Brands Navigate the Euro Maze
As the Eurozone debt crisis rages, ordinary people are starting to feel as if they have been cut adrift, which presents UK marketers with their biggest challenge in years, writes Alan Mitchell.
Thomas Cook couldn't be a better sign of the times: a household brand name with a 170-year pedigree that is pleading with its banks for survival, thanks to unrest in Egypt and Tunisia and a 20% sales slump in parts of the Eurozone, which accounts for more than 40% of its sales Where has the fun - the optimism - gone?
Thomas Cook isn't the only brand that is hurting: General Motors' hopes of restoring profitability in Europe evaporated with a 5% drop in sales; Vodafone's Spanish revenues are down 9%, while Imperial Tobacco's fell by 15%; and Dixons went into the red, thanks to deteriorating European sales - 50% down in Greece.
Erosion of confidence
Closer to home, hopes of a recovery (no matter how insipid) are fading amid almost universal consternation. Even Professor David Miles, a member of the Bank of England's monetary policy committee, said publicly on the News at Ten, two weeks ago: 'Who knows where we will be, even at the end of this week? None of us can feel confident one way or another.' What can ordinary mortals do?
So just how bad is it for brands? Among some analysts the answer is 'very bad'. Some believe debt levels across Europe are unsustainably high (see table) and it will take years to pay them off. That means years of low growth, even assuming we avoid another financial meltdown. Within this there are countless practical headaches, multiple positioning adjustments, and shifting strategic sands to navigate.
The activity of German tour operator TUI sums up the practical details companies need to think about: just in case, it is renegotiating contracts with European hotels to allow for non-euro payments.
Some business models may need rethinking - should durables shift their focus from selling to renting? - and so might pricing strategies. A big difference between this crisis and previous ones is the internet, argues Jim Murphy, editorial director at Future Foundation. 'People of all social groups are getting pleasure and social capital from using tools for price scrutiny and active purchasing. Price sensitivity is now classless,' he says.
Brand positioning may also be up for grabs. One consumer response to the crisis is a focus on the local and familiar, for example.
'I can't see German brands promoting their national credentials in Greece at the moment,' adds Murphy.
'The concept of provenance might be altering here.'
Consumer sentiment is shifting in other ways. There are signs of a split between fearful parents and an increasingly activist younger generation, suggests Futures Company scenario specialist Andrew Curry. There is also 'a crisis of representation' as citizens lose faith in the political process.
'The swing from positive (economic) expectations to negative realities has been unnerving,' argues Curry. 'There is a very strong sense of 'I am not in control. I can't influence things any more'.' He draws an analogy: people don't just suffer heart attacks if they lead a pressured life, they are most prone when under pressure and feeling out of control. 'Right now, it is a bit like we're having a social heart attack.'
Because of this, the role of the corporation in society is under intense scrutiny. 'It's as if consumers are asking brands 'Which side are you on? Is it the 1% of bonusand shareholder value-driven fat cats, or the 99% concerned with fairness and sustainable economics?' adds Curry.
Whatever a brand's adjustment, however, it needs to align to unevenness across countries, companies, markets and consumers. Among countries, levels of indebtedness vary, as do debt fault lines. Among companies, brands such as Mulberry and Johnnie Walker, with strong positions in emerging markets, are much less dependent on the UK and Europe than the likes of Thomas Cook. …