For the past several weeks, U.S. consumers have faced an onslaught of financial woes: Inflation is on the rise, interest rates are sky high and the stock market continues to decline. This tumultuous economic climate has many fearing the U.S. is facing another recession. And it has caused many CPG brands to reconsider their marketing strategy on the heels of huge pandemic gains.CPG inflation accelerated rapidly in the first half of the year. A recent IRI report showed that total store inflation in April 2022 was three times higher than it was in the first half of 2021, and the June 2022 Consumer Price Index report from the Bureau of Labor and Statistics (BLS) showed food at home increased over 12% vs year ago.
That same BLS report demonstrated that consumers are feeling the squeeze on all sides, with the all-items index up 9.1% vs a year ago, the largest 12-month increase in over 40 years. According to the report, gasoline is up 60%, eating out is up 7% and housing is up 5.6%. IRI predicts inflation will continue well into 2023.
Adding to the crunch are the ongoing supply chain issues that have impacted brands since the pandemic. In a recent earnings report from Walmart, the company said their supply chain problems will continue for the next 12 to 18 months.
So what does this mean for consumer behavior? IRI reported that based on historical data from the Great Recession, which began in 2008, consumers bought smaller amounts and stuck primarily to essential items. They valued lower cost goods, opting for discount retailers and goods, and using more coupons.
We’re seeing all the same behavior changes right now. The NDP group put out a recent report showing more than 8 in 10 consumers are planning changes to mitigate their product spending in the next three to six months. Dollar General reported that their core customers are buying more food items, and their next tier of customers are visiting more often. Both Dollar Tree and Dollar General reported a more than 13% increase in share prices. And brands like Clorox, General Mills and Mondelez are optimizing their promotional strategy to keep customers.
“There is a tug-of-war between the consumer’s desire to buy what they want and the need to make concessions based on the higher prices hitting their wallets,” said Marshal Cohen, chief retail industry advisor for NPD. “And consumers aren’t just buying less stuff, they are shopping less, which means a loss of the impulse-shopping moments that are critical to retail growth.”
With costs rising, margins thinning, and price-sensitive shoppers trading down to private label, CPGs may be tempted to cut back or eliminate marketing budgets. Before you head for hills, consider these lessons from recessions and downturns through history: In 1981, companies that advertised heavily during the recession had 256% higher sales than those that stopped advertising.
In 1991, McDonalds cut budget while Pizza Hut and Taco Bell increased theirs. Pizza Hut and Taco Bell grew sales 61% and 40%, respectively, while McDonalds declined 28%. In 2008, Reckit Benckiser increased advertising while competitors reduced theirs. RB grew profits 14% while rivals declined 10+%. And after those losses, it takes 3-5 years of brand building to recover from going dark. So don’t cut costs just because your consumers are cutting theirs. Identify your strategic growth areas and get smarter with your marketing instead.
Brands look to data to trim marketing waste
Because this looming recession seems to mirror the Great Recession of ’08 in many ways, it's not surprising that many brands are turning to similar tactics from that time. Many are looking to highlight the value of their product or brand—like Cascade promoting small dishwasher loads to save water—or creating entirely new value products that fit better into certain shopper segments.
But unlike the late aughts, brands now have more powerful data optimized for reaching customers at their fingertips. Data that can help them customize promotions to retain price-sensitive shoppers, as well as promote products that stand out against private label items.
Ultimately, brands are looking at three main areas of focus:
- Protecting their base: Retaining your most valuable customers is critical. As acquisition strategies can be a race to the pricing bottom.
- Sending the right messages: Delivering 1:1 personalization means messages are more relevant, and are reaching consumers who are actually ready to purchase.
- Optimized strategies with high returns: As marketing budgets shrink, ROI is more important than ever.
Epsilon can help brands get more bang for their buck
Epsilon solutions are designed with consumers in mind. With Epsilon Digital Media Solutions, we can reach 2-3 times more customers than our competitors—and we can ensure the customers we reach are the ones most likely to convert.
In times when budgets are tight, brands need to lean into delivering the right messages to the right people. Private labels might win on price, but if brands can communicate the value proposition that most resonates with each person, they’ll be more likely to keep their valued customers at a time where it means the most.
And Epsilon Digital is a leader in optimization. We help drive better results with the same or smaller budgets thanks to our CORE ID solution. CORE ID is the industry’s most accurate, stable and scalable identity resolution, and can recognize and reach 200 million+ U.S. consumers in a privacy-safe way. Better yet—this solution is future-proofed, meaning when third-party cookies deprecate in 2023, we will still have an industry-leading identity graph designed with privacy in mind.
With Epsilon's Verified Purchase Optimization, powered by IRI, brands can spend less while reaching more more of their most valuable customers.
Forrester’s overview of identity resolution providers, Q3 2020Learn More
It eliminates the marketing waste you’d typically see delivering ads to people who already purchased. With in-flight access to IRI’s household-level purchases, we can see who in your campaign made a purchase, so you stop delivering media to them and save those impressions for people who haven’t bought yet. When their purchase cycle comes around again, we add them back into the campaign audience to make sure you’re messaging them when their shopping list is top-of-mind.
While brands are not out of the woods yet, economic turbulence doesn’t need to wipe out years of valuable gains with consumers. Surviving the financial downturn starts with understanding the people who use your products, and identity resolution and activation is essential in doing so.
Want to learn more about how Epsilon can help you? Visit epsilon.com for more information.