To Spend or Not to Spend, That Is the Brand Question

Charles Foster
CEO Africa & Middle East
Insights Division, Kantar

As we’ve seen this year, while brand value in South Africa’s top brands has declined, they are on average weathering the macroeconomic climate better than most. This matches what BrandZ™ data has historically shown: companies that invest in strong brands during difficult times tend to return to growth faster and more successfully than those that don’t.

Over the past few years, South African marketers have had more than ample justification for being cautious about supporting their brands. Our consumers have been challenged on multiple fronts from a VAT increase and high inflation to fuel price hikes and higher education fees. As a result, real disposable income has not kept pace with inflation. And with consumers having less money to spend, brands have had their hands full maintaining their revenue.

At a macro level in South Africa, the business climate is certainly challenged. We are seeing various government commissions reporting hair-raising stories of corruption, investigative reporters publishing books highlighting frightening revelations from the Zuma years, and the country poised on the brink of a downgrade because of Eskom’s continuing travails. Add in a 3.2 percent contraction in GDP in Q1, and we can safely say that when it rains, it pours.

Be that as it may, evidence suggests that businesses are becoming immunized to bad news, and that the cautious optimism heralded by the election results has resulted in media spending that has remained relatively resilient. Traditional spend in early 2019 was effectively flat over the same period in 2018 with minor shifts towards retail, multimedia, and health and beauty.

Nonetheless, spending is only a single data point. It also matters what you’re promoting. Are you taking a brand first strategy or are you simply advertising price cuts and value plays? Within the South African advertising community, there is a consensus that there has been a noticeable shift towards promotional advertising, with brands pushing short-term buttons. It has become rare to see ads designed to build brands. As a result, we’ve seen consumers increasingly preferring retailers’ private label goods rather than branded ones. In 2017, cheaper generics reached 21.1 percent of retail sales.

The SA BrandZ™ results show that the top 30 brands’ brand contribution scores, a metric that assesses the brand independent of financial results, saw an average, brand-for-brand increase of 1.1 percent. This shows that SA’s best brands are largely pursuing a balanced strategy with enough investment to maintain the brand, but not enough to increase its value.

So, what are marketers to do? The effects of an economic downturn will vary for different types of products and service categories, so it is vital to understand consumer strategies in order to look for growth.

We know that people are likely to postpone high-ticket items such as cars and household appliances. Habitual purchases like groceries are likely to be re-examined as shoppers become more price sensitive (and this is where we see store brands entering the consideration set). On the other hand, affordable luxuries may see an increase as people trade off travel and designer clothes in favour of cheaper indulgences like chocolate, alcohol, and cosmetics. We also note that service categories like telecommunications are usually less affected than others since most recessions are relatively short lived.

The key to success during a downturn is to remain focused. Brands should reinforce the attributes that make them appealing and differentiated in the eyes of existing customers, and focus on four things: your competition, your brand, your customer and your communication.  If you have a strong successful brand, continue doing what has worked for you so far.  If your brand is in a relatively weak position, try systematically exploiting the strengths you have while addressing your weaknesses.

During recessions, consumers and marketers alike must make the best of a bad situation. While not every brand will cut marketing spend, those that do will find themselves at a disadvantage when the recession ends. Marketers need to make the most of every rand spent in support of their brands if they hope to maintain strong consumer relationships.  Those that succeed should then be well positioned to take advantage of weaker competition when the good times return.

So, while South African brand builders will continue to feel the aftermath of the lost years for some time to come, we see that SA’s top brands are investing cautiously, while slowly but steadily increasing their revenue in local currency terms. And there is light at the end of the tunnel—not least in the form of changing political winds. Let’s hope, as the philosopher Friedrich Nietzsche once said, South African brands live up to the idea that “What does not destroy me, makes me stronger.”