3/30/2017 Marketingstrategiesforfastmovingconsumergoods

By continuing to use this site you consent to the use of cookies on your device as described in our cookie policy unless you have disabled them. You
can change your cookie settings at any time but parts of our site will not function correctly without them.

Sign In Subscribe

News

Marketing strategies for fast-moving consumer goods

FEBRUARY 6, 2009 by: Jan-Benedict E.M. Steenkamp & Marnik G. Dekimpe

Thecurrentrecessionisthemostbrutaleconomicdownturninalifetime.Oneindustrywhere
theconsequencesoftherecessionarefeltparticularlyhardisthefastmovingconsumergoods
(FMCG)industry.Inthepast,thisindustrywasdominatedbysuchwellknownmanufacturer
brandsasArieldetergent,Nescafcoffee,Philadelphiacreamcheese,Floramargarine,and
Pampersnappies.However,inrecentdecades,socalledprivatelabelsorstorebrandsbrands
ownedbyretailgiantssuchasWalMart,Tesco,CarrefourandAldihavemadehugeinroads,
especiallyinwesternEuropeandtheUS.Todaytheycontrol20percentoftheUSFMCG
market,35percentinGermany,andmorethan40percentintheUKMuchofthelossof
marketshareofmanufacturerbrandsisinitiatedineconomicdownturns.Facedwitha
pressingneedtosavemoney,shoppersturnto(cheaper)storebrands.Theydiscoverthatthe
qualityisgoodand,consequently,manystickwiththebrandwhentheeconomyimproves
again.

Ourresearch,spanningseveraldecadesofpurchasingbehaviourandmultiplerecessionsin
countriesacrosstheglobe,showsthatthegrowthofprivatelabelsinrecessionsleaves
permanentscarsonmanufacturerbrands.Willitbeanydifferentthistime?Itispossible,but
thiswilldependonhowbrandmanagersrespondtothecurrentdownturn.Brandsthattakea
proactivestanceandtreattherecessionasanopportunityarelikelytocomeoutofthe
recessionstrongerthanbefore.Inthisarticle,wedescribewhattheyshoulddo.Twoissues
drivetheoutcomeofhowbrandsmakeitthroughtherecession:theirequityattheonsetofthe
recessionandinvestmentsinthebrandduringtherecession.

Brandequity

Howstrongisyourbrand?Isitabrandwithmanyloyalbuyersthatpeopleknowandtrustand
arewillingtopayapricepremiumfor?Orisitaweakbrand,commandinglittleloyaltyand
esteem?Insum,isyourbrandequityhighorlow?Strongbrandsentertherecessioninamuch
https://www.ft.com/content/a8d405c8f2b011ddabe60000779fd2ac 1/9
3/30/2017 Marketingstrategiesforfastmovingconsumergoods

morefavourablepositionthanweakbrands.Theyareontheshelvesofmoreretailers,have
moreshelfspaceandhavealargerandmorecommittedcustomerbase.Marketingbudgetsfor
strongerbrandsalsotendtobehigher.

Inrecessions,retailersacrosstheworlddevotemoreshelfspacetotheirownbrands(especially
sincetheyalsocommandahighermargin).Forexample,tocatertotheincreasedprice
sensitivityofUKconsumersinthewakeoftheeconomicdownturn,Tescolaunchedon
September172008,itsfourthlineofprivatelabels,calledDiscountBrandsatTesco.Salesof
Tescosdiscountandvaluerangesareup65percentonlastyear,andoneinfourshoppersnow
purchasestheseranges.Thisputsapressureonthenumberofnationalbrandstheretailerstill
carries.Retailersarelesslikelytokillbrandswithastrongandloyalcustomerbase.

Highequitybrandsarealsobetterinsulatedagainsttheswitchingtoprivatelabelsbehaviour
thatisubiquitousinrecessions,ifonlybecauseloyalcustomersincurhigherswitchingcosts
whenbuyingnonpreferreditems.Highequitybrandsareknowntosufferless,andtorecover
faster,followingaproductharmcrisis.Thesameholdstruewhenfacedwithaneconomic
crisis.

Brandinvestmentsinrecessions

Inrecessions,shoppershaveanaturaltendencytoswitchtoprivatelabelsinordertosave
money.Thelogicalthingforbrandstodoistocounterthistendencybyeitherloweringtheir
ownprice,orbyofferingsufficientnonpricereasonstoconsumerstobuytheirbrand.Our
research,spanningmorethantwodecadesofactualmarketingbehaviour,revealsthatmost
brandsdoexactlytheopposite.First,brandscancounterthepriceadvantageofprivatelabels
byrampinguptheirownpricepromotions(temporarypricereductions).Consumersaremore
pricesensitiveinrecessions,soofferingmorepricepromotionsmakesalotofsense.
Surprisingly,pricepromotionactivityformostbrandsactuallydecreasesinrecessionarytimes.

Second,thebrandcancounterthepriceadvantageofprivatelabelsbyincreasingits
investmentsinadvertisingornewproductactivity.Bothprovidenonpricereasonstopurchase
themanufacturerbrandimageandimprovedfunctionalperformance,respectively.However,
ourresearchshowsthatadvertisingandinnovationactivitydecreasesinrecessions.

Marketingresearchisalsooneofthefirstvictimsinarecession.Theseoutlaysare
discretionary,andofferaneasywaytoreducecosts.Unfortunately,inbadeconomictimes,itis
moredifficulttoconvinceconsumerstobuyyourhigherpricedbrand.Optimalmatchingof
https://www.ft.com/content/a8d405c8f2b011ddabe60000779fd2ac 2/9
3/30/2017 Marketingstrategiesforfastmovingconsumergoods

yourbrandwithconsumerneedsisevenmorenecessaryindifficulttimes,butevidenceshows
thatbrandmanufacturersprefertooperatewithoutthiscrucialguidanceduringrecessions.

Whydocompaniesmanagebrandsinsuchacounterproductiveway?Afterall,theirbrandsare
theirmostvaluableassets.Cuttingbackinrecessionsonpricepromotions,innovationactivity
andadvertisingsavesmoneyintheshortterm,butunderminesthelongtermequityofbrands.
Webelievethatitisduetoatoxiccombinationofshorttermperspectivethatcharacterisesthe
decisionmakingofmanymanagersandthetremendouspressureonthebottomlinein
recessionarytimes.Theeasiestwayoutistocutcosts,andsincepricepromotions,advertising,
newproductintroductionsandmarketingresearcharelargelydiscretionarycosts,theycan
easilybecutintheshortterm.

However,thisbehaviourweakenstheequityofbrandsandnegativelyimpactsonshareholder
value.Westudiedthestockpriceperformanceof26globalcompaniesovera25yearperiod
andfoundthatannualgrowthinshareholdervalueforcompaniesthatdonottietheir
advertisinginvestmentstothebusinesscycleis1.3percenthighercomparedwithcompanies
thatdolettheiradvertisinginvestmentsdependonthebusinesscycle.Thistranslatesinto
billionsofdollarsofshareholdervaluethataredestroyedannuallybyadoptingthiserroneous
practice.

Insum,companiesoftendothewrongthingbyreducingmarketingexpendituredespite
compellingevidencethatitpaystonotfollowthegeneraltrendofcuttingbackduringa
recession.Putdifferently,oneshouldstarttotreatthosemarketingexpensesasstrategic
investments,ratherthanasshortruncoststhatcaneasilybecutwhenthegoinggetstough.
Notethatgoingagainstthetrendcanbeinabsoluteterms(strongform)orinrelativeterms
(weakform).Indeed,byholdingbrandexpendituresatprerecessionarylevels,whileother
brandsspendless,onemaystillincreaseonesshareoftotalmarketcommunications.

Fourscenarios

Bycombiningtwodimensionsofbrandequityattheonsetoftherecessionandbrand
investmentsintherecession,wegetfourscenarios.

Brandinvestments
Reductioninbrand Noreduction/increaseinbrand
investments investments
https://www.ft.com/content/a8d405c8f2b011ddabe60000779fd2ac 3/9
3/30/2017 Marketingstrategiesforfastmovingconsumergoods

Brand High
(1) (2)
equity
Highlosspotential Recessionisopportunity

Low
(3) (4)

Survivalgame Doubleornothing

Brandsincell(1)runthedistinctdangerthattheirequitywillbesignificantlyerodedinthe
currentrecession.Theystartfromafavourableposition,buttheirbehaviourwillleadtoa
significantweakeningoftheirpositionvisvisprivatelabelsandthebrandsincell(2).
Managerialdecisionmakingforthesebrandsisoverlycautiousandfocusedontheshortterm.
Thesebrandsshouldemphasiseactivitiesthatkeeptheircustomerssatisfied(and,hence,
retainthem),ratherthanfocusoncostsavingactivities.Indeed,customerslostduringthe
recessionmaynevercomeback,evenwhentheeconomysoutlookimprovesagain.

Forbrandsincell(2),therecessionisanopportunitytopullaheadoftheirshortsighted
competitorsincell(1).Theirproactivebehaviourwillstrengthentheir(relative)position,not
onlyintherecessionperiod,butalsoinsubsequentyears.Brandsincell(3)areintheworst
possiblesituation:theystartweak,andtheirmanagementmakesthewrongdecisions.Theyare
primecandidatestobedelistedbyretailerswhoarepushingtheirprivatelabelsinrecessions
andmanyofthemwill.Theirbrandequitywilldecline,andmanywillnotevensurvivethe
recession.

Thebrandsincell(4)havetheopportunityofalifetimetofightback.Theystartinan
unfavourablepositiontheirequityislowand,innormaltimes,itwouldtaketremendous
marketinginvestmentstobreakthroughthecompetitiveclutter.However,giventhatmost
brandscutbackinrecessions(and,hence,belongtocells(1)and(3),brandsincell(4)areable
toincreasetheirshareoftotalmarketcommunicationinthecategorydramaticallyby
maintainingorevenbetterincreasingtheirmarketinginvestments.Butitisariskystrategy
ifitispoorlyexecuted,theanticipatedincreaseinsalesandprofitswillnotmaterialiseand
thebrandmaybediscontinued.

Conclusion

https://www.ft.com/content/a8d405c8f2b011ddabe60000779fd2ac 4/9
3/30/2017 Marketingstrategiesforfastmovingconsumergoods

Justasslumpsinthestockmarketoffergreatopportunitiesforcourageousinvestors,slumpsin
therealeconomyoffergreatopportunitiestocourageousmanagers.Allevidenceindicatesthat
aproactivestrategyisassociatedwithincreasedbrandsuccessandshareholdervalue.Ifyou
waittillthegoodtimescomeback,youignoretheadvicegivenbythelegendaryicehockey
playerWayneGretzky:Iskatetowherethepuckisgoingtobe,nottowhereithasbeen.
Recessionsarenotforthefaintheartedbutwhosaidthatfairweathermakesgreatmanagers?

Authors:JanBenedictE.M.Steenkamp(jbs@unc.edu(mailto:jbs@unc.edu))isC.Knox
MasseyDistinguishedProfessorofMarketingandMarketingAreaChair,UniversityofNorth
Carolina,ChapelHill,U.S.A.&ExecutiveDirectorofAiMark,andauthor(withN.Kumar)of
thebookPrivateLabelStrategy:HowtoMeettheStoreBrandChallenge.MarnikG.Dekimpe
(m.g.dekimpe@uvt.nl(mailto:m.g.dekimpe@uvt.nl))isResearchProfessorofMarketing,
TilburgUniversity,theNetherlandsandProfessorofMarketing,CatholicUniversityLeuven,
Belgium

Printasinglecopyofthisarticleforpersonaluse.Contactusifyouwishtoprintmoreto
distributetoothers.TheFinancialTimesLtd.

Read latest

Privacy vote is foretaste of net neutrality battle

NEW 43 MINUTES AGO

Latest News

Net Neutrality
Privacy vote is foretaste of net
neutrality battle
Republicans have launched an eort to deregulate the
internet and media worlds
NEW 43 MINUTES AGO

https://www.ft.com/content/a8d405c8f2b011ddabe60000779fd2ac 5/9
3/30/2017 Marketingstrategiesforfastmovingconsumergoods

Europe
Greece to probe possible defence corruption
Committee to examine surge of procurements under former minister
AN HOUR AGO

Brexit
Brexit begins as Theresa May triggers Article 50
Prime minister sets out Britains negotiating stance in statement to MPs
AN HOUR AGO

Special Report Watches & Jewellery

Big diamonds are big business
Why have there been so many large stones on the market? And will we soon see more?

Follow the topics mentioned in this article

Aldi

Carrefour

Tesco

Walmart

North America

Take a tour of myFT

Comments have not been enabled for this article.

https://www.ft.com/content/a8d405c8f2b011ddabe60000779fd2ac 6/9
3/30/2017 Marketingstrategiesforfastmovingconsumergoods

https://www.ft.com/content/a8d405c8f2b011ddabe60000779fd2ac 7/9
3/30/2017 Marketingstrategiesforfastmovingconsumergoods

https://www.ft.com/content/a8d405c8f2b011ddabe60000779fd2ac 8/9
3/30/2017 Marketingstrategiesforfastmovingconsumergoods

https://www.ft.com/content/a8d405c8f2b011ddabe60000779fd2ac 9/9