set to engulf the British economy for many years to come.

Mark Ritson
Mark Ritson is an Associate Professor of Marketing, an award winning columnist, and a consultant to some of the world’s biggest brands.

Faced with record levels of debt, our new Government will soon increase VAT levels to 20%, drastically reduce public wages and cut thousands of jobs. As Britain adjusts to this new age of austerity house prices will fall dramatically and disposable incomes will decrease significantly.

This isn’t (fortunately) Macro-Economics Weekly, so what are the implications of all of this for marketing? The British consumer is about to become a very different animal. The past decade saw an unprecedented change in high street spending as consumers, emboldened by a surging economy, upgraded their tastes en masse from C&A to D&G and from Nescafé; to Nespresso. Those days are over. Recent research from consulting firm BCG provides a startling insight into the new realities of European consumers. An increasing number of shoppers are trading down from premium to standard or discount products and, according to BCG, are doing so because it makes them feel more practical and knowledgeable. This is not a consumer simply saving money. This is a consumer spending less and feeling good about it.

Before we consign every premium purchase to the austerity dustbin, we should pause and remember that trading down and trading up usually go hand in hand. It’s true that we now expect most consumer decision making to err on the side of economy. But since 2008 we have learned that British consumers like a little trading up to off-set their savings. The key question for premium brands is whether they can jostle for position and justify their role as that special, occasional luxury that offsets the restrained shopping that current economic conditions demand. Even during the spending apocalypse that was 2008, many luxury brands prospered thanks to smaller items that consumers still felt compelled to buy to brighten up their life. The market for premium goods in the UK will shrink, but for that most deserving and relevant premium label the opportunity remains unburnished.

Of course not all consumers will be affected by austerity. The old world of Europe and the US might be on its knees for the foreseeable future, but let us not forget that New World consumers have successfully decoupled from their impoverished older cousins. If one thing has made me angry over the past two years it’s the gaggle of London and New York-based branding gurus proclaiming that “bling is dead” and that it’s time for “quiet luxury”. True if you can only see as far as the end of New Bond Street.

Beyond the grey drab streets of London there is an emerging confidence and a surge in consumer spending in cities like Shanghai, New Delhi, Rio and Sydney. The recession will not touch these cities, and for British companies bereft of growth at home and suddenly benefited by a weak Pound, the emphasis should be on export markets and these new world consumers. Brands like Burberry that make more than half of their sales outside of Europe and (if truth be told) most of their domestic sales from foreign tourists – are well placed for the decade ahead. In contrast, poor old M&S is doubly cursed by a premium position and a revenue stream that draws 90% of its sales from domestic consumers.

The age of austerity ahead will also re-introduce us to one of the great prehistoric monsters of recessions past: strike action. It’s a concept that many younger marketers simply have no recollection of. But greyer marketers will recall an era in which British industry was hijacked by repeated industrial action as unions fought back against job cuts and pay reductions. Intriguingly, the last great strike period of the Seventies ended just before the modern era of brand management began. We are now likely to witness the first potent battles between corporate branding and industrial action. The most important touchpoint for many service businesses over the next five years will be how they avoid and ultimately defuse potential industrial action. As British Airways has illustrated of late, there is no point spending money on marketing and advertising if you abruptly and repeatedly leave your customers stranded because of strike action. As with most marketing issues, the first law of brand management is don’t do it like BA.

Forget the recent optimistic predictions of Zenith Optimedia and the IPA’s Bellwether report. Both happily predicted major growth in adspend for 2008 before the GFC descended upon us. Indeed the IPA’s predictions were so wrong back then they led the editor of Media Week to declare that it was “time for everyone to fill their boots and let the good times roll”. Ahem.

The Age of Austerity is upon us. No crisis. No disaster. Just a long, drab era of economy and..well.. bitterness.

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