Brands navigate the Euro maze

As the Eurozone debt crisis rages, ordinary people are starting to feel as if they have been cut adrift, which presents UK marketers with their biggest challenge in years, writes Alan Mitchell.

Thomas Cook couldn't be a better sign of the times: a household brand name with a 170-year pedigree that is pleading with its banks for survival, thanks to unrest in Egypt and Tunisia and a 20% sales slump in parts of the Eurozone, which accounts for more than 40% of its sales. Where has the fun - the optimism - gone?

Thomas Cook isn't the only brand that is hurting: General Motors' hopes of restoring profitability in Europe evaporated with a 5% drop in sales; Vodafone's Spanish revenues are down 9%, while Imperial Tobacco's fell by 15%; and Dixons went into the red, thanks to deteriorating European sales - 50% down in Greece.

Erosion of confidence

Closer to home, hopes of a recovery (no matter how insipid) are fading amid almost universal consternation. Even Professor David Miles, a member of the Bank of England's monetary policy committee, said publicly on the News at Ten, two weeks ago: 'Who knows where we will be, even at the end of this week? None of us can feel confident one way or another.' What can ordinary mortals do?

So just how bad is it for brands? Among some analysts the answer is 'very bad'. Some believe debt levels across Europe are unsustainably high (see table) and it will take years to pay them off. That means years of low growth, even assuming we avoid another financial meltdown. Within this there are countless practical headaches, multiple positioning adjustments, and shifting strategic sands to navigate.

The activity of German tour operator TUI sums up the practical details companies need to think about: just in case, it is renegotiating contracts with European hotels to allow for non-euro payments.

Some business models may need rethinking - should durables shift their focus from selling to renting? - and so might pricing strategies. A big difference between this crisis and previous ones is the internet, argues Jim Murphy, editorial director at Future Foundation. 'People of all social groups are getting pleasure and social capital from using tools for price scrutiny and active purchasing. Price sensitivity is now classless,' he says.

Brand positioning may also be up for grabs. One consumer response to the crisis is a focus on the local and familiar, for example.

'I can't see German brands promoting their national credentials in Greece at the moment,' adds Murphy.

'The concept of provenance might be altering here.'

Consumer sentiment is shifting in other ways. There are signs of a split between fearful parents and an increasingly activist younger generation, suggests Futures Company scenario specialist Andrew Curry. There is also 'a crisis of representation' as citizens lose faith in the political process.

'The swing from positive (economic) expectations to negative realities has been unnerving,' argues Curry. 'There is a very strong sense of "I am not in control. I can't influence things any more".' He draws an analogy: people don't just suffer heart attacks if they lead a pressured life, they are most prone when under pressure and feeling out of control. 'Right now, it is a bit like we're having a social heart attack.'

Because of this, the role of the corporation in society is under intense scrutiny. 'It's as if consumers are asking brands "Which side are you on? Is it the 1% of bonusand shareholder value-driven fat cats, or the 99% concerned with fairness and sustainable economics?' adds Curry.

Whatever a brand's adjustment, however, it needs to align to unevenness across countries, companies, markets and consumers. Among countries, levels of indebtedness vary, as do debt fault lines. Among companies, brands such as Mulberry and Johnnie Walker, with strong positions in emerging markets, are much less dependent on the UK and Europe than the likes of Thomas Cook.

The beneficiaries

Of course, some brands benefit when times get tough. In the first half of this year, discount retailers Aldi and Lidl were growing at 25% and 14% respectively, prompting Tesco to introduce price cuts. EasyJet is flourishing as business travellers trade down. Ryanair chief executive Michael O'Leary is positively gung-ho. 'People are becoming much more price-sensitive,' he declared, announcing raised full-year profit guidance in November. Increased price sensitivity suits him down to the ground. Ditto Cranswick, a supplier of pork products, is booming as consumers switch to cheaper protein.

If WPP chief executive Martin Sorrell is right, even advertising may be a surprise short-term beneficiary. Western corporations are sitting on $2tn of cash, he notes. Not willing to commit to longer-term investments, they need short-term marketing boosts for existing brands as a stop-gap.

Meanwhile, not all consumers are hurting. Financial information company Markit reports the sharpest fall in consumers' perceptions of their financial prospects to date, with 80% having reduced their willingness to make major purchases, but, on the other hand, the top 20% of high earners, with secure jobs and reduced mortgage payments, are actually better off and more willing to spend.

Each brand has to find its own way through these mazes, but there are two things we can be certain about. First, we are in a temporary hiatus. When companies sit on trillions of dollars, that does nothing for growth, yet it's a rational response.

'Are people making contingency plans?' asks Adam Smith, head of futures at Group M. 'No. It is impossible, when, whatever the question, the answer is "we don't know".'

FirstGroup chief executive Tim O' Toole agrees: 'It is almost beyond my ken to analyse the impact of such massive events. There's no management change you can make to accommodate it, so I just continue on my way.'

Opportunity to respond

The second sure thing is that brand perennials of value, trust and innovation are as important as ever. Brands need to be seen to be helping customers under economic pressure, argues Murphy; trust is pivotal.

'We are in the business of trust,' Unilever chief executive Paul Polman told a recent gathering of industry leaders.

'We have to accept that institutions have failed, as have many aspects of the system. However, consumers are looking for trust. Shareholder return should be properly deserved - the result of responsibility, not of short-term gain. If we can create a sustainable model that works for everybody, the business and its shareholders will continue to do well. Given that trust is at a premium, there has never been a better time to focus on brand-building.'

Then there is innovation. The foundations of the post-war boom were laid in the 30s with the development of the motor, electrical gadget, plastics and nylon industries. The oil shocks of the 70s prompted innovation that set the stage for a 30-year decline in resource prices. Today's growth sectors, such as bio-tech, nano-tech, the internet and information services, could play a similar role in decades to come.

Yesterday's growth driver, financial engineering, is 'a busted flush', says Stan Maklan, director of the marketing leadership programme at Cranfield Business School. 'What we need is another 50 Dysons: people creating ideas that sell, and spending 20 years of their life building the idea and making it happen globally.'

Murphy believes it is an uncertain time for Britain's marketing directors: 'It is the biggest challenge to the ingenuity of the marketing community for a generation.'

 

 

Alan Mitchell is a respected author and a founder of Ctrl-Shift and Mydex. 

Discussion

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus
Brand Republic Jobs

subscribe now

Latest

Lynx tells men not to leave love to fate
HBO captures awkwardness of watching sex scenes with parents
Primark to open first US stores with Boston chosen as flagship location
Marketing spend on the up but a reality check is needed before celebrating
Top 10 ads of the week: Jackpotjoy and BT Broadband fend off Kevin Bacon
Lidl beats Tesco to 10m Facebook fans
Center Parcs ad banned for encouraging parents to take kids out of school
Coca-Cola, Cadbury and Amazon named top brands for targeting youth market
Leaked document shows Nokia to be rebranded as Microsoft Mobile
Nike lays-off hardware staff in move that casts doubt on future of FuelBand
Greenpeace says save the bees or humans will die
What brands need to know about changes to VAT and online downloads in 2015
Jimmy Savile victims urged to claim compensation in new ad campaign
UKIP launches biggest  ad campaign and stirs up 'racist' accusations
Apple boss Tim Cook provides voiceover on ad touting firm's renewed green commitments
John Lewis walks consumers through its history to celebrate 150 years of business
Waitrose boosts content strategy with 'Weekend Kitchen with Waitrose' C4 tie-up
Hottest virals: Cute puppies star in Pedigree ad, plus Idris Elba and Fruyo
Amnesty International burns candles to illuminate new hope
Toyota achieves the impossible by calming angry Roman drivers
Tom of Finland's 'homoerotic' drawings made into stamps
YouTube reveals user habits to appeal to 'older' marketers
Ex-M&S marketing chief Steven Sharp consulting at WPP
Wolff Olins reveals new CEO after Apple poaches Karl Heiselman
Glasgow offers £30,000 prize to best digital idea for 2014 Commonwealth Games
Google's revenues surge but shares drop as it grapples with transition to mobile
Facebook beats Twitter to most 'marketing friendly' social media site crown, says DMA
Fableists believe children like Finn should be outdoors enjoying life
Homebase, Baileys and Camelot join the line-up at Media360
MasterCard renews Rugby World Cup sponsorship to push cashless message