President, IRI Media Center of Excellence, improving the consumer experience through more relevant advertising.
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Like so many other aspects of our lives, the pandemic has upended two forces that are foundational to consumer packaged goods (CPG) purchase behavior and marketing strategies: modern lifestyle habits and consumer brand loyalty. Since many workers no longer commute and schools have been closed, most of the population has created new routines around the home. For consumers, this means shifting from eating out to preparing nearly all meals at home — significantly increasing demand for CPG products.
This abrupt shift shocked CPG supply chains and caused widespread out-of-stock situations. Without being able to default to their favorite brands, consumers were forced to try new brands or substitute products. As a result, many consumers are now forming new purchase habits.
These shifts, combined with the economic downturn we’re experiencing, present an opportunity for CPG companies to capture and retain new consumers trying their brands for the first time — a situation I believe no amount of advertising could have produced in a brand-loyal and habitual industry under normal circumstances. However, due to these same conditions, companies risk losing a large portion of their loyal consumers who may switch to a competitor’s products or drop out of a category completely.
Maintaining Marketing Budgets Despite Economic Uncertainty
Facing economic uncertainty, executives are naturally hesitant to invest in marketing when so many companies are cutting costs and preparing for a potential downturn. Marketers may face an uphill battle to maintain or increase their advertising budgets, especially because:
• Large CPG brands often set advertising plans far in advance, and many may have reduced their spend at the height of the shelter-in-place orders earlier this year.
• Many CPG supply chains are struggling to keep up with elevated consumer demand as is, so companies could be hesitant to further promote their products to create demand they might not be able to meet.
• While demand for CPG products during the pandemic is high, margins may be shrinking as companies take on unusual and extraordinary costs, such as providing their employees with personal protective equipment (PPE) and compensating essential workers with hazard pay.
Prime Time For CPG Brands To Remain Top Of Mind
The way I see it, the challenges facing marketing budgets must be carefully weighed against the opportunity cost of squandering the chance to build brand equity with unparalleled speed and efficiency, as well as the risk of losing consumers when their loyalties are being tested more than ever. To lean into this new buyer opportunity and mitigate losing at-risk and lapsed consumers, CPG brands need to strategically use their brand voice to stay relevant to consumers, or “mentally available” as some have put it.
CPG companies’ investments in advertising today have the potential to drive higher returns for a few reasons:
• Advertising to the influx of consumers who have recently tried your brand, or have recently tried your competitors’ brands, can ensure the new habits they form lean toward your brand.
• Advertising is increasingly addressable, making the consumers of the highest value to your brand easier to identify and reach efficiently through digital channels.
• As companies across industries navigate this challenging time, some have reduced their advertising budgets as part of cost-cutting initiatives. With companies spending less on advertising, brands are more likely to find ad placements at lower rates, and the share of voice may be higher.
• History shows us that brands that advertise into and during economic downturns outperform in their categories for years following an economic recovery.
How To Maximize ROAS In Today’s Environment
For marketers who decide to take advantage of this unique situation but still face tight budgets in the face of an economic downturn, the good news is that they don’t necessarily need to spend more to get a great return on advertising spend (ROAS) in today’s environment. The key to success is leveraging data and technology to identify and reach the right consumers with relevant messages while taking advantage of lower media prices to stretch existing budgets.
It sounds simple, but like so much else in today’s environment, the pandemic has disrupted traditional targeting tactics. Typically, the proliferation of addressable advertising channels and audience data based on historical purchase behavior would easily allow marketers to build and reach high-value audiences. However, the pandemic has caused such extreme and rapid changes in consumer behavior that traditional models built on last year’s purchase behavior are no longer accurate.
To reap the greatest ROAS in this unique environment, marketers should look to leverage real-time deterministic purchase data — consumer data that is known to be true — recorded since the beginning of the pandemic and frequently update that data (weekly at least) to efficiently optimize the way they reach new, lapsed and at-risk consumers. By regularly analyzing relevant and up-to-date consumer data to inform your strategies, you’ll be able to effectively respond to changes created by today’s unprecedented brand switching, new habit-forming and macroeconomic factors.
(Full disclosure: My company, IRI, provides both deterministic and traditional modeled data solutions.)
CPG marketers need to make a series of strategic decisions quickly to ensure they are not left behind by consumers who have formed new tastes for different products. The decision to retain or expand marketing budgets can be intimidating when faced with the prospect of a recession. However, decreasing marketing during a time when consumer behavior is in flux should scare brands even more.
Strategic allocation of advertising dollars — combined with cheaper media, real-time deterministic purchase data and frequent optimization — can capture and retain valuable consumers and drive long-term payoffs.
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