The question is rooted around inflation (and perhaps even economic stagnation/recession). All of our brands have taken a price increase (some even several price increases) due to the impact of COVID on COGS, etc. We also know and see that competitors have done the same and have tried to stick to that Ehrenberg-Bass principle of not passing our competition as it relates to price, etc. When we look at category performance now, we can see $ growth in most, but that is only due to the price increase and not household penetration. Given that household penetration is the key to growth via Ehrenberg-Bass principles, how do we think about that in the context of inflation/economic downturn where we are seeing units go down? Is that more of a short term result with the goal of still growing penetration maybe in year 2 and beyond post price increase, etc.?

From your note, it sounds like there has been some $ growth in the category but mainly due to price increases. Category penetration is stable, (and units perhaps down a bit?).

So yes, household penetration is the key metric to shift for brand growth; however there is a bit of a nuance in terms of category growth in that more mature categories, category growth tends to come more from increases in $ per volume than penetration. We have several reports on this, see the web-site content on ‘category growth’.

It may be the case that price rises have dampened growth at the high end of your category and there has been a bit of trading down (I’m not sure if you are measuring category growth for the entire category or for the premium end).

If units are down but penetration is stable that’s a bit unusual and would warrant a closer look. That sounds like less frequent purchasing in the category?
Happy to take a look at some of your Nielsen data – if you have some spreadsheets showing annual category and brand penetrations, frequency, units, and $ each year for the past few years I can examine a bit further.

J.D.
25 January 2023

I read an article in Campaign about Coca-Cola’s ad pullback in 2020, and was surprised to see you quoted in the article in support of Coca-Cola’s approach. I thought your advice would be to maintain ad spend throughout any temporary market fluctuations, including a pandemic.

We had a break in advertising in February as we did some testing, and our sales trend was as strong as January. We have yet to resume ad spend, but plan to in April or May.

The exact quote was that pausing was a lot more sensible that rushing down to the ad agency and asking them to make a lame CoVid advertisement (that would be lost in all the CoVid clutter).

Here is the original article (it was the most read article for Campaign last year!)

And here is our report on stopping advertising. Established brands usually don’t see any immediate change in trajectory if they pause advertising (same as if they increase advertising weight). So for Coca-Cola in Europe when they had just lost all on-premise trade, yet were struggling to keep supermarket shelves stocked, it wasn’t a difficult decision to make.

Advertising effects are spread out thinly across time, so you are still benefitting from your past advertising. Mental availability lasts.

But you’ll need to start again otherwise you are robbing your future. And risking losing some physical availability.

B.S.
17 March 2021

Since the lockdown we have been expected to increase spend on Digital. Do you have any evidence to suggest that we should shift a greater percentage of our spend to digital.

The evidence we have, which is mainly based on the last big recession in 2008-2010, is that the best thing to do is not to change media spending. A crisis seems to last a long time, but eventually things return to normal. The brands that carried on advertising as normal and maintained their mental availability during the crisis will be the brands that are thought of first when consumers start buying again.

Brands can take advantage of the crisis to build their mental availability. For many brands, advertising budgets are set as a percentage of sales, and so their advertising spend goes down when sales go down. If this is the case for one of your competitors, that competitor’s advertising share of voice will now be less than their normal market share. If you have maintained your advertising spending, your spending will now be delivering a higher share of voice, building your mental availability, and potentially increasing your market share. When a lot of brands reduce their advertising, media can offer bargain prices, allowing you to buy more share of voice for the same budget.

Brands with budgets cut, because sales have gone down, may now be able to afford only digital advertising. But this might begin a downward spiral. Much digital advertising is designed to activate an immediate sale, rather than maintain or build mental availability which underpin future/baseline sales. Most immediate sales will come from the brand’s heavy users, not the whole category, and so total sales will go down. This will further reduce the advertising budget, making only digital affordable, and on it goes.

There is evidence from the United States that the lockdown there has increased online purchasing of consumer packaged goods. But just because the last touchpoint is a digital purchase, that does not mean that the first touchpoint that led to the purchase was also digital. Proper attribution research is difficult, but if digital advertising is concentrating on the sales-activation stage of the purchase funnel, advertising in other media is needed for the key role of maintaining and occasionally building mental availability.

Brands should activate where they get broad reach of category users. But reach is not enough, they also need to be able to get consumers attention to have a chance of building and refreshing the memories that drive consideration into the future, and to nudge purchase. Competing media opportunities vary in their ability to 1. Get reach, 2. Get attention and build memories and 3. Nudge sales. Marketers need to test and learn across media and also number crutch competing media buys to know how much different opportunities cost for the reach, recency, continuity and sales that they deliver. Broad reach media (e.g. TV) typically still win for scale but in many markets it is necessary to include digital media to get broad reach across the market. Digital media can also create new opportunities to sell which are relevant to some brands – removing barriers to purchase and being easy to buy at scale are encouraged.

To sum up, the evidence we have suggests that you should not shift a greater percentage of your media spend to digital.

S.B. & R.K.
23 December 2020

What are the pros/cons of running TV in Q1 understanding we will have out of stocks on keys skus? For many reasons, primarily due to company logistics and Covid impact on supply chain, we have experienced out of stock issues on core variants that will continue to through the end of this year and into next year.  We’re experiencing this across ALL retailers. We have seen weeks of greater demand in the category, but that has normalized now. My concern with cutting TV is that we’re potentially making our problem even bigger. I think I recall from the seminar that advertising is important to create and strengthen the mental availability and doesn’t always result in an immediate purchase after seeing an ad.

Given demand has now normalised and I gather that there is some stock on the shelves, not completely out of stock. We suggest continuing to advertise as assuming other competitor brands aren’t necessarily experiencing the same issues with out of stocks (ie its not just category demand that has every brand off the shelf).

Continuing to advertising will ensure that you maintain the brands mental availability and when a purchase does occur hopefully the customer finds your brand in stock.

Advertising usually intercepts consumers some time before a category purchase ie before they come into the category to buy… ie advertising isn’t a strong force that has people rushing down to the shops, it is more of a mental nudge / reminder that when they do go to buy from the category the brand comes to mind.

V.B.
16 December 2020

The Consumer new habits developed during covid, how long do you think these habits will be before returning to their old behaviours?

This is difficult to answer, especially as we see some countries unfortunately experience second waves of Covid-19. So in these places the ‘new habits’ will likely continue for longer than in countries where cases are very low.

K.V.
16 November 2020

I’ve been tasked with a request to start tracking trigger points where customers will start to look for value more in their shopping.  In conversations with GMs and the CEO there is increasing concern that once jobkeepers/seekers end it will drive a new set of buying behaviours in customers as those that are struggling will shift dramatically towards price and potentially a discount supermarket. We will need to demonstrate that we have something set up to anticipate for this. We can look at a range of wider economic KPI’s but we do need something more grocery and customer specific.
I’m thinking of setting up a simple question asking shoppers about their recent visit in the last 24 hours, and why they made the trip to Retailer A/B/C, with ‘cheaper prices’ or something similar as one of many reasons why they would go to supermarket (‘run out of food’).
Happy to hear more ideas from the Institute.

I like what you are thinking here as an add on to the wider economic KPIs.

Consider a multi-stage process:

1. Why did you undertake the [last trip/in last 24 hours] trip to the supermarket?
   – list CEPs related to supermarket visitation (which could just be a list of commonly purchased categories). Multiple choice.
2. What supermarket did you go to?
   – relevant list. Single choice.
3. Why did you choose that supermarket?
   – list options including ‘cheap prices’, ‘good value’, ‘convenient location’, ‘wide array of categories’, ‘good range of brands’ etc that relate to supermarket choice. Multiple choice. Try to avoid extremes in assessment like ‘best’ or ‘cheapest’.
4. Have there been any change in your circumstances in the last [time period]?
   – change in family, income up, income down etc.
5. What was the cause of the change in income?
   – promotion, new job, loss of job, cut in job keeper, cut in jobseeker etc. Multiple choice.

Its quite likely you are capturing 1 & 2 above already. 4 & 5 might be useful to identify the correlates of 3.

And if you don’t want to go full complexity as above, I’d recommend that you at least split questions relating to trip drivers (ran out of food) from those related to store choice (good value).

21 October 2020
C.D.

Do you have any evidence of lockdown impact on shopping behaviour habits? Any to last?

Habits are really hard to break, and humans are very social animals. When restrictions are relaxed, expect to see a return to normal behaviour within the bounds set by the economic situation i.e. how much money people have to spend on socialising.

In our Marketing in a Recession report (due to come out any day now!), we have data from supermarkets showing that shopping behaviour hasn’t changed much (which is bizarrely lots of very very small baskets). Still, the most common number of items purchased in a supermarket is just one – even during panic buying! Patterns of human behaviour are remarkably resilient.

If anything, there might be a rebound effect, once people are allowed to go back to public places, we might see that people make up for lost time – like the roaring 20s after WWI.

Here are links to reports on what we know:

• A Marketing Guide: What to do in a recession
• How do you adapt your Distinctive Assets to deal with COVID-19?
• Category Entry Points in the time of COVID-19

A.S.
22 July 2020

Since the lockdown we have been expected to increase spend on Digital. Do we have any evidence to suggest that we should shift a greater percentage of our spends to digital.

The evidence we have, which is mainly based on the last big recession in 2008-2010, is that the best thing to do is not to change media spending. A crisis seems to last a long time, but eventually things return to normal. The brands that carried on advertising as normal and maintained their mental availability during the crisis will be the brands that are thought of first when consumers start buying again.

Brands can take advantage of the crisis to build their mental availability. For many brands, advertising budgets are set as a percentage of sales, and so their advertising spend goes down when sales go down. If this is the case for one of your competitors, that competitor’s advertising share of voice will now be less than their normal market share. If you have maintained your advertising spending, your spending will now be delivering a higher share of voice, building your mental availability, and potentially increasing your market share. When a lot of brands reduce their advertising, media can offer bargain prices, allowing you to buy more share of voice for the same budget.

Brands with budgets cut, because sales have gone down, may now be able to afford only digital advertising. But this might begin a downward spiral. Most digital advertising is designed to activate an immediate sale, rather than maintain or build mental availability. These immediate sales will come from the brand’s heavy users, not the whole category, and so total sales will go down. This will further reduce the advertising budget, making only digital affordable, and on it goes.

There is evidence from the United States that the lockdown there has increased online purchasing of consumer packaged goods. But just because the last touchpoint is a digital purchase, that does not mean that the first touchpoint that led to the purchase was also digital. Proper attribution research is difficult, but if digital advertising is concentrating on the sales-activation stage of the purchase funnel, advertising in other media is needed for the key role of maintaining and occasionally building mental availability.

To sum up, the evidence we have suggests that you should not shift a greater percentage of your media spend to digital.

S.B.
02 July 2020

With many food categories seeing an increase in penetration during the COVID pandemic, due to more meals times being eaten at home, how is the best way to retain or keep this penetration?

Changes in the environment brought by the COVID Pandemic can introduce new Category Entry Points (CEPs) or bring some CEPs into prominence. As a reminder, Category Entry Points are the thoughts that customers have to arrive at the product category – for food categories, these may include entry points such as “something I can have on the go”, “something I can keep in the pantry longer”, or “when I want an easy-to-prepare meal”. What would aid in sustaining the penetration is to understand the key CEPs in consumer mind to consume particular categories and how well they are connected to your brand(s). Under normal circumstances, it is unlikely for the CEPs to change dramatically within a short period of time, however major disruptions are likely to bring some CEPs to the forefront.

This knowledge can then be used in the marketing and communication messages that are in line with the prevalent CEPs. For example, products with long shelf life may be typically bought for its practical use or emergency before the pandemic. COVID brings the need for long-shelf life quality of the product into the forefront, thus bringing new buyers for the category. The challenge is then to ensure that consumers think about your brands when these CEPs are activated.

With the knowledge that brands grow through growing their physical availability and mental availability, the following actions can be taken:

Out of the store: advertising messages should be leveraged on the CEPs and the brand’s Distinctive Assets. Any advertising activities should also be aimed at reaching the vast majority of category buyers. We know from the Laws of Growth, that brand growth is gained through the non-buyers and light-buyers rather than heavy buyers.

In store: this should be aided by maintaining its presence in store and ensuring that they are widely distributed across the market. Consistent packaging is also important, so buyers can remember and find the brands easily. Keeping the packaging consistent also helps when buyers are not exposed to the ads, but find the products on shelves. Resisting changes and building on the brand’s Distinctive Assets would help to increase the probability for consumers to re-purchase.

A.T.
26 June 2020

Australia is likely to be heading into a recession. Should shelf price increases be avoided in a recession?

To date, there has not been a lot of research into how recessions impact consumer responses to price changes.

There is some evidence to suggest overall price elasticity can be higher when economic activity is weaker. However, these effects have been found to vary between categories – some showed no difference across economic conditions and others even showed the opposite pattern. One of the biggest drivers appears to be the category’s share of wallet (e.g. share of total grocery spending in the year), with consumers more sensitive in those higher share of wallet categories during economic downturns.

It’s also possible that some of the increased price sensitivity may be marketing driven. It could be that innovation tapers off in a weak economy and there is a greater reliance on price for brand competition. During the Global Financial Crisis we saw an increase in price promotion prevalence across brands and categories, likely in anticipation of consumers becoming more frugal in their purchases.

A greater hesitation among all brands to increase price during a recession is also likely to make it harder on any brand that does take the action. Consumers’ responses to price changes are also influenced by how the new price compares to competitor brands (e.g. whether it passes a price to become more expensive). For more information see Report 91 – How your competitors’ prices affect how consumers react to your price changes

On the whole, there is probably enough evidence to suggest you may want some restraint on price increases at the moment, especially if the category is higher share of wallet.

S.D.
04 June 2020