Lessons from Tesco, Ikea and Magnum in growing brand value amid the cost-of-living crunch
Michela Graci, strategy partner at Coley Porter Bell, delves into how brands can grow their value during the cost-of-living crisis.
As the cost-of-living crisis bites, how should brands navigate? / Previously used on The Drum, IPA
Our industry is constantly having to adapt and react to new trends, changing customer behavior and macro effects – often these are exciting recalibrations that require innovation and a new understanding of changing mindsets. But then there are times like these. And, currently, how large sections of society survive the cost-of-living crisis is sadly the biggest story in town.
Whether it’s that more than 7 million people are living in households that were forced to reduce food purchases or miss meals despite being hungry in April, or that the increasing energy price cap will see bills going up by about £700 per year – no matter what direction you look, people’s costs are going up and their spending power is being squeezed. This is most keenly felt by those on the lowest incomes.
Some politicians’ responses might leave a lot to be desired – not least environment minister George Eustice saying shoppers should switch to value ranges to cope with rising costs – but many business leaders are now seriously addressing the crisis such as Iceland’s Richard Walker and Tesco’s John Allan.
With inflation set to hit 10% by autumn, economic growth likely to fall and prices continuing to rise, brands – no matter what their category or target customers – will find the cost of living is going to have an impact. So, how should they respond? When value is on everyone’s minds, how do you protect, or even grow, brand value without alienating customers?
Accessible exceptional
Even though many people are tightening their belts, the desire for occasional treats will continue. In a more recessionary mindset, moments of indulgence are often seen as legitimate splurges. Grocery brands that are well-placed to tap into these little pockets of self-indulgence are premium own-label or mass-premium ranges.
We see this across categories – Magnum positioning itself as an everyday indulgence, Hovis adding premium ranges within its everyday brand halo or Tesco pushing premium private label with its Finest range. These brands are all well-placed to reach customers generally watching their food expense, but still looking for occasional treats.
Luxury language
The top-end of luxury generally withstands a cost-of-living crunch. The rich stay rich and continue to spend, unhindered by the economic realities most people face. However, that doesn’t mean they can carry on regardless, as even luxury brands need to take care not to appear tone deaf or out of touch within this broader context.
Indeed, this can even be an opportunity to become more relevant. Rather than over-the-top ostentation, luxury brands can connect better with local markets – shifting from exclusive to inclusive as they connect better with communities. We’ve seen this with luxury brands extending their marketing on to TikTok, although some have done it more successfully than others. Moncler’s #MonclerBubbleUp encouraged users to create and share their own versions of its signature padded coat, while more and more brands such as Selfridges are offering repair concierge services to encourage consumers to extend the life of their garments, rather than buy new ones.
Sustainable sentiments
While an initial knee-jerk reaction may be to expect sustainable brand positioning to be under threat as cost-cutting takes priority, this is too simplistic a view. Sustainability is broader than eco and the impact on environment. It also encompasses inclusion, equality and accessibility – all of which are just as, if not more, pertinent in the current economic climate.
Maintaining a sustainable approach is also vital to avoid price fighting and protect value while building brand loyalty. In an inflationary market, brand value needs to be about more than price, or companies get into a race to the bottom where the lowest price ‘wins.’
One interesting brand development that is in keeping with a sustainable and cost-conscious mindset has been the rise of the secondhand marketplace such as Cos Resell and The North Face Renewed. The margins are lower, but it maintains loyalty, attracts new customers who might otherwise struggle to buy into the brand and has a positive halo effect for ‘doing the right thing.’
Smart frugality
In this climate, brands can take a different approach to frugality, sharing how consumers in any income bracket adopting this mindset are smart, and that managing to do more with less is both a smart and an environmentally-friendly approach to consumerism.
Ikea’s ‘Fortune Favours the Frugal’ campaign is the champion of this thinking, and we can expect to see more brands build their position around how people adopting a more prudent approach are the astute ones.
Across all areas the narrative needs to be around brand value, not price. Being honest and transparent about the causes of price rises is essential to avoid consumer resentment and help build understanding – and maybe even advocacy. Focusing on brand value will help highlight why shoppers should stick with your brand – this may include talking about using local suppliers, improving the customer experience or explaining your sustainable strategy. Shoppers are increasingly business literate – so brands should inform, explain and demonstrate value.