Why strong brands are recession proof
Not a day goes by without us being metaphorically slapped around the head with killer reports of soaring inflation, stalling supply chains, Chinese covid lockdowns, war in Ukraine and rising energy prices. At the time of writing, energy-intensive production lines at multinationals are being shut down because it is too expensive to keep them operating, consumers typically have to wait a year or more for a new car, and the contents of a supermarket trolley are some 10 per cent more expensive than a year ago.
You might think that on the whole it is nothing but doom and gloom for many brands. Consumers are perhaps waiting for better times to spend their money in times of recession and maybe the smooth operation of your own production chain is also compromised by recent challenges. In any case, I am noticing how I am increasingly getting questions from people who are worried about the near future of their own brand. I may be too economically uneducated to soothe their minds, but from a branding point of view, I can happily reassure them to some extent. Or at the least, I can reassure those who have thought carefully about the valuable positioning of their brand.
Keep a cool head and start from your brand's strengths to build relationships with customers that can survive wars, surges of inflation and even a global pandemic.
Indeed, crises from the distant past prove a phenomenon that we can observe again today: strong brands usually turn out to be remarkably recession-proof. They show that the cliché “never waste a good crisis” can also apply to your brand, provided that you keep a cool head and start from your brand’s strengths to build relationships with customers that can survive wars, surges of inflation and even a global pandemic.
When a massive stock market crash in the 1930s ushered in the Great Depression, successful breakfast cereal brand Kellogg’s showed how to emerge stronger from a crisis. The US company fully opted for the Keynsian approach and increased investments, while rival food brands mainly did the opposite. They raised their employees’ pay and shortened their working days to keep them motivated and inventive. At the same time, they massively boosted investment in smart advertising, with slogans that resonate to this day, while other FMCG brands had just cut back on communications. At the end of the depression, Kellogg’s was the undisputed market leader, with sales 30% higher than before the crisis.
The fledgling Amazon (the company was founded in 1994) had to weather the dot-com crisis at the turn of the century after only a few loss-making start-up years. Despite the disappointing figures, Bezos and his team managed to avoid the tsunami of tech-start-up bankruptcies by, among other things, adopting smart cash-flow policies. Instead of stocking products – mainly books and other media carriers at the time – in advance, Amazon decided to sell them online first and only then have their suppliers deliver them directly to the customer. This way of working, in which Amazon did not have to play banker and could fully engage in promoting and selling products, is common among large e-commerce players today but proved to be the perfect survival strategy when the dot-com bubble burst. Amazon made its first profit in 2001, a period when most of its competitors were struggling or even going under. To gain further independence and cut costs, the company took its first steps during the same times of crisis in developing what would later become Amazon Web Services, the cloud division that today accounts for 82% of the brand’s profits.
Strong brands turn out to be not only managed by strong organisations and smart leaders. They are also and above all beloved brands by their respective target groups. A brand like Coca-Cola or Nutella has nothing to fear from a crisis more or less and escalating inflation. They are so beloved and as a love brand have become such an obvious feature in their customers’ shopping carts that the chances are rather slim that they would stop buying their favourite products. Even if a jar of Nutella becomes 10% more expensive tomorrow, the die hard fans will not simply switch to a cheaper alternative.
The same goes for a brand like Apple, with its notoriously expensive iPhones and MacBooks. When aspects such as chip shortages, Chinese lockdowns and increased production costs cause prices to rise further, the Cupertino-based brand can easily be complacent in the knowledge that loyal fans will not suddenly switch to a Windows laptop or Android smartphone because of a recession. After all, the so-called customer perceived value, or the perceived value customers attach to certain brands, is so high that it can justify any premium to loyal customers.
The so-called customer perceived value for certain brands is so high that it can justify any premium to loyal customers.
Stefan Van Rompaey, expert at Retail Detail, puts it as follows in a recent article on inflation on VRT NWS. “B-brands that do not enjoy the status of Nutella or Apple in the market are unfortunately in a weaker position. “Lesser brands may well be in trouble. Smaller players, the B-brands as we sometimes call them, do not have the bargaining power to push through price increases. Those can get into trouble.”
In other words: it pays to make efforts as a brand to be loved by your target audience and therefore become so indispensable that exchanging your offer for that of a competitor becomes unthinkable. However, that love does not come naturally. It requires your brand to commit to long-term relationships with customers that start from a genuine, emotional connection. Crucially, the focus here is on people: both your own employees and the role they play in the brand story, and your customers whom you approach empathetically and from an authentic interest in a mutual relationship.
So the 9% of companies that thrive after a recession, according to research published by HBR, not only invest in developing relevant solutions and smart innovations in times of crisis, but above all invest in humanity. This can be the literal investment in cushioning the blow and not raising prices one-on-one to preserve their own margins, but just as much the investment in betting more than ever on proximity, empathy and humanity that can provide a bond that survives any crisis, today and tomorrow.