By Ray Crook
The global economy is slowing down. Consumer confidence and spending is declining, and this trend is predicted to continue throughout 2016. In China, the world’s largest exporter, FMCG sales volumes are now flat year-on-year. Whatever the eventual outcome, it seems certain that brands will face more testing times – and not all will survive.
The Harvard Business Review estimates that 17% of businesses don’t make it through recessions – and 85% of those that were growth leaders going into a downturn had been dethroned by the time the economy recovered. With the threat of recession looming, the decisions that businesses make over the next few months will be critical ones. The trouble is that the instinctive reaction businesses have to tougher economic times is usually the wrong one.
During a downturn, survival often depends upon cutting costs – but it also depends on continuing to spend in the right places. As the former CEO of Intel, Craig Barrett, once said, “You can’t save your way out of a recession; you have to invest your way out.” And the evidence of the businesses that managed to thrive and grow during the recent global financial crisis backs him up. There’s no finer example than Apple, which launched the iPhone just before the crisis broke, and then proceeded to take over the smartphone and tablet categories whilst the economy headed downwards. This was no fluke. TNS’s research into consumer attitudes during the global downturn proves that tough times provide fertile ground for innovation – and that businesses able to focus their innovation efforts in the right direction are usually those that ride out a downturn best.
As marketers and business strategists, we tend to assume that consumers with shrinking shopping budgets and falling confidence retreat into their shells and buy only the products they know. In fact, our research shows no evidence of consumers in a downturn becoming more risk adverse or habitual in their purchases. We assume too, that price becomes all-important in shoppers’ decision-making. Again, this is wrong. Value for money is not the most important shopping criteria in a downturn; in fact, it doesn’t increase in importance at all.
And yet, consumer decision-making does change in a downturn in one very significant way. People think about what they are buying more – and this is where the opportunity for innovation lies. Conscious consideration actually weakens entrenched shopping habits and increases the likelihood of consumers looking beyond one simple, decision-making factor, such as price. As such, it provides a powerful opportunity for new and innovative propositions. At a time when marketing and R&D budgets are limited, knowing where to focus innovation efforts therefore becomes all-important.
When TNS analysed our database of 40,000 innovations to find the characteristics of those that succeed during downturns, a clear pattern emerged. Of all the measures that drive successful innovation, two increase in importance significantly during difficult times: Relevance and Excitement. Businesses that seek growth in tougher economic times need to focus their innovation efforts around the way that these two measures play out within their target markets.
Relevance refers to the ability of a new product to meet an unmet or partially unmet need – or to fulfil that need better than the products currently available. Its importance to innovation naturally increases at a time when purchases are scrutinised more closely and consumers focus their spending on the needs that matter most to them.
Relevance could come through products that address fundamental yet overlooked needs, such as the Subway sandwiches in China that comply with the dietary requirements of Jainism. It could come through space-saving or sharing economy-style concepts, such as UberPool. It could come through the promise to protect and restore body and mind when life in a rapid-growth economy leaves their balance feeling disrupted, or it could come through permissible indulgences, which enable consumers to treat themselves whilst still feeling responsible. It could come through affordable luxury products that enable shoppers to stick to a budget yet still express status – or simply to express individuality and identity, through a personalised Coca-Cola bottle for example.
If Relevance provides innovative products with a potential market, Excitement is the measure of how successful a product will be in engaging that potential market. It bypasses traditional barriers and disrupts normal purchasing criteria, initiating trial. And, crucially, it drives word-of-mouth. Those who have had a new product recommended to them are twice as likely to purchase it as those who are merely aware it exists.
Excitement is an enigmatic quality, but there are a number of characteristics that help a product achieve success in this arena. Sensory experience can transform a product from simply fulfilling a need to fulfilling that need in a memorable way. This could be as simple as a breakfast cereal that releases a distinct aroma or sound when milk is added to it, or as stimulating as a new retail space that immerses the consumer in the brand.
Nostalgia can also imbue Excitement. Connecting a product with positive, emotional memories can motivate consumers in powerful ways. For example, a luxury bag brand consciously echoing the style of retro school satchels, or a FMCG business making a nod to traditional Chinese cooking in their ranges of convenience snacks. Enlisting nostalgia can quickly build momentum across an entire generation.
The ability of a product to deliver against several needs simultaneously can provide people with a powerful, additional motivation for buying it when shopping budgets are tight. Low-carb beer, Omega-3 bread, and vitamin-flavoured water are all examples of strong, well-performing products that have been furnished with added Excitement through the layering of bonus benefits onto the fulfilment of a core need.
Finally, products that represent a revolution drive Excitement, regardless of the economic situation. The game-changing nature of the iPhone positions it in this category – but so too would a new level of effectiveness for laundry detergent, or a new model for car insurance. Revolution doesn’t have to involve changing the world; it simply involves changing expectations of the category in question.
A New Innovation Approach Needed
Businesses cannot afford to react to the prospect of a downturn by abandoning innovation – but nor can they continue with traditional innovation strategies that involve generating a huge funnel of ideas resulting in one or two likely winners. Time and money is better spent ensuring the most precise possible understanding of changing customer need to reveal the real opportunities for Relevance and Excitement. When a business has an innovation front end focused on relevant consumer insights, its R&D team is able to develop a smaller set of solutions that are more likely to succeed. Doing so can secure businesses a vital competitive advantage in recessionary times. It can ensure that they don’t simply survive a downturn; they thrive.
Ray Crook, Global Director for IPD Product Testing, TNS