Marketing

In a Recession
Beyond Survival Tactics
Nigel Hollis
Chief Global Analyst
Millward Brown

Apparently we researchers are not too sanguine about the

outlook for our own industry. The MRA’s Research Industry
Index (RII), which measures the outlook of US research
professionals, has seen its fifth consecutive quarterly drop,
to a composite score of 84.
But is that a reaction to past events, or will it hold good for
the future? Tough times have been with us for a while now
but I am inclined to see flickering signs of recovery. Even if
recovery is not imminent, now is the time for marketers to
be thinking about what to do when the good times finally do
arrive. But that means looking beyond day-to-day survival
and preparing a plan for the future.

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 Today's agenda

• Where are we now?

• Learning from recent recessions.

• So now what? Beyond survival tactics.

• The winning combination

Today my presentation will cover four main topics.

First, a look at where we are now.

Second, learning from past recessions.

Third, the strategic imperative facing most brands when a

recovery takes place.

And last, the factors that need to be taken into consideration

when deciding on specific tactics for recovery.

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 Where are we
now?

It may not be the Great Depression, but it is not a fun time

for anyone.

GM is considering receivership, housing foreclosures are up,

and market shares of premium brands are down.

3
 A recession is not
a slow-down.
It is a time to speed up.

When President Obama said in his inaugural address, "The

state of the economy calls for action, bold and swift, and we
will act - not only to create new jobs, but to lay a new
foundation for growth," he was recognizing that a recession
is not a time to slow down. It is a time to speed up.

For management teams that have a long-term mindset and

are determined to win, a recession can be an opportunity to
grow their brands. As flickering signs of recovery appear
now is the time to act. Do not leave it too long because by
the time economists confirm the recession is over it will be
too late to take advantage of it. You know your market, you
need to call the timing. Speed of response will be crucial,
whether it be to how consumer sentiment is changing or how
competitors are reacting.

“In the business world, the rear-view mirror is always clearer

than the windshield."
Warren Buffet

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 What a difference a year makes…

Dow Jones Index 12,110

Consumer
108.2 175M
Confidence Index*

US Television 116.1M
$67.8B
Advertising
Spending**
$25.7B
Global Ad $639.7B
Spending^ $640.7B

Number of Users 20M 7,217

on Facebook^^

US Blog Readers** 94.1M 25

US Online $66.9B
Advertising $21.4B
Spending**

…and recovery could be just as fast

*Conference Board, **eMarketer, ^Magna, ^^Facebook
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This graph points to the difference that a year has made.

From the first quarter of 2008 to the same period in 2009,
the Dow Jones average and the Consumer Confidence Index
have plummeted. During the same time period, users of
Facebook and the number of U.S. blog readers have grown
dramatically.

These trends confirm that we are in a time of flux. Recovery

may be swift for some product and service categories. Some
categories may lead the economic recovery and some lag.
Whatever the case for your category, you must be prepared
because by then the companies and brands that are ready
for the recovery and execute their plans effectively will be
the ones that win back customers and consumers.

5
 Learning
from
recent recessions

Even in the worst of times some brands have prospered. But

what evidence is there that what worked in the past still
holds true? The answer is—a lot.

6
 Some brands benefit from tough times

"I was asked what I 
thought about the 
recession. I thought 
about it and 
decided not to take 
part.“
Sam Walton, Founder
of Wal-Mart

This quote from Sam Walton makes a nice sound bite and of
course we know what he meant, but Wal-Mart is very much
taking part in the recession. The company reported a sales
uplift of $500 million in the second quarter of this year as
people went in search of cheaper prices.

Wal-Mart is not alone. Many companies have been well-

positioned to take advantage of tough economic times,
particularly if they already possess a value positioning.
McDonald's also reports strong U.S. sales drawing customers
away from casual dining restaurants.

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7
 The best defense is a strong, innovative brand

Apple provides a case in

point
Strong innovation
Supported by increased spend
2008 profits jumped to $1.61
billion, or $1.78 a share, over
25% higher than analyst
expectations

But you do not have to espouse a value positioning in a

downturn provided your brand is perceived as worth paying
more for. Innovation and sustained marketing support are
key to maintaining a strong brand.

Apple, which increased its ad spending from 2007 to 2008,

announced on January 21st of this year that robust sales of
iPods and laptops had allowed it to shrug off one of the
worst holiday sales seasons in years. As a company with a
well-established record of innovation, Apple is able to take
advantage of the principle that advertising has the most
immediate impact when it is delivering new news. The
January release also reported that the company's quarterly
profit had jumped to $1.61 billion, or $1.78 a share, which
was more than 25 percent higher than analyst expectations.

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 PIMS analysis highlights winning strategies over a
five-year period of recession and recovery

Cost Area Winning Strategy (vs. Market Size)

Marketing Increase

R&D Increase

New Products Increase

Relative Price Maintain*

Customer Preference Improve*

Admin Cut

Fixed Assets Maintain / Cut

Working Capital Maintain / Cut

*Relative to Market Average

Source: PIMS database analysis 9

Apple may be a unique brand, but analysis of the PIMS database confirms that
increased innovation and marketing support ensure brands win in the long-
term.
The PIMS database contains information on the financial performance of
companies relative to their investment in various activities. Analysis of
company performance during past recessions identified the strategies most
likely to grow market share and profit once the recession was over.
Apart from the recommendation to increase marketing support, perhaps the
most surprising recommendation was to maintain price relative to the
competition. But there is good reason for this. By cutting prices, companies
encourage customers to regard the depressed price as normal, making it very
difficult to return prices to previous levels when the economy recovers. The
result is an almost permanent loss of profit margin, sometimes not just for
one company but for an entire industry.
In an attempt to maintain market share during the last recession, many major
airlines followed one another in a downward pricing spiral. Those cuts may
have permanently compromised the pricing power of the airlines.
Further, consumers often look to price as a signal of quality. By cutting prices,
a brand may undermine perceptions of quality or draw attention to the fact
that quality is similar to competitors. And speaking of quality, whatever you
do, don't cut quality. Consumers are reconsidering everything and checking to
see if they are getting value for money. If they believe they are being short-
changed, they won't think twice about changing brands.

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 Increased marketing spend returns stronger profits
during recovery
Inflation corrected ROCE during recovery (%)
14

12

10

8
% ROCE
6

Cut Maintained Increased

MARKETING SPEND AS A % OF MARKET SIZE

Source: PIMS database analysis conducted by Keith Roberts PIMS/Malik Management 10

Across all the cases in the PIMS database, the companies

that increased their marketing support during the recession
enjoyed a higher return during the two-year recovery period.

So companies that spent more ended up with brands that

were both bigger and more profitable than others and,
presumably, better placed for the future.

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 How are companies responding this time?

Innovation 36%

Reorganization 33%

Survival 21%

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What are companies doing this time around? A few

companies recognize that recessions are an opportunity.

A recent survey of advertisers finds that just over a third are

focused on innovation. Only one in five claim to be in
survival mode. But then, reorganization is survival by
another name. Very few companies reorganize if things are
going well.

But once that reorganization is over, companies must start

developing plans to take advantage of the recovery and
regain lost ground.

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 So now what?
Beyond survival
tactics.

So that's the theory on how to ride out a recession. But what

happens when things start to improve? What should brands
do now?

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 The strategic challenge

Consumers have reappraised their brand

choice as a result of their changed
economic circumstances

13

Most premium and mainstream brands face a fundamental,

strategic challenge. Tough times force consumers to
reappraise their purchasing priorities and brand choices.

Do they really need to buy a new car, eat out on Friday night,
or have the windows washed?

Do they really believe they are getting value from that

premium brand, or would a cheaper one do just as well?

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 What have consumers done?

Deferred purchases

Stopped purchasing

Decreased weight/frequency of
purchasing

Traded down brand purchased

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While the impact differs by category (as noted, some have

benefited from tough times), consumers typically employ
four strategies to stretch their dollars.

Critically important to regaining brand growth in recovery

will be understanding the interaction between consumer
behavior and mindset.

How many people have really adopted a more frugal

mindset and decided to do without?
What proportion of people who were forced to trade down
were unhappy with their new choice?
What percentage can be won back?

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 Premium brands falling in terms of price
acceptability

Net change – The price isn’t a problem for me – NORTH AMERICA

-----2007 (v 2006)----- -----2008 (v 2007)-----

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

10 11 9
7 8 6 8 7
4 4 3
0 0 1 0

-4 -3 -2 -2
-6 -4
-11
-15

-25

premium
mainstream
value
15

Looking at the Millward Brown tracking study database, we

can see that premium brands in particular are more likely to
be considered too expensive in 2008 versus 2007.

But what should these brands do? The last resort is to cut
price. When a brand cuts its price, it is as good as admitting
that it was too expensive to start with. Even if consumers do
not switch, they lose confidence in the brand. Once margins
are lowered it is almost impossible to raise them again.
Instead, brands need to find ways to add value. Frito Lay
have added 20 percent more product to their bags of chips,
improving value perceptions without a significant impact on
margins.

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 The solution will differ by…

Category

Brand

Consumer

>But the solution is brand building, not

price discounting

16

But it is simplistic simply to focus on price. The risks are

category, brand and consumer specific.

Some product categories are more at risk than others.

High-priced luxuries and indulgences are very prone to
suffer when people perceive themselves to be less well off.
As noted, others, like fast food, can benefit.

And we should remember that not all consumers will feel

the pinch. Most people still have the same disposable
income they did last year. They simply feel less well off
because their 401K is down.

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 The influence of price varies by category
% concerned with getting
the best price vs. a specific brand

% Best Price % Specific Brand

Women's apparel

Mobile phone handsets

Grocery stores

2008 average

Cars

Oral Care

Beers

0% 20% 40% 60% 80% 100%

Source: Millward Brown BrandZ database 17

Not all consumers are price sensitive. It depends on the

category and how important people believe it is to choose
the right brand.

Women's apparel brands are relatively substitutable and

competition between stores leads to expectations that a
bargain exists somewhere. If that little black Armani dress is
not on sale in one store then maybe the one from Eileen
Fisher will be.

On the other hand, people tend to be pretty loyal to their

beer brands. The price of beer is low in absolute terms (beer
sales often increase during recession), so people tend to
stick with their favorite, which they ask for by name.

The strategy employed by brands in these two different

categories would need to differ substantially based on these
findings.

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 Brands with high Bonding and high Voltage
tend to grow and are less likely to decline
% GROWING SHARE ONE YEAR LATER

HIGH

Voltage 2.0 28% 60%

8% 21%
LOW

LOW Bonding HIGH

Source: Analysis of BrandZ database and IRI scanned share data 18

Strong, healthy brands tend to perform better whatever the

economic conditions. Wal-Mart, McDonald's and Apple were
all well-positioned before 2008.

An analysis of over 350 brands – including packaged goods,

telecoms, automotive and others – demonstrates that a
strong brand that is seen to be different (in a good way) is
much more likely to grow than others.

In this chart, we have plotted Bonding (the current strength

of customer allegiance) along the X-axis and Voltage (the
brand's potential to grow) on the Y-axis. Brands in the top
right are more likely to grow. Sixty percent of those brands
increased their market share by more than 0.2 percentage
points in the year following the survey. Only 25 percent of
these brands lost share. Those brands in the bottom-eft
quadrant were less likely to grow...in fact, 68 percent of
these lost market share in the year following the survey.

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 Potential growth depends on how well a brand
converts people from Presence to...

Higher More
opinion appealing Different

+ More
+
appealing e.g. Apple's unique
e.g. Audi's design
e.g. the Starbucks
4-wheel drive experience

"Different (in a good way)"

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So what factors are important to creating the potential to grow?

The better a brand converts people from active familiarity with a

brand – either using it or thinking of it unaidedly - to agreeing
that it is one they think highly of, that is more appealing to them
and that is different from other brands, the more likely it is that
the brand will grow market share in the coming year.

In other words, brands that people think are different (in a good
way) are more likely to grow.

We call this measure Voltage 2.0. Voltage 2.0 is a measure of the

degree to which a brand is primed to succeed or fail: it's the
"wind in your sails" (or in your face).

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 What is the
winning
combination?

So what should companies be thinking about in order to

grow their brands and win back customers during a
recovery?

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 The winning combination: the 5 R's

Remind

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Remind people about the category and brand

Many consumers have either stopped buying the category or
have traded down to a different brand they are not happy
with. Remind them that the need for the category still exists
and that your brand is still the best solution to that need.
Step up above-the-line advertising and ensure the brand has
good visibility at the point of purchase.

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 Investment in brand support helps grow
share
2
100% R = 0.77
% gaining share

0%
-10% 0% 10%

Media Pressure
(Share of Voice - Share of Market)

Source: Millward Brown analysis of 354 brands grouped on relative ad spend 22

The more a brand spends compared to its market

share, the more likely it is to grow in the following
year.

If you think back to the equity measures that are

predictive of share change, we can postulate that
increased share of voice versus the competition
increases brand familiarity and helps establish
perceptions of product performance, brand appeal and
differentiation.

What if you can't spend more? Then make sure your

copy is working harder. Now more than ever, you need
to set the bar high and leverage your media budget as
effectively as possible. Test a range of solutions for
each channel. Pre-testing is cheap by comparison to
wasting millions on ads that fail to evoke the desired
response.

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 The winning combination: the 5 R's

Remind
Restore

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In Argentina, after the recession of 1999 turned into the

crisis of 2001, many people had to abandon their preferred
brands of consumer goods in favor of economy brands. The
premium brands that successfully weathered the storm did
so by offering affordable new formats and cheaper
packaging, focusing attention on performance and value,
and, when the crisis ended, celebrating with positive and
upbeat communication.

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 Learning from Argentina's financial crisis:
Premium brands

Perceptions of
relevance fell sharply –
costs more than
Familiarity
prepared to pay
100

80
Market shares fell in
line with Bonding 60 Relevance

Reinforcing core brand 40 Bonding

attributes helped these 20

brands recover as the

economy improved 0

2001 2002 2003 2004

Source: "The Impact of the Crisis on Unilever Brands' Health: A Strategic Answer"
by Viviana Barcesat ID-Millward Brown and Vanina Gruart Unilever Argentina 24

The examples given here are taken from a paper titled "The Impact of the
Crisis on Unilever Brands' Health: A Strategic Answer" that was presented at
SAIMO Convention in April 2005 by Viviana Barcesat, ID-Millward Brown, and
Vanina Gruart, Unilever Argentina,.

Looking back on the crisis, the researchers found premium brands suffered
most. Brands like Cif surface cleaner, Skip detergent and Dove soap lost
relevance because they were considered too expensive at a time when people
found themselves with lower disposable incomes.

Through 2002, market share for Cif dropped, and so did the proportion of
people Bonded to the brand, not because people no longer thought well of the
brand, but simply because they believed they could no longer afford it. The
issue for brands like Cif was to support perceptions of Cif's superiority so that
when the recovery started, the brands recovered along with the economy.
Brand equity and market share recovered a substantial proportion of their pre-
recession values.

The premium brands that successfully weathered the storm did so by offering
affordable new formats and cheaper packaging, focusing attention on
performance and value, and, when the crisis ended, celebrating with positive
and upbeat communication.

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 Focus on reframing perceptions: efficacy and value

25

Advertising that is upbeat and funny can still deliver a value

message.

25
 The winning combination: the 5 R's

Remind
Restore
Reframe

26

Reframe perceptions: differentiation is key

If you have a compelling innovation, make sure people
know.
•Convenience and effectiveness always sell, particularly
when people can afford to be doing something more
enjoyable.
If not, consider which emotional benefit can you tap into:
•Now you can afford to make your house look good again.
You don't want the neighbors to think there is something
wrong do you?
•Now you too can afford to be green.
Focus on value not price.

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 Differentiation creates more potential for
growth
Potential for Growth
7.1

0.5

-4.3

Top third Middle third Bottom third

Clarity Score: Differentiation

Base: 167 brands globally 27

Differentiation is key to growth and sustaining a price

premium. Few consumers make choices based on price
alone. Ensure your brand offers a compelling benefit over
the competition. People who are forced to switch to cheaper
brands are likely to buy your brand again when the
slowdown is over. Remember, it is easier to regain a once
loyal brand purchaser than it is to regain a price premium.
Frequent price promotions train loyal brand buyers to
expect lower prices and to buy only on deal. Premium
brands should maintain their relative price premium and
seek to reframe perceptions of value.

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 The winning combination: the 5 R's

Remind
Restore
Reframe
Restage

28

Packaged goods companies should focus on the consumer

segments that are likely to offer the best returns. A shift in
positioning might make the brand attractive to a more
profitable target. Unilever made such a shift with the Dove
brand in Turkey. In Turkey, Dove was much more expensive
than regular soap, so it was traditionally targeted at upscale
women. But during the 2001 recession, a new brand team
crafted a value-oriented appeal to middle-income consumers
— a far larger audience — based on the proposition that
Dove both cleans and moisturizes.

But let's consider another example. This time it is a UK

bank: Halifax.

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 Reframing perceptions of banking

Substantial value

Corporate Human

Image
29

In 1997, demutualization took Halifax from being the UK's biggest

Savings & Loan to its sixth-largest Bank. Over the next three years
Halifax's share of new current accounts dropped 36 percent and its
share price languished.
"The likelihood of more bids and mergers in the banking sector sent
several leading financial services companies higher on Thursday.
Halifax, the largest mortgage lender in the UK, was most prominent."
--Financial Times, 22 August 2000
Something had to change. As part of "The Extraordinary Growth
Strategy," aggressive targets were set to double the number of new
accounts in 2001 (coinciding with a downturn).
First, they took advantage of perceptions that all banks were the same
to adopt a retail strategy and sell substance not image. They created a
new current account paying 4% interest to provide a rational reason
to switch. On its own, however, this value proposition would be easy
to match, and a new positioning was required that would be
differentiating and motivating to both customers and staff.
The new positioning represented by the ad you just saw was founded
on the second insight, that Halifax was at its heart "human." The
Halifax staff took pride in being people, not bankers, and customers
recognized that "Halifax people are people like us." The "Extra Value,
Extra Friendly" proposition was born.

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 A staff competition turned Howard into a star

30

(to the tune of "Sex Bomb" by Tom Jones)

Maybe I'm a banker who's completely obsessed, got a little
something that's bound to impress, this current account pays a
higher amount of extraordinary interest.
Now you probably think it's all too tough to change, those debits and
credits to be rearranged, just give me the signal and without any
fuss, you can leave the whole thing to us.
Extra extra I know you want more, I'll give you something extra
when you walk through my door.
Extra extra, though I cannot deny, terms and conditions apply.

VO: It's easy to change to the account paying the most

extraordinary rate on the High Street.
Halifax. Always giving you extra.

TV communicated the concept. National press focused on rate

comparisons. In-store, direct and online supported the campaign.

Other staff were then used to introduce mortgage and credit card
offers but Howard remained a key spokesperson for Halifax until
2008.

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 The revitalization exceeded its objectives
The advertising worked harder than any other bank
advertising
Strong branded impact and shift in consideration from 7th to 1st

The communications idea motivated staff

84% agreed it had "Given Halifax real momentum"

Dramatic boost in positive press coverage and buzz

The relaunch led directly to a significant uplift in sales
and profitability
New account target exceeded by 25%
Acquisition cost decreased 28%
Profit per account increased 43%

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The restage was extremely successful, exceeding the

aggressive targets set.

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 The winning combination: the 5 R's

Remind
Restore
Reframe
Restage
Rally
32

Rally the troops.

The Halifax example brings us to the fifth R. Whether the
category is B2C or B2B, a brand's biggest asset during a
recession is its existing customer base. If your company is a
service provider, confirm that your marketing activities are
focused correctly on your most valuable, loyal, and satisfied
customers. Keep them happy and reward their loyalty.
When recovery comes around, it will be mission critical for
service brands to have staff energized and focused on
delivering a positive customer experience.

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 Thank you for listening

Thank you for listening.

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