2022 was always going to be a tough year as the aftermath of the pandemic unfolded. Now the war in Ukraine is increasing the impact. WARC’s Anna Hamill presents a new series in which industry experts examine what it all means for the 4Ps of marketing.
As 2022 approached, brands hoped the new year would herald a more optimistic outlook for businesses after a long period of turmoil. With the successful rollout of the vaccine promising an end to two years of COVID tumult, there were indications that life would — finally — return to something resembling normality. For brands, this meant a welcome return to growth and an exit from crisis management whiteboards.
Unfortunately, the first three months of the year turned those good intentions upside down for many marketers. A cost of living crisis, ongoing supply chain issues and the economic impact of the invasion of Ukraine once again changed the calculus.
Many marketers who have worked hard during COVID are benefiting from lessons learned about scenario planning and ensuring business stability during a “black swan” event. But the fundamentals of marketing – the famous 4 Ps of price, place, product and promotion – will need to be rethought if brands are to stay ahead as the screws tighten for consumers.
In a new series for WARC, industry experts examine each of the 4 Ps in the context of a cost of living crisis and offer practical advice on how marketers can respond.
The cost of living crisis is set to define 2022
The cost of living crisis that emerged in the second half of 2021 shows few signs of easing and is now overpowered in many ways by the economic effects of war in Eastern Europe.
According to KPMG, one in three UK households will reduce their household expenses this year and most people will probably cut back on products they consider superfluous. Oil and gas prices have soared to previously unthinkable heights, while rising inflation is hitting buyers directly in the pocket. Rising prices for basic necessities such as heating and food are hitting low-income households particularly hard, and wages are simply not keeping up.
At the same time, ongoing supply chain challenges This means that many brands are struggling to ensure consistent product availability, while managing customer expectations amid shortages and delays.
These simultaneous economic storms are hitting brands just when they were hoping to move towards clearer skies post-COVID.
“The war in Ukraine has created a new negative supply shock for the global economy, just when some of the supply chain challenges seen since the start of the pandemic seemed to be starting to fade,” reported the Organization for Economic Co-operation and Development (OECD) in mid-March. The report notes “many significant economic implications”, including for the price of commodities such as oil and wheat, which are key exports from the affected region to wider Europe.
“The war is impacting the rest of the world through two main economic channels: rising food prices, which will hurt low-income and emerging markets in particular, and energy prices, which will affect businesses and consumers around the world,” said Laurence Boone. , Chief Economist of the OECD, as reported by the Guardian.
This complex reality is redefining real-time plans for businesses of all sizes and categories, but consumers are still likely to bear much of the burden of rising costs.
Here’s what industry experts at WARC have to say about how brands can respond to a cost of living crisis, with a focus on each of the 4 Ps.
Location (distribution and channels)
Carefully choosing the most appropriate distribution channels is key to maintaining a brand’s carefully orchestrated positioning. This is especially important when dealing with business terms outside the norm, writes Frances Dennis, director of customer development at Brandwidth.
Marketers should remember this fact during the cost of living crisis, when the temptation to “spray and pray” grows ever greater. Brands in a position to do so need to invest in a comprehensive digital strategy (if applicable) and do so with the same care and consideration that the brand would approach a flagship store.
“Creating a distribution strategy requires solid information from market research and economic analysis,” says Dennis.
“The choices a marketer makes about it, and how those augment the brand approach in response to the cost of living crisis, can have a huge organizational impact on the business and on how your customer encounters and views your product.”
In these unpredictable times, brands have crucial choices to make about how they set prices. Are they slashing prices and enticing customers to buy the brand, which eats away at their bottom line but guarantees a long-term customer base? Or are they raising prices, increasing their margins but risking significant churn?
According to Will Humphrey, chief strategy officer at Wunderman Thompson, when pricing in times of crisis, brands should be aware of four central lessons:
- The effects of the crisis will be felt unevenly: Depending on who they serve and what they sell, some brands will have to take much more drastic measures than others.
- For customers, each brand is between status and satisfaction: Brands are not created equal: some sell status and may be able to drive up prices with little ill effect; others meet a more functional need, and even a small price increase can hurt margins unless there are genuine product benefits.
- Recognize that a crisis will not prevent consumers from consuming: Savvy marketers will seek to focus on how small changes in customer behavior can help guide their brand behavior.
- Recognize that, above all else, fairness reigns: Transparency is key – customers can easily tell why you are raising prices, and some may even sympathize; but if it is unjustified and profiteering, they will fall apart, especially if the competitors have not raised their prices.
As inflation and the rising cost of living bite consumers at a time when brands aim for post-COVID growth, companies will need to rethink their product proposition, writes Jacob Lovewell, senior strategist at RAPP.
Lovewell offers sound advice for marketers on managing their product portfolios:
- If a brand’s product serves multiple purposes for a consumer, then it is a more worthy investment than a one-time or single-use product.
- Understand customers’ individual needs and speak to them in a way that treats them like people rather than numbers. By doing so, marketers can forge a more prominent and positive presence in the minds of their audience.
- It doesn’t have to be a binary choice between super expensive products or cheap products. Giving customers the ability to choose their level of spend is an emerging trend.
- Wise premium brands will understand that their products provide an escapist experience that is worth paying more for.
Soaring daily costs have a different impact on consumers. Brands will need to distinguish between staying relevant and staying top of mind, while also being sensitive to their increasingly difficult financial situation, write Jamie Kenyon and Louise Martell of Yonder Media.
Brand owners need to recognize economic disparities and ensure that all aspects of their marketing communications are responsive. This involves understanding the financial reality of the public and aligning all communications with their expectations, priorities and behaviors.
Those who are still able to invest in expensive items will seek security in their purchases. Brands in this space should build trust ratings – emphasizing protections, approval ratings, and testimonials while employing a social proof bias in messaging to reassure potential customers.
The “lipstick effect” will take on increased prominence as consumers focus on the things they’ve been denied during the pandemic as well as cheaper indulgences.
Full articles from WARC’s new series on the rising cost of living are available to WARC.com subscribers.