Fallout: The Financial Crisis

Will brand loyalty return in good times?

Marketplace Staff Jun 22, 2009
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Fallout: The Financial Crisis

Will brand loyalty return in good times?

Marketplace Staff Jun 22, 2009
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TEXT OF INTERVIEW

Kai Ryssdal: You know there’s a reason that the big name consumer product brands are big name. They’ve usually got the marketing budget of a high-profile manufacturer behind them. They may, or may not, actually be better at whatever they’re supposed to do, say, getting your clothes clean. But almost always they cost more. And that last point is a tricky one in a down economy.

A survey we saw in Advertising Age today says some of the most loyal brand-name customers, the folks who buy things like Crest toothpaste and Tylenol, are re-thinking their buying habits. Eric Anderson teaches marketing at Northwestern University. Professor, good to have you with us.

ERIC ANDERSON: Thank you very much, Kai.

Ryssdal: What does this say, this study, about brands in this recession and consumer loyalty?

ANDERSON: I think we’re seeing a number of different things, and they’re catching the eye of both retailers and manufacturers. And all the pressure that we saw coming last year in the holiday season is spilling over into this year. Consumers, their pocket books are strained, and we are now seeing it start to impact choice of which brands you’re making at the grocery store.

Ryssdal: In a nutshell, we’d rather spend less on brand x than a little bit more on the premium brand.

ANDERSON: That’s the trade off that’s a lot more salient. And I think what you’re seeing now is consumers sitting there making that trade off that otherwise maybe they weren’t thinking so hard about before.

Ryssdal: You mentioned retailers and manufacturers. Is this hitting both of those. I mean, retailers are losing money and manufacturers as well?

ANDERSON: It’s clearly hitting both the retail sector and the manufacturers. The retailers who are benefiting are firms like Walmart. They’re seeing a surge in sales and definitely an uptick in customers coming to their stores because customers perceive them to be a lot more price competitive. And the same thing is true of manufacturers. The premium manufacturers are starting to see a decrease in their customer base.

Ryssdal: Well, let’s walk through this then. If my clothes are getting just as clean at $2 a bottle with brand X, I’m not, once this recession is over, going to spend $4 a bottle for Tide.

ANDERSON: Well, Kai, we know from decades of research across past recessions that customers tend to stick with the brands that they trade down to. And so, the advantage for the store brands and the private label brands is they tend to pick up share during these recessions, and customers tend to stick with them after the recession ends. And that’s bad news for the manufacturers of the premium brands.

Ryssdal: Seems to me the solution then for Procter and Gamble and all these other manufacturers is just to spend more money on advertising. Is that happening?

ANDERSON: Well, the question is where the dollar is coming from, and there’s been a cut in advertising budgets as well. So manufacturers are sitting there trying to ration these scarce dollars across consumer promotions, advertising, and trying to maintain loyalty. And that’s the trap they find themselves in. How do we keep those customers coming back to our brands when we have fewer dollars to allocate toward influencing their behavior?

Ryssdal: Yeah, on that loyalty question, is there a cost to manufacturers and retailers other than straight sales? I mean, can we quantify it in other ways?

ANDERSON: Well, in the end it’s all about profitability, and customers coming back and buying your brands. And the difficult part is a lot of these metrics that firms use to influence behavior are short term rather than long term. So I can discount today, get customers to buy my brand, but will they stick with me in the future? Will they be around to buy my brand when I don’t offer them a deep discount of 30 or 40 percent off.

Ryssdal: What’s your guess? I mean, based on what you know about American consumers, what’s your guess as to what we’re going to do?

ANDERSON: I think if you are a brand and you’re trying to influence customers’ behavior you might shift away from promotion budgets, where you’re spending your money on promotions, and toward advertising messages that tie into themes that consumers are very concerned about right now, like the environment.

Ryssdal: Eric Anderson is a professor of marketing at the Kellogg School of Management at Northwestern University. Professor, thanks a lot.

ANDERSON: Great, hope that helps you, Kai.

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