Everyone is talking about the world economic downturn. It's a fact of life and cannot be ignored. As a brand consultant to some of the continent's top brands, I am often asked my opinion on the consequences this will have directly on their brands. We all know that money is tight but will brands be able to weather the storm, and what effect will this have on brand perception?
Let me be so bold as to say that this is largely dependant on the category in which the brand resides and, inadvertently, the effect that the brand directly has on our lives. For practical reasons, I have chosen to discuss three categories: FMCG, motor, and financial services.
The FMCG market's brand perception will probably not be greatly affected by the credit crunch. For the sports lovers amongst us, you will probably be aware of Canterbury South Africa's announcement a couple of weeks ago that it has entered voluntary liquidation. Bar our fears as to what may happen to the Springbok sponsorship (which subsequently has been rescued by Canterbury New Zealand), I would argue that this has little effect on the brand perception. For those of you who own Canterbury clothing, I am sure you will continue to don items with pride, even though in South Africa it seems that the brand is in trouble. Some may argue that our positive perceptions are based on the international equity that the brand holds and perhaps this is true?
It then got me thinking about the South African brand Soviet. It has been in the market for a number of years and has created a relatively strong brand. If the same circumstances presented themselves and Soviet was to liquidate, it probably wouldn't stop many consumers from wearing its clothing. The reason? Practically speaking, the demise of brands has little functional effect on our lives. What I mean by that is, once purchased, we own a piece of that brand. If it was to liquidate, we would still own that item.
Looking at the motor industry, we are well aware of the trouble it is in. Just the other day on 702 I heard that, in America, Chrysler sales are down 55% with the other car brands not doing much better. I went onto the Net to research some of the deals that car manufacturers are offering in an attempt to boost sales and was pleasantly surprised. The UK's Daily Mail reported that, in October 2008, Dodge was offering a buy-one-get-one-free deal on its Dodge Avenger XST 2.4i saloon, a direct response to cash-strapped Brits not splurging on new cars. A deal of a lifetime? For £20 000 you can get two cars for the price of one. This sounds absurd, but indicates the reality of the crisis at hand. What it shows is an attempt to provide better offers in a market that has lost its liquidity, an appropriate response from manufacturers.
Now, in terms of perceptions, I still don't think car brands will be greatly affected. When one considers the ramifications of potential insolvency in this sector, we would probably only consider the effect this has on us with regards to the after-sales service. We would, perhaps, take into account who would service our vehicle and whether parts would be a problem. Similar to the clothing example, insolvency of our best-loved car brand would not result in us losing our own vehicle. If the deal was attractive enough (take the Dodge example) and we could financially justify it, I would argue that most consumers would hedge their bets and take up the offer knowing that long term there could be potential inconvenience. The value that these deals offer outweighs potentially long-term negative consequences.
Looking at the financial-services sector presents a very different view. I would argue that, here, brand perception is everything and any hint of instability will send this sector crashing like a house of cards. Just to recap on the banking crisis, I stumbled across some quite “eye-opening” statistics, which I think put the market into perspective. A year ago, the Royal Bank of Scotland purchased ABN Amro for $100 billion. Today, for the same price, it could have purchased:
- Goldman Sacks ($21 billion)
- Citi Bank ($22 billion)
- Barclays ($12.7 billion)
- Merril Lynch ($12.3)
- Morgan Stanley ($10.5 billion)
- Deutsche Bank ($13 billion)
If that isn't enough, with the $8 billion change after these transactions, it could have purchased General Motors, Ford, Chrysler and the Honda F1 team. The market cap of these international names was reduced by an average of 72% in just one year. Now I'm no financial guru, but even in layman's terms this is a scary statistic.
The financial-services sector has its foundation in the trust that we implicitly bestow upon it. It holds our life's savings and future plans. Any hint of instability will not only ruin brand perception, but will send investors running for the hills. The sector talks to our very basic need of safety and stability, which if threatened has dire consequences.
I am not saying that FMCG brands and the motor industry should sit on their laurels during this crisis; all I am saying is that in terms of perceptions they are lucky to reside in the categories they do. At the same time I am not implying that the financial-services sector is doomed. I am saying that you need to understand your consumer and how trust affects sectors differently.
So, what does this all mean? In a nutshell, the level of trust we bestow upon these brands manifests in different forms. In terms of FMCG and motor brands, the level of trust is what I refer to as purchase trust. We buy a certain product or car because we trust the manufacturer of these products. The point is, once purchased, we have them in our possession as well as the trust we bestowed upon them. The banks, however, have a different level of trust that we need to leave with them at all times. This is why the intense reaction in the financial-services sector to this credit crisis has been higher. People are scared, and fear is a dangerous consequence as it means we pull our trust (and money) away from these banks. Think about it, banks run on trust, without which, they will cease.