New trends put brand owners at risk

09 August 2010

NEW YORK: New technology, challengers from developing nations and price-conscious consumers are among the main risks currently facing brand owners, according to a report.

Ernst & Young, the consultancy, partnered with Oxford Analytica to assess the major obstacles corporations in a variety of sectors will have to overcome.

Based on interviews with academics, business leaders and industry observers, the report found that anxiety related to a slow recovery or double-dip recession was paramount.

Alongside detailed planning to ensure companies are ready for all possible scenarios, it was argued cost-cutting will be a key feature of the landscape, particularly as it remains essential to keep prices down.

In demonstration of this, E&Y stated that, at present, private label penetration in supermarkets stands at 39% in the UK, 34% in Germany and 20% in the US.

The rising power of retailers also threatens to commoditise many categories, further devaluing the value of brand loyalty.

"Consumers have undoubtedly reset their perceptions of value and price as a result of the global recession," said Thomas Bishop, group executive director at Ernst & Young.

"Not only are most consumers now more sensitive to price, having adopted a deal-seeker mentality, but they are now far more savvy."

While developing nations seem to provide an escape from the adverse situation in the US and Western Europe, the modest incomes of shoppers in these regions means low-cost goods will be of considerable importance.

The emphasis behind this move has been lent extra force by the fact that companies in emerging economies are looking to expand into mature markets, offering cheaper alternatives to established brands.

Challengers in countries like China and India and private label ranges are both "non-traditional entrants", an issue that has also exerted a huge impact on media owners in a different way.

More specifically, three megatrends have contributed to undermining old models, the first of which was described as "mobile everything", defined as an "anywhere, anytime" approach to consumption.

Similarly, the "blurring of everything", a consequence of the advent of converged devices like the iPhone and iPad, had effectively produced gadgets combining previously distinct functions.

A correlative of these shifts is the idea of "smart everything", characterised by the wealth of information now available, from GPS data to social networks and blogs.

In response, media firms will have to form joint ventures with members of the telecoms industry, while merger and acquisitions are likely to become more frequent, both domestically and internationally.

Elsewhere, the notion of "radical greening", as governments and the public place greater scrutiny on environmental matters like sustainability and carbon emissions, is quickly gaining ground.

Liz Barker, a senior consultant at Oxford Analytica, suggested behavioural economics could prove a vital tool to encouraging the take-up among shoppers when it comes to buying fairtrade, organic and other such items.

"Successful environmental strategies will be those that work with the characteristics of individual behavior to design products and services that assist people in making good environmental decisions," she said.

A related risk is that of corporate social responsibility, which covers everything from executive pay to how companies manage their overall operations.

The oil spill in the Gulf of Mexico, which has resulted in widespread criticism of BP, may constitute a watershed in this area, said David Harrison, global oil and gas center markets director of Ernst & Young.

Data sourced from Ernst & Young; additional content by Warc staff