Three cost-of-living threats and the media strategies to challenge them
As economic conditions prompt drastic changes to consumer behaviour, PHD Melbourne’s head of strategy and planning David Bielenberg looks to previous downturns for lessons on how marketers can turn threats into opportunities.
‘Cost-of-living’ is a phrase that’s taken over our daily conversations in the last 12 months, both professionally and in our personal lives.
As headlines continue to focus on rising prices and the economic challenges faced by Australians, it is crucial that we learn from past economic downturns to not only survive but thrive during the current conditions.
First, let’s look at how we got here and why this is important for marketers.
The combination of a post-lockdown boom driving massive consumer demand and macro-economic pressures affecting supply has led to record levels of inflation across various categories. To curb inflation, the Reserve Bank has implemented 10 consecutive interest rate increases.
As a result, consumers are feeling the pinch from both ends. For instance, the average mortgage holder with a $600,000 loan is now paying an extra $12k per year in repayments, while the cost of goods and services rose by approximately 8% in the year leading up to December 2022.
This decline in spending power is prompting significant changes to consumer behaviour. On a day-to-day basis, consumers are making changes such as seeking promotional deals or switching to lower-priced substitutes to save money.
However, they are also making significant switching decisions that are typically reserved for major life events. This constant re-evaluation of categories and brands poses both threats and opportunities for marketers.
Threat one: Polarised consumption
Not all consumers and categories are impacted in the same way. If we are marketing a non-essential product to a highly concerned audience, we can expect reduced opportunities throughout the crisis; and if we are marketing an essential product to a less concerned audience, we can more-or-less expect business as usual.
However, for everything in-between, we can anticipate a more competitive environment, blurring the lines between categories.
For example, the travel category might now compete with the fashion category, and the gaming category might compete with the live entertainment category.
During economic downturns, there is a trend of consumers indulging in high-end or extravagant purchases to cheer themselves up after sacrificing other significant expenses.
For instance, we might say, “I’m saving money by not going to Europe this year, so I’ll buy a new pair of shoes instead.” This trend contributes to polarised consumer mindsets.
On one end, there is the ‘thrift’ mindset, where consumers trade-down to low-cost options within categories to save money.
To address this mindset, brands can challenge competitors head-to-head with more competitive pricing where they have a price advantage, or help consumers save money in other categories where they have a higher price point.
On the other end of the scale, we have the ‘thrill’ mindset, where consumers trade-off to prioritise discretionary purchases across categories. Brands can appeal to this mindset by dialling up their emotional benefits to help consumers justify the expense, or by targeting consumers who are trading off from adjacent categories.
To leverage this opportunity, brands should demonstrate empathy for consumers by appealing to either a thrill or thrift mindset but avoid being caught in the middle.
Threat two: Value-seeking
Since the start of the pandemic, consumers are more actively searching for bargains, but value means more than having the lowest prices.
Perceptions of value are as emotional as they are rational. Rational messages such as price and quantity or size can drive short-term behavioural choices, but building emotional associations impacts underlying preferences and leads to sustained consumer preference over time. Implicit signals of value can be conveyed through media.
For example, communicating price-led messaging in premium media environments explicitly communicates value while implicitly signalling quality.
To leverage this opportunity, brands should use implicit signals through media targeting, contexts, and formats to enhance holistic perceptions of value.
Threat three: Market disruption
Advertising plays a vital role in influencing consumers’ ‘willingness to pay.’ Studies across categories with minimal functional differences in products have found that brands with a higher share of voice can discount less and charge more.
With market forecast set to remain relatively flat YoY, there will be opportunities for brands to achieve a higher SOV, leading to stronger price elasticity and value growth.
To leverage this opportunity, brands should invest throughout the downturn to emerge stronger when consumer spend returns.
In summary
In true challenger fashion, we can turn these threats into opportunities.
To do this, we need to have empathy for consumers to appeal to the right money-mindsets, use implicit signals to enhance holistic perceptions of value, and invest to strengthen brands during a downturn to emerge stronger.
By understanding the current economic landscape and leveraging these opportunities, brands can succeed in the cost-of-living environment.
David Bielenberg is Melbourne head of strategy and planning at media agency PHD.
