The IMF downgraded global growth prospects in July, China’s economy decelerated again and economists are forecasting potential recession for the UK following Brexit. Maybe it is time we figured out that the heady days of economic growth are behind us and focus on how best to grow brands in a slow growth world.
You can argue that the slow growth is an after effect of The Great Recession, lower demand for commodities or political instability; but possibly the biggest problem is over supply, particularly in developed economies. Look at the situation facing retailers in the U.S., where Macy’s has announced it will close 100 stores. The basic reason is that the country is ‘over-stored.’
Consumers have always wanted more for less and now they can satisfy that demand as companies discount products in order to sustain volume, if not profit. Technology and the ability to check prices on the fly has simply made it easier for consumers to find the best deal. A premium brand needs to offer something substantially different from the competition if it is to justify its price when directly compared to similar brands. This is far worse for online retailers when many are essentially offering the same brand for sale and the sale goes to the lowest price.
So where will brands need to look to find new value? Fighting for market share head on against the competition in a stagnant or declining category may not be the best route to grow value; after all, in the absence of something disruptive, the evidence suggests that the advantage lies with the biggest spender.
One obvious route is to try to make existing sales more profitable. You can either go down the classic consultancy route of cutting costs from the supply chain and hoping quality does not suffer, or you can seek to boost the price paid by existing customers. For many product brands that might mean upgrading the product or adding a dimension of service to the brand. For service brands it will come down to really adding value to customers’ lives, not just saying it.
Other growth mechanisms include extending the usage of your brand to other categories, increasing frequency of use by extending to new needs, and aggressively targeting the few new consumers who may enter the category in the near future. Today, most growth occurs by growing penetration but in a stagnant economy maybe these other growth mechanisms will be more productive. What do you think? Please share your thoughts.
Written by Nigel Hollis,Executive Vice President and Chief Global Analyst at Millward Brown