We are emerging from the worst downturn in the economic activity since the great depression of the 1930s as we bid adieu to 2009. This gradual recovery, however, will take a long time before the economic environment gets back its normal pace. I am one of those who believe that it will be a long time before people in the West start spending money like they used to. Many people in both Europe and the United States had borrowed heavily before the downturn. Many are close to retirement. Now they are having to rebuild their personal balance sheets for retirement.
The population dynamics in Europe are different from those in the United States. Specifically, Europeans aren?t having babies. This means that we?re dealing with aging populations that are inclined to save. By contrast, people in the United States are younger. So while their parents? free-spending ways might have come to a shuddering halt, young people in the United States may eventually contribute something to spending.
The developing world is different. There is no reason to think that strong growth will not continue in China and India?who, together, make up close to 40% of the world?s population. I?m also expecting Africa to become increasingly important, though off a low base. We should therefore see a continuation of spending in these countries and continents.
What?s the relevance of all of this to branding trends?
First, long term trend analysis shows that people trade down when they need to save. In other words, premium brands and luxury goods come under pressure. It used to be said that luxury goods cater to a part of the population that never loses its spending power. That?s no longer true. In recent decades, luxury goods marketers have reached ever lower in terms of trying to find markets.
So, I expect premium brands and luxuries to continue to be under pressure through 2010, at least, in the developed world. There is a chance that the growth in consumer spending in the developing world will help to make up for this. But not completely. By contrast, cheap necessities should benefit.
So far, marketers have responded to the collapse in spending by slashing their marketing spending. The big agency companies like WPP have seen bigger falls in their revenues than were anticipated. Marketing research companies have been subject to the same pressures.
All of this is occurring against a media backdrop that would have been challenging, even without the economic pressure. Media proliferation has continued. New channels, especially the channels potentially offered by social media and smart phones, have moved to centre stage. Brand managers have therefore had to cope with shrinking budgets, but with growing media complexity.
How have they responded and how will they continue to respond?
Perhaps the best two word summary is ?with caution?. Some have cut their spending on newer forms of communication, for example, digital; and reverted to old-fashioned broadcast advertising. This doesn?t mean that digital hasn?t continued to grow? it?s just that its growth has slowed.
Some old media have taken a big hit, in particular, newspapers. But this has been less a function of marketers turning away and more a function of the fact that circulations are falling because news is free on the web.
For all the apparent uncertainty and chaos, there are some things that will not change. And those are the key formula that remain constant to great branding. Whatever be the sales or communications method, the basics of great brand building will stay the same. And those basics are: clearly linking the functional characteristics of the brand to needs and values that are important to people.
?The author is the global head of brand and communications practice, Synovate. He is credited with inventing the Conversion Model, used by Fortune 500 companies and is globally renowned as a brand and communications guru