Thoughts on Branding & Marketing
Recession: When the Market Cools, Consider a Fur Coat
Gail Guge & Jim Hughes, Brand Strategists
Here we are again in another economic downturn. Headlines in the L.A. Times in late March of this year read, “U.S. home prices drop 11.4% in year.” Some would argue that it’s really a recession. Defined on Wikipedia, a recession is a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters for a year. Well, so, what’s new? Been here before, right? Right, especially for those in the retail sector. Anyone there has felt the anxiety attacks more than once in the last decade. And, some emerge better and stronger than ever while some disappear from sight.
These economic gyrations have been revisiting us for a long, long time. The first recorded was the Panic of 1797 when the effects of the deflation of the Bank of England crossed the Atlantic Ocean to North America and disrupted commercial and real estate markets in the United States colonies. That lasted 3 years. More recently, we weathered the oil crisis of 1973, the Iranian Revolution of the early eighties, the late 80s/early 90s meltdown (particularly in California) of the Aerospace/Defense industry and Real Estate markets. Then, there was the burst of the Dot-com bubble in 2001-2003. During each rebound, some companies would rise up like a phoenix. Most would fall. Any lessons to be learned?
A true story: A man was in the market for a fur coat for his wife in the early eighties. The economy was faltering, and bargains were plenty. He was poorly suited for the task and had no experience at buying such luxurious (or frivolous, you might think) items but was determined to make that year the Christmas to remember. He scanned the many ads from numerous furriers – most with bomb bursts and exclamation points promoting “Red Tag Sale” prices, “Inventory Reduction” sales and even “Going Out of Business” sales. It all made him liken these retailers to the many carpet store ads he’d seen. Even more, they made him frightened to take such a plunge. He asked himself, what if these guys really do go out of business? Where did they get this merchandise, anyway? Then, one day he came across an ad from the high-end department store, Neiman Marcus. Two words, elegantly typeset, proclaimed “Fur Sale.” The man soon found himself in the Neiman Marcus store and quickly spotted a well-designed, typical Neiman Marcus sign that read: “30% Off All Furs.” Heaven sent, he rationalized, and purchased a coat. Even had
The lesson? Not for a moment did he think Neiman Marcus was going out of business or selling inferior products; it was opportunity knocking. Now did Neiman Marcus sell more furs than the others? Don’t know. But the lesson learned, is that Neiman Marcus was still a shining example of a luxury brand when that recessionary period ended. The others were, more than likely, history. If they had a brand to begin with, they would now have to begin the time consuming and expensive process of rebuilding their brands all over again.
So what about car dealers and real estate developers? Ads proclaiming “Sale of the Century” and “Never Before Savings” really promote “Make us a ridiculous offer” or “How low will they really go?” and they bring out the bargain hunters, not the value buyers. There was a great ad for a new home development in the late seventies, during the 18%+ interest rate days. The headline read: “Be Dazzled. Spectacular views, luxurious amenities, interest rates reduced to 6.75%.” What a great way to add urgency to the ad to quickly reduce the builder’s inventory, but all without commoditizing the community. Most of the competitive ads at the time were communicating desperation and distress to reduce their inventories.
Now, make no mistake about it, inventory and its control or management is the economic engine that drives, or stalls, entire categories. And, marketing’s responsibility is to reduce inventory and the faster the better. However, maintaining brand value while reducing those inventories should be the CEO’s mandate to marketing. Case in point: the “Be Dazzled” ad approach. In the Neiman Marcus example, the fur coat shopper’s purchase intentions were truly at risk. He was actually afraid to buy until he was persuaded by what appeared to be an opportunity to purchase a name brand fur at a reduced price. The brand was not the least bit injured. His consumer confidence was even lifted and brand loyalty secured – none of which happened with the other brands showcasing distress ads.
So, Mr. or Ms. Retailer, homebuilder, auto dealer, etc. Go ahead…reduce your prices and inventories, but to protect your brand’s value perception during a cold market, consider a fur coat.