Marketers need to innovate more, not less, in tough times
As consumer spending continues to decline due to tough economic conditions, rising costs, a greater tax burden and below-inflation salary increases, many brands are responding by consolidating product lines and stripping out any excess to maintain affordability.
Preetesh Sewraj, CEO and chief innovation analyst at Product of the Year, explains that in a strong economy brands push the innovation agenda. They build innovation pipelines to expand their product offerings and deliver greater value through added features and attributes that resonate with discerning consumers.
However, now that consumers are struggling to afford even a basic basket of products, brands need to find ways to deliver the same experience and value, without increasing their price points or losing the attributes consumers have come to expect.
“The major challenge facing all brands in this situation is how to reduce costs without eroding value,” continues Sewraj. For some, the answer lies in consolidation. “We’ve seen a number of brands exit the market recently, most notably in the motoring sector. The rationale behind this move is that it allows brands to focus on their core products, which they know are working. Heritage products also tend to offer better margins, which makes financial sense.”
The other option is for brands to strip out features from their highly engineered products. However, Sewraj cautions against taking this process too far. “It may seem like a logical step, but it requires a fine balancing act. Removing too much can compromise the product’s value proposition and its most alluring attributes in the minds of consumers.”
He affirms the need to find the sweet spot of experience and product attributes, all at the right price point. “This is essential amid the skewed rationalisation process that prevails in depressed economic conditions. In fact, it’s questionable whether brands should remove any features at all.”
Research conducted for the annual Product of the Year consumer awards programme shows that, despite challenging economic conditions, 91% of local consumers still want to try new products. “More importantly, 87% of consumers polled were still willing to pay more for a product if they derived commensurate value from it,” says Sewraj.
This aligns with shifts in the psyche of consumers when expendable income is under strain. While they become more discerning with regard to their purchase decisions, most are unwilling to compromise on quality.
The big take-out
Consumers demand greater value, not fewer features, during tough
“Consumers are wary of buying cheaper or inferior products, as these won’t guarantee extended usage or value. When they compromise, they often end up spending more to buy another product that works, or to replace products that don’t last as long. It’s about finding the best value for the money they have to spend, even if that means spending a little more to avoid disappointment.”
Consumers want products that will make a difference in their lives. These can come from private-label brands or from big brands that have established trust among their loyal customers. “The proviso is that brands don’t erode this trust by stripping out value,” warns Sewraj. “If they do, they’re likely to lose ground to emerging, disruptive brands that are still innovating, and perhaps even undercutting on price as a market-penetration tactic.”
And in an environment where consumers feel they’re not getting the value they demand, their willingness to trial new brands also increases. “Once the market turns, those brands that took a short-term view to retain sales by removing value, instead of offering more, will ultimately lose out in the long term as their once loyal customers would have switched,” he points out.
For these reasons, Sewraj suggests that brands innovate more, not less, in challenging market conditions. “Too often the immediate response to an economic downturn is to be overly cautious, which is understandable. However, brands that invest in themselves and offer more value will not only retain existing customers but will create opportunities to gain new ones.”
He suggests looking to automation and other emerging technologies to deliver production and operational efficiencies that can create the cost savings businesses are looking for, rather than stripping out product features. “The opportunity cost of not investing in innovation during a recession will far exceed any short-term cost savings that can be realised with this approach,” he adds.
When the economy eventually rebounds, Sewraj believes that those brands that reined in their spending on research and development, and chose exnovation over innovation in the face of an economic downturn, will find themselves at a disadvantage. “This will have long-term consequences for the business, because those brands that chose to offer more value to hard-up shoppers are more likely to emerge from this economic slump as the champion in the hearts and minds of consumers,” he concludes.