Now that Barack Obama is the 44th President of the United States, many are hoping he will act boldly and swiftly (as he promised in his inaugural address) to improve the state of the American economy. If the Obama administration succeeds in doing this, marketers around the world will breathe a collective sigh of relief.
Unlike previous U.S. recessions, this one has quickly affected people living in countries far away, including China, India and Indonesia. Marketers around the world are facing an unprecedented decline in consumer demand for goods and services.
A survey conducted by Millward Brown ACSR in China confirms that we live in a global economy. Nearly eight out of ten Chinese respondents reported feeling some impact from the global financial crisis. Not surprisingly, respondents from industrial cities such as Shenzhen and Guangdong have the highest levels of anxiety towards the crisis.
More than 11,000 respondents from all over China completed a questionnaire administered online to new members of MB-ACSR Lightspeed Research’s Internet Panel. Anyone who registered to join LSR China’s online panel was invited to take this survey, with no quotas on demographics or regions. Thus the survey used a convenience sample of higher income consumers but even so, it does tap into the mindset of those most likely to buy branded goods and services.
Those who reported being most affected by the current economic difficulties were of working age and/or in the middle income level. This must be of great concern to the many companies focused on marketing to what was one of the fastest growing consumer markets in the world.
Topping the list of activities likely to be cut back is eating at Western fast food restaurants; one of two respondents said they were likely to reduce expenditure on that category in the next three months. This is a direct contrast to the United States, where fast food restaurants are enjoying additional business at the expense of casual dining chains. But because of the difference in average disposable incomes, eating at Kentucky Fried Chicken or McDonald’s in China is the equivalent of eating at The Olive Garden or Outback Steakhouse in the United States.
Travel, high-risk financial investments, and premium beauty products are also high on the list of items most likely to be cut. Least likely to be affected are fresh food, household products and savings. These findings confirm that in time of recession, needs beat wants wherever you live.
Jason Spencer, Managing Director of our Shanghai office, suggests that the reaction of Chinese consumers may be even more extreme than that observed in Western markets. He says,
Because of the lack of a social security net Chinese consumers tend to err on the side of caution (we all know they are ferocious savers compared to Western consumers). Because of this, negative sentiment is likely to have an exacerbated impact here. So if conditions improve elsewhere and consumers start to feel they can spend again, we might see a lag effect in China because they feel less confident about the government’s ability (or commitment) to provide safety nets in terms of health education and unemployment.
Jason’s conclusion is entirely in line with that of well-known author Tom Doctoroff, who suggests that Chinese consumers commonly believe that the world is an unsafe place. In October of last year he suggested (click here for the full context on the Huffington Post):
(The) Chinese have always been conservative spenders and messages in China, particularly those targeted to the mass market, have usually focused on “protective” benefits - e.g., ensuring the family’s physical and financial safety… In this current economic climate, China’s middle class wants to know their gains of the past decade will not disappear in the midst of global uncertainty.
What does all this mean for brand marketers? Now more than ever they need to focus on value messages. This does not mean cutting prices, a path that leads to weaker margins and possibly a death spiral from which a brand cannot recover. It means focusing on what makes your brand more economical. It means making your brand more accessible (without lowering its relative price). And above all it means ensuring that you maintain marketing spend when others are going dark. (Click here for more recommendations on marketing in a recession.)
If there is one thing that marketers should learn from history, it is that a time like this is not a time to slow down. It is a time to speed up. And for many marketers that spells opportunity. Consider the example of Chevrolet during the Great Depression. In the 1920s, Ford was outselling Chevrolet by a factor of 13 to 1. During the Great Depression, Chevrolet ads (created by long-time Chevy partner Campbell-Ewald) proclaimed the brand’s fuel efficiency with statements like “You’ll say I can’t believe it, but the gas tank proves it’s so.” Before the depression was over, Chevy was outselling Ford.
Of course, the best defense against recession or depression is a strong brand and financial solvency. As I noted in this post, Apple seems to be making no concessions to the current economic turmoil that has put other tech companies on the back foot. It seems that my perception was correct. Last week Apple said robust sales of iPods and laptops allowed it to shrug off one of the worst holiday seasons for years. The company’s quarterly profit jumped to $1.61 billion, or $1.78 a share, over 25 percent higher than analyst expectations, according to The New York Times.
So is Apple unusual? What other brands do you think will take advantage of the current economic climate? And how are consumers in your country cutting back? Please let us know.
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