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Saturday, 25 October 2014

When the going gets tough, how will brands get going?

From: Engaging thoughts

Votes against austerity in France and Greece last week renewed speculation that the euro may soon collapse. Moreover, the bookies tend to agree: Ladbrokes suspended bets last week on Greece leaving the euro and reported “plenty of support” at 33/1 on the euro being scrapped this year. But what might this mean for brands in Britain and their customer?

At the start of the recession, the strength of the euro against the pound made the UK a very attractive destination for European shoppers. A reversal this year with a strong pound and a weak euro would make British exporters less competitive in Europe, which doesn’t bode well for the growth outlook of the UK.

How brands react depends, of course, on the depth and severity of this new downturn. We can expect, though that the already-squeezed middle will be squeezed still further. Household incomes will come under severe pressure, only this time, there won’t be any slack on salaries to cut back. House repossessions have steadied out and are now significantly lower than in 2007. But 13 million people already live below the poverty line in the UK and according to The Trussell Trust, food banks fed 128,687 people last year, 100% more than the previous year. If the cost of food and fuel stays high while incomes remain static or fall and unemployment increases, food banks will be in even more demand.

Politically, if we reach a stage where significantly more people are struggling to feed themselves there could be downward pressure applied to brands and retailers – which made major profits in the good times – to pare down their ambitions in order to help consumers through the worst. This would be in direct conflict with their commitment to shareholders to make profit and might be unpalatable for some.

There will likely be an increase in demand for ‘value’ products in categories for every day usage – household cleaning products etc – and more so than at present across all other categories. Only the most established brands in the most established ranges are likely to be unaffected. Pressure could be applied to retailers and brands for promotional offers which provide genuine savings, rather than ones that reward you for spending more. A drift away from loyalty cards is likely to continue as consumers seek cash savings rather than rewards. And a deep downturn could largely spell the end of our flirtation with higher priced organic produce, at least for a while – though there is likely to be continued demand for reasonably-priced fresh produce.

Ironically, the downturn might prove positive for charities which have suffered from dwindling donations in recent years. Economy clothes retailers like Primark and Matalan may face stiff competition from charity shops as a new generation of ethical shoppers seek second-hand but quality products.

We often talk about the need for brands to become more personal with their customers. Those that appreciate the importance of this may find a way of incorporating their brand into targeted CSR activity – for example sponsoring or supplying food banks nationwide or clothes banks (in the way M&S are doing for Oxfam at present), which would not only create positive brand exposure for themselves and their products but could redefine their brand for a generation.

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