There is no question about it, budgets are tightening and macroeconomic headwinds are blowing frigid.
Risk is on the tongue of every customer or company, whether acknowledged or not. As a result, consumers are setting stricter priorities and reducing their spending.
As sales slip, marketing expenditures are historically one of the first line items to be slashed. Sustainability is often a subset of the marketing budget and is typically seen as a nice to have, not a need to have.
Although it’s wise to cut costs and tighten budgets, failing to support a core mission or examine your customers’ changing priorities and expectations can jeopardize long-term growth.
Indiscriminate cost-cutting is a mistake, and while budgets inevitably need to be tightened, they should be managed surgically, nimbly and in direct response to shifting customer expectations.
The Psychology of Recession Purchasing Decisions
In times of inflation and limited buying power, purchasing decisions typically depend on disposable income, consumer confidence and a tightened hold on core values.
As record inflation attacks buying power, confidence is quickly waning. As a result, customers are adjusting their behavior in fundamental and potentially permanent ways.
Specifically, customers are rudely waking up to a mountain of debt caused by chasing “the good life” driven by unrestrained marketers. The Federal Reserve’s Q3 2022 report found that household debt reached $11.67 trillion, a level unseen for 20 years.
In order to align with their consumers, the c-suite and marketers must analyze and understand their tightening customer segment and purchasing priorities.
Generally, purchases fall into four categories:
- Expendables – surplus spending or unjustifiable.
- Delayables – purchases without immediate necessity
- Indulgences – consumption on the right side of justifiable.
- Essentials – necessary to survival
Typically as consumption priorities are reevaluated, customers begin to rearrange their purchasing decisions, moving toward core essentials. Likewise, increased price sensitivity corrodes brand loyalty as consumers seek cheaper alternatives, moving away from private labels.
Welcome to the inflection point, your loyal customers, the enduring basis of your cash flow, must be maintained, and your products must continue to be prioritized as “Essentials.” Brand, core values and marketing are now as essential as ever.
The Sustainability Opportunity
As sales become scarce, hold tight to your fundamental position. A major market or price shift can potentially alienate your loyal customer base.
Now is the time to commit to the long-term and negate short-term gains. The best course of action is to commit to stabilization — bolster core brand values and enforce your value proposition.
Remind consumers that your brand is essential and your products’ value is worth their investment.
De Beers encapsulated this mindset after initially reducing their marketing budget early in 2008 as their revenue began to nosedive. Consumer research revealed that the recession was influencing consumers to purchase less while focusing on quality. With this new direction in mind, they doubled down on their marketing spend from the previous year.
Their new proposition centered around: “Here’s to less” and teased the idea of “fewer, better things” backed by enduring quality — “a diamond is forever.” In response, their purchases stabilized.
While this case study isn’t purely based around sustainability, it demonstrates two lessons for marketers. First, deftly adjusting to consumer trends and placing faith in marketing spend will continue to prove valuable as we move into and past the potential recession.
And second, adjusting to shifting consumer values is absolutely critical. De Beers understood the importance of reduced materialism and a commitment to value in 2008. Today, environmentally conscious sentiment is tenfold.
The chase of “the good life” has led to record debt levels, and the ever-increasing climate devastation continues to enforce concepts of minimalism, sustainability and consciousness, which consumers expect to recognize in the brands they consider “essential.”
Reinforce Emotional Connection
As decreased buying power shifts consumer habits and constant climate concerns develop a conscious attitude, embedding environmental action into your brand’s DNA is a compelling means to align with the needs of your consumer segment.
A fantastic case study Rebecca Henderson outlines in “Reimagining Capitalism in a World on Fire” describes how Lipton sought to differentiate themselves from the highly competitive and commoditized tea market.
To stand out, Unilever-owned Lipton made the courageous commitment to purchase 100 percent sustainably grown tea — a truly massive undertaking. Achieving this would entail training over half a million farmers and a significant price increase.
The proposition suggested raising costs and focusing on building a core value to enable Lipton to stand out among a highly price-sensitive market, a brave hypothesis. The critical make-or-break assumption was that embracing sustainability would lead to economic returns.
Little did they know, the shift to sustainable farming practices would improve tea quality, heighten health and safer practices, increase crop yield by up to 5 to 15 percent and raise the average farmer’s income by an estimated 10 to 15 percent.
According to a manager of a Unilever-owned Kericho estate, the most noteworthy benefit was intangible: “the Kenyan smallholders are ultimately interested in creating a farm in good health that can be passed onto future generations. That was the ‘sustainability’ that resonated with them.”
As predicted, Unliver’s costs rose significantly, and it was up to the marketing department to determine if this new, environmentally conscious position would resonate with consumers.
The UK market, which encompassed ~ 10 percent of Unilever’s tea sales, dedicated their entire marketing budget to promote the new sustainable position. They centering their campaign around: “Do your bit: put the kettle on,” communicating the positive impact created by drinking their tea. As a result, their market share increased by 1.8 points, repeat customers increased by 5 percent, and overall sales rose by 6 percent.
In Australia, a similar campaign promoted: “Make a better choice with Lipton, the world’s first Rainforest Alliance Certified Tea,” sales increased by 11 percent.
Unilever began implementing sustainability initiatives across the portfolio. And in June 2019, they announced that their “sustainable living” brands grew 69 percent faster than the rest of their portfolio and generated 75 percent of the aggregate growth of the company.
Planet and profit can indeed coexist. The salient hypothesis of shared value is a compelling strategy to reduce risk and increase demand, establishing a symbiotic supply chain.
Shared Value – The Link between Competitive Advantage and Corporate Social Responsibility.
Plastic is the New Carbon
So how can your company establish a sustainability strategy to maximize your competitive advantage while amplifying the concept of shared value?
First, abiding by the tried and true consulting mantra, “you can’t manage what isn’t measured” — a holistic company-wide environmental footprint analysis is a great place to start.
Carbon has been and will be a hot topic for reduction targets and action. Similarly, plastic action and reduction are entering the limelight.
Directly linked to carbon emissions and our ominous pollution crisis, companies can bolster core brand values and enforce their value proposition by tackling their plastic waste.
At Ampliphi, we help companies thoroughly measure their footprint, commit to reduction targets and tell incredible impact stories. We give you all the tools necessary to establish a noteworthy mission and wow your stakeholders with the results.
While your company may not need to retrain half a million farmers, we identify an exhaustive sustainability strategy — identifying which supply chain or product interventions can create the most positive environmental impact.
Transparent, authentic and actionable sustainability strategies combined with equally authentic marketing campaigns resonates with consumers and produce economic returns even in the most chilly economic conditions.
And, above all else, we all must do our part to maintain our planet’s ecological boundaries.