How to play the slowdown?
1) Temper expectations from rural market
Nielsen’s report on Q3 FMCG growth had a clear call out – “In recent periods, rural growth is slowing down at a much faster rate compared to urban.” Rural India contributes 36% to overall FMCG spends and has historically been growing 3-5% points faster than urban. However, Q3 report was the first time in seven years where consumption growth in rural areas was slower compared with that of urban markets. Rural consumption grew at 5% urban India grew at a better pace with an 8%. In Q3 of 2018, rural had clocked 20% growth and urban India had clocked 14% growth.
Marketers need to temper their growth projections from rural India. Probably, till such time that farm incomes start showing a rise, marketers could divert their incremental growth energies to urban India.
2) Pick your markets
Various reports indicate that slowdown is not a uniform phenomenon across India. Nielsen India‘s report titled ‘India FMCG Growth Snapshot’ indicates that deceleration is being driven by North and West zones. According to the report, Haryana, Madhya Pradesh, Uttar Pradesh, Maharashtra and Assam are leading the slowdown.
Bain and Company in its report on India’s consumption story has identified that growth in consumption will not be secular but led by 10 large “breakthrough” states: Kerala, Karnataka, Andhra Pradesh, Telangana and Tamil Nadu in the south; Delhi, Haryana and Punjab in the north; and Maharashtra
and Gujarat in the west.
Marketers have to reassess traditional marketing prioritization methodology and give more emphasis on those markets where their brand has recorded growth over last 5-6 quarters. Historical category growth and penetration should not be the yardstick for market prioritization.
The reprioritization will have implications on how media monies are deployed. For instance, going by the observation of Bain and Company on breakthrough states, it appears that focus for TV investments should be on regional language channels rather than on Hindi GEC channels as much of Hindi heartland does not feature as breakthrough states.
3) Go for Premiumization
India’s consumption profile is changing. It is estimated that by 2030, India will move from being an economy led by the bottom of the pyramid, to one led by the middle class. Nearly 80% of households in 2030 will be middle-income, up from about 50% today. The middle class will drive 75% of consumer spending in 2030. Premiumization and category addition will drive a significant share of incremental spend on eating (food and beverages at home, and dining out), looking good (personal care and apparel) and staying connected (mobile phones, data packs and gadgets).
Marketers could do well to launch premium offerings primarily targeted at the well-heeled and the salaried. It can either be an extension of their well established brands or a new one with a clear and sharper premium focus. After three decades, HUL launched a new brand, ‘Love & Care’ in the laundry category targeted at affluent Indians. Even the venerable Margo soap went in for a glycerine variant to attract premium audience.
4) Focus on Modern Trade and E-commerce
The share of modern trade has been continuously increasing and has now crossed the threshold 10% of total FMCG sales. Nielsen India have estimated that share of e-commerce in FMCG sales is expected to grow to 5 per cent in 2022 from 2 per cent in 2019.
In a year or two, it is likely that even for a mass market FMCG brand, modern trade and ecommerce could contribute more than 15% of total sales volume. Brands should plan for a differentiated media strategy to target such shoppers dialling up spend on digital media. Even options like shifting substantial trade promotion monies to ecommerce portals and managing categories with modern trade may prove to be very profitable. Brands that manage to garner largest share of ecommerce and Modern Trade could end up as the most profitable brand.
5) Invest in Brand Love
“Lipstick effect” is a well-documented economic observation. According to proponents of the theory, when facing an economic crisis, consumers will like to indulge but will favour less expensive luxury goods. The name has its origin in the fact that lipstick sales shot up during the Great Depression of the 1930s.
Often in a slowdown, brands have a temptation of running promotions rather than building the “Brand Love”. This is contrary to what believers of Lipstick Effect will argue. It is also well established that emotional campaigns work the hardest. A study was conducted by The Institute of Practitioners in Advertising (IPA) by utilizing the data from 1400 advertising campaigns. It was clearly established that emotional campaigns work the hardest – nearly twice as hard as rational campaigns (promotion campaigns). When brand invests in emotional campaign, it would be wise to synchronize and invest in “bottom funnel” campaign probably using digital media. Such an approach will ensure Share of Mind is translated to Share of Market.
Thus in a slowdown, contrary to popular belief, it pays to advertise behind Brand Love than on promo campaigns alone.
6) Manage Brand Portfolio
Marketers should devise and adopt a brand portfolio management approach to maximize the RoI. As an example, marketers could run an aspiration mother brand campaign that is designed to have a large halo on the entire portfolio. Smaller SKUs and lower priced variants in the portfolio could then get disproportionate benefit resulting in higher sales.
Brand portfolio management is all about developing and maximizing halos (cross brand elasticity). Rigorous analytics can help to identify the donors and recipients of “Halos” and thus develop a portfolio strategy that adds to the marketing RoI.
7) Do not underinvest
Across various marketing mix models we have developed, it is clear that Advertising has an “S” shaped response. The same has been extensively documented across various journals.
Implications for marketers is clear. If you invest below the threshold point, the entire advertising budget is wasted. Threshold point depends on the brand size, category and the advertising copy. Rigorous analytics can identify the threshold and saturation levels for the brand. Modern day machine learning algorithms have made it easier to determine and also enhanced the reliability of the findings.
Marketers should invest in analytics and ensure that they do not underinvest as that would lead to wastage of precious marketing monies. In fact, if a brand is unable to invest at threshold levels, it could be a better strategy to remain silent and mount a BTL campaign. Thus, proportional slashing of budgets in wake of slow down induced budget cuts is not recommended.
8) Play ESOV game
The most normal reaction of marketers in a slowdown is to trim advertising budget. However, data suggests that marketers need to do exactly the opposite. Basis data collated in 2009 downturn, Neilsen came up with a hardworking metric called “Excess SoV” (ESOV = SOV – SOM). It was found that ESOV had a definitive correlation with share growth.
On an average, a 10 point difference between SOV and SOM led to 0.5% of extra market share growth. However, ESOV was found to be working harder for brands with greater emotional appeal and those who had a higher share of market. For instance, brand leaders achieved 1.4% of share growth per 10% of ESOV, compared to 0.4% for challenger brands. For every brand, analytics can help required Excess SOV for the target market share gain. Downturn is the best time to mount a share gain exercise with ESOV as category heat is expected to be moderate.
9) Milk existing assets
Marketers have tendency to commission a new creative or go in for a change in creative strategy. Copy Wear-out is the most often quoted reason for change in campaign. Millward Brown had conducted a global study and articulated that “response generated by a TV ad doesn’t change much over time. True “wear out” of a TV ad is rare, and many TV ads could have a longer useful life than advertisers realize. Other studies have also established that “Copy Wear-out” is very rare especially for a brand campaigns. It is only promotion led campaign that have definitive shelf life.
To maximize RoI of marketing monies, advertisers could resist the need to change creative assets and instead find ways to extract more out of existing assets.
The bottom-line: For a well-prepared marketer, slowdowns can be an opportunity to increase profitability and market share. If you are prepared to fight the slowdown blues.