Marketers have been tempted to cut back their ad budgets as the recession drags on. This has been especially true in the consumer packaged goods (CPG) sector where private labels brands are aggressively rolling out and capturing market share. But cutting ad budgets is exactly the wrong move according to the latest research.
Jan-Benedict E.M. Steenkamp at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill has long studied branded and private-label CPG manufacturers and their ad strategies. In one recent study, Steenkamp’s colleague Katrijn Gielens noted that private label operators were increasing their market share, up to 30% in some cases. They’ve done this by promoting tiered products in a “good-better-best” offering and sell these products at lower prices to compete with branded products. In some cases, they try to obscure that they’re selling store brands by assigning a new name.
Steenkamp finds that national-brand companies have been responding to the private label assault in a number of ways. The research was based on an analysis of the practices of over 100 CPG firms during the past 2 decades. Many CPG firms delay their launch of new products during recessions. These companies also reduce ad budgets and cut back other promotions such as temporary price reductions or in-store displays. All of this allows the private-label competitors to win over consumers and in some cases, this market share erosion will be permanent.
A more effective strategy would be to increase advertising during this time period and to couple this effort with an emphasis on improved products. Marketers should use trade promotion money to make sure their innovative, branded products appear on the shelf near the private label products. Consumers can evaluate the offerings and those who have been exposed to branded advertising will buy because of the attraction effect. Researchers also say that in some cases, CPG makers should discount prices, perhaps with coupons, to protect market share during a recession because a customer lost now may be a customer lost for good. And at the very least, marketers who can afford to do nothing else, should at least maintain their ad budgets.[Sources: Lamey et al. What Has Marketing Conduct Got to Do with It. Marketingpower.com. January 2012. Web. 26 Jan. 2012; Battle of the Brands Intensifies. Kenan-flagler.unc.edu. 2011. Web. 26 Jan. 2012]