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Cost of living rise spells headaches for brands

It’s not yet here, but we have felt the beginnings of inflation nip at our wallets; from April, tax increases, a rise in the energy price cap, and higher prices all round could lead to an event that some experts liken to a recession in what should be a time of growth. Brands need to be ready.

Why it matters

While it’s not technically a recession yet, when people have less money to spend it’s likely that they will cut brands out first. This could make it a tough time for firms operating in the UK.

What’s going on

As the FT explains, there are three prongs to the problem:

• A cap on energy bills is due to rise in April, with some estimates pointing to a 50% increase. In short, household energy bills that had been around £1200 could rocket to around £2000. As ever, the poor will suffer the hardest, but any categories that rely on discretionary spending are likely to feel effects right up to the highest earners.
• Tax increases. Employee national insurance rises will hit take-home pay.
• Inflation could jump to 6.8% this April versus 2021: way higher than wages are growing.

But this was supposed to be the great recovery?

Yes, it was. Following the adaptability that the marketing profession – and business more widely – had to show during the tougher lockdowns of the pandemic, economic shocks of a global and also distinctly national flavour will continue to ask more difficult questions. For the most up to date thinking on advertising in a recession, check out WARC’s guide here.

Key quote

“The combination of substantial tax increases and big increases in prices, particularly energy prices, will be a larger shock for households on average earnings than anything at least since the financial crisis and possibly for a long time before that” – Paul Johnson, director at the Institute of Fiscal Studies, speaking to the Financial Times.

Sourced from the FT, WARC

Ola expands quick commerce capability

Mobility firm, Ola, is expanding out of ridesharing and further into quick commerce by setting up 300 additional dark stores across India.

Why it matters

Ola’s expansion points to the global trend toward ~15 minute deliveries, enabled by owned and operated ‘dark’ stores that help to give the firm visibility and agility over stock levels and trends.

As an Euromonitor strategy paper revealed last year, inefficient deliveries were one of the top consumer challenges. Companies are now rushing to smooth their logistics, given how important the experience of fluidity is to the perception of the service.

What’s happening

• Tech in Asia reports that Ola Dash, the name of the service, is expanding to 20 cities from its current nine.
• The firm offers “store to door” in 10 minutes, and sells fresh produce as well as FMCG staples.
• Indian quick commerce is a particularly hot market at the moment with a lot of VC interest.

Deeper trends

Logistics is big business – just look at Amazon Logistics. But Ola whose trove of data and low acquisition costs are good signs for the venture, plans go further.

In the UK, Ola has just opened an R&D plant to explore electric vehicles, while expanding its ride services in the country where it is now the third largest player in the space.

Effectively, mobility is undergoing massive changes as incumbents race to refit their factories toward the totally different challenge that is building electric vehicles. Upstarts see an opportunity.

Sourced from Tech in Asia, WARC, The Guardian. [Image: Ola]

M&S jumps on livestreaming trend

Marks & Spencer (M&S) has launched a live-shopping service through its website, with weekly broadcasts hosted by its own experts and relevant influencers.

The first (at lunchtime on Friday 28 January) focused on the retailer’s Goodmove activewear brand and featured a health coach alongside the M&S head of lingerie design, Drapers reported.

Why it matters

A shift to social commerce, accelerated by the pandemic, is being driven largely by younger consumers – and Gen Z is an important demographic for many retailers, not least M&S which has an older customer profile.

Livestreaming commerce has taken off across Asia and platforms in the west are now testing similar features with a view to replicating an interactive experience that goes beyond simply ‘shopping’. 

Context 

• Bazaarvoice notes that TikTok alone saw a 553% increase in shopping during this period, and adds that 43% of Gen Z used social media to purchase products in 2021. 
• Management consultancy McKinsey estimates that live shopping will account for between 10% and 20% of global ecommerce spending by 2026. 

Analysis 

“This strategy will not only enable the retailer to be more relevant to younger shoppers, but will also put them in a greater position to drive traffic to both their website and social media pages, as well as inspire a new cohort of consumers to start shopping. It’s only a matter of time before we see other retailers following suit” – Ed Hill, SVP EMEA at Bazaarvoice.

Sourced from Drapers, Bazaarvoice [Image: Marks & Spencer]

The Atlantic's strategy reveals lessons in building subscriptions

Subscriptions continue to be essential to premium publishers, but post-2020 the huge period of subscription growth appears to be slowing; now the magazine is thinking differently.

Why it matters

Subscription growth is difficult. The Atlantic claims 750,000 paying subscribers and had planned to get to a million by the end of this year, but now eschews the headline figure in favour of harder financial targets that should bring the loss-making paper back into the black.

What’s happening

The Atlantic’s CEO, Nicholas Thompson, formerly WIRED’s editor-in-chief, spoke to the Press Gazette about the important difference between big numbers and big revenues.

He tells the trade publication that now he, and the company, are “less interested in getting a million subs than I am in getting to $50m in [reader] revenue.

“We charge roughly $50 a subscription. You can get to a million subs pretty easily – you can massively discount, right? If you set a goal solely on subscribers, it can move you in some harmful ways.”

While subscriber growth has slowed, revenues continue to increase and churn has decreased, Thompson adds.

Subscriptions plus ads

As tends to happen with consumer-facing publishers that have implemented strong subscription tactics, the value of their advertising grows. Thompson reports that ad dollars at the Atlantic grew in 2021, surprising its chief executive.

Methods of engagement

A believer in the continued power of print, Thompson is also bullish on the potential for newsletters as a way for publishers to move away from platform dependency and build a habit.

Sourced from Press Gazette. [Image: The Atlantic]

The ripple effect of values-based brands

Whether it’s bands or brands, purists may cry sell-out when their favourite ties up with a big corporation, but the buy-in from the new owner may be the bigger story, even if the effects take some time to appear. 

How so? 

Fairtrade chocolate brand Green & Black’s was already mainstream before it was acquired in 2005 by Cadbury – the latter’s Quaker roots perhaps helping to make an apparently ethical fit. But in 2010 Cadbury was bought by hard-nosed Kraft Foods, and two years later became part of Mondelez, which was spun out of Kraft’s snack foods division.

Green & Black’s founder Jo Fairley related to a Retail Week virtual event how Cadbury’s retiring CEO Todd Sitizer had thanked her “for showing Cadbury the way with Fairtrade” – an acknowledgement that the smaller brand had inspired Cadbury to put the Fairtrade mark on on its flagship Chocolate Dairy Milk product. 

Why it matters

“That has had a way bigger impact on farming families around the world than we could ever have dreamed of,” said Fairley. 

Out of those beginnings has come Cocoa Life, Mondelez’s own $400m investment programme in West Africa, which trains farmers and works on the ground with different charities to help provide water infrastructure, build schools and financially empower local women.

Crucially, Fairley believes that it doesn’t really matter if businesses undertake such activities just in order to look good in their annual report. “What happens when a company embarks on an ESG journey is that someone somewhere is helped,” she said. “And what happens when people engage with that programme is that it changes the culture of the organisation and embeds those values in its DNA.” 

Key quote

“We are incredibly proud of the way that we have managed to influence and prove to [parent companies] that doing good really is good for business. Those values have rippled up through the organisations we've become part of” – Jo Fairley, founder of Green & Black’s.

Pandemic boosts brand strength of Australia’s retailers 

With consumers spending more time at home, Australian retailers of all stripes have seen aggregate brand value growth of 15% over the past year, according to Brand Finance, with Bunnings emerging as a particularly strong performer.

Brand value 

The 2022 Brand Finance Australia 100 ranking shows retailers outperforming other key players in telecoms and banking, with 16 of the 17 retailers considered recording brand value growth. 

• Supermarkets Woolworths (+9% growth in brand value) and Coles (+26%) are the only retailers in the top ten.
• Other major retailers included Bunnings (+47%), Officeworks (+45%), Kmart (+26%), Priceline (+12%), Reece Australia (+10%), Target (+8%) and Harvey Norman (+5%). 

Brand strength 

Brand Finance also determines the relative strength of brands (through a balanced scorecard of metrics) and finds that four of the top five are retailers. 

• Bunnings is Australia’s strongest brand, scoring 88.5 (+6.8 on 2021) out of a possible 100, followed by Woolworths (86.9, +3.2), Officeworks (86.5, +6.3) and Coles (85.5, +3.0); Kmart (81.7, +0.7) comes in ninth.
• These brands have played an important role in supplying essential household goods during lockdowns as well as office supplies for those people working from home and tools and materials for people embarking on home improvement projects.

Key quote

“Bunnings’ efforts in responding to residential and trade demand along with aiding the vaccination rollout has not gone unnoticed by consumers, who ranked the retailer particularly highly in terms of quality, innovation, value for money, loyalty and customer service” – Mark Crowe, Managing Director of Brand Finance Australia.

Sourced from Brand Finance 

Amex results reveal spending trends under Omicron

Payments company American Express reveals the extent of its customers adaptation to the pandemic and the signs that COVID-19 is becoming endemic.

The results

• It was a positive quarter for the payments firm, with profits up by a fifth and the confidence to advise investors that revenues would be up between 18% and 22% over the course of 2022, on the back of ‘record’ spending.
• Non-entertainment goods spending (exc. travel and entertainment) which is typically the vast majority of spending was up 24% on 2019.
• Travel bookings are looking promising, up 44% on pre-pandemic levels.

What it tells us

Unlike the shocks of the early pandemic, Amex’s customer base have shown they are “learning to adapt their personal and business lives to reality of the pandemic,” vice chairman and CFO Jeff Campbell told the FT, adding that it suggested a “cusp” between the pandemic and the virus becoming endemic.

In part, Amex puts this down to less severe peaks and troughs at times of high virus case rate, such as the recent wave of Omicron, suggesting that without lockdown restrictions most of its customers are likely to try to get on with their lives. In the future, this effect is expected to continue.

 Key quote

“Our investment strategy enabled us to reach record levels of Card Member spending, maintain customer retention and satisfaction above pre-pandemic levels, increase new Card acquisitions, grow our loan balances, and deepen our digital engagement with customers, producing revenue growth of 30 percent in the fourth quarter and 17 percent for the full year” – Stephen J. Squeri, chairman and chief executive officer, American Express, in a statement.

Sourced from American Express, Financial Times. [Image: Amex]

Online shopping return process needs to improve

Online shopping has surged during the pandemic, and while direct-to-consumer (DTC) brands have benefited, new research suggests their returns process is an area that many need to address.

Why it matters

The administrative and logistical costs of returns are huge – £7bn a year on one estimate – even without factoring in the carbon footprint. But the returns experience is problematic in other ways that don’t reflect well on brands. DTC brands, especially, ought to be better geared up to deal with returns. 

What’s going wrong? 

A study conducted by parcelLab, an operations experience management business, placed test orders with 50 of the UK’s largest DTC brands and found that: 

• Four in ten (43%) ignored their customer during the returns process.

• Only 30% notified the customer that the order had arrived back at their fulfilment centre following the customer’s return. 
• The return process took on average 14 days, with the longest stretching to 33 days.
• A third of orders required the customer to contact the business and enquire about the whereabouts of the refund.
• 55% of the retailers involved did not promote paperless returns – a simple step to help reduce waste.

Key quote

“The returns experience is still an unnecessarily lengthy and infuriating process and an area retailers must strive to improve” – Tobias Buxhoidt, founder and CEO of parcelLab.

Sourced from parcelLab, Guardian [Image:Pexels]

Hootsuite: Social media in 2022

Hootsuite/We Are Social’s Digital 2022 report is out, with global insights into a year in which social media use is up, social commerce is here, and advertising is facing a reckoning.

There’s loads to look at, and you can find the full report here, but we’re focusing on social media use and its changes.

Why it matters

While it may have felt like online life couldn’t be more saturated with social media, it continues to gain users and time spent. But interestingly, there is no one dominant platform: the average number of social platforms used each month is 7.5. There is space outside the biggest.

The story

Here is a selection of key figures from the report:

• 424 million additional users have joined social media.
• 93.4% of internet users are social media users.
• 58.4% of the world’s total population uses social.

Sourced from Hootsuite, We Are Social

Unilever shifts to a category focus

Unilever’s has announced that it is to move away from a matrix structure to organise around five distinct business groups. 

What are the new groups?

Beauty & Wellbeing, Personal Care, Home Care, Nutrition, and Ice Cream: each will be fully responsible and accountable for their strategy, growth, and profit delivery globally.

“Moving to five category-focused Business Groups will enable us to be more responsive to consumer and channel trends, with crystal-clear accountability for delivery,” said CEO Alan Jope. “Growth remains our top priority and these changes will underpin our pursuit of this,” he added.

Anything else?

Unilever says the changes will mean a 15% reduction in senior management roles and a 5% cut in more junior management roles – around 1,500 jobs in total globally. Factory teams won’t be affected.

What it means

The widespread assumption is that the moves are a response to recent demands by investors seeking a better performance. The creation of the separate divisions opens up the option for sell-offs in future of slower-growing operations, with ice cream likely to be first in the queue. 

Sourced from Unilever [Image:Unilever]

Consumers to spend more on groceries in 2022, less on out-of-home occasions

Consumers are expecting to spend more on groceries, utilities and education this year, and less on out-of-home occasions, holidays and clothing, according to data from NielsenIQ.

Why it matters

Two years on from the start of COVID-19 and consumer spending is still undergoing major changes. This comes as the rise of online shopping becomes more important for brands – e-commerce is forecast to account for a third of retail sales in 2022. While more online data can enable more personalised products, balancing the channel with offline retail is fundamental.

Takeaways

• Groceries will see the largest increase in 2022, with a net change in consumer spending of 23%.
• Out-of-home dining/eating and entertainment both report the largest decline, with a net budget change of -31%.

Sourced from NielsenIQ, WARC Data

2021 was the strongest year ever for UK ad market

The 2021 recovery in the UK’s advertising market was even greater than previously expected, as the latest Advertising Association/WARC Expenditure Report, published today, puts annual growth at 26.4% to reach a total of £29.7bn.

Best-ever summer 

The upgraded projection for the year coincides with actual data released for Q3 2021, showing adspend of £7.3bn – three percentage points and £183m ahead of forecast, making it the largest-ever summer spend on record. 

All media recorded double-digit growth in Q3 following the previous year’s decline, as the summer period saw the return of key sporting moments such as the Euros, Olympics and Paralympics along with the easing of Covid-19 restrictions. 

2022 looks good

Q1 2022 looks to be stronger than expected (particularly within TV) and overall adspend is now forecast to grow 12.6% year-on-year, compared with the previous forecast of 10.5%. Over the whole year, investment is set to rise by 8.5% to £32.2bn – meaning the UK market will have expanded by more than a third since 2020.

Strong recoveries are forecast for cinema (+201.1%) and out-of-home (+26.8%) this year. Continued growth is also expected from the largest advertising channels, including search (+11.1%), online display (+8.3%) and TV (+5.3%) as consumer habits gained during the pandemic are expected to be retained.

WARC says 

“While inflation is set to act as a headwind on both the consumer and media buyers alike in the coming months, we have little reason to believe that the UK’s ad market won’t achieve growth of 8.5% this year – well ahead of the average recorded during the decade preceding the [coronavirus] outbreak” – James McDonald, director of data, intelligence & forecasting, WARC.

A subscription to the AA/WARC Expenditure Report includes access to an executive summary report analysing the latest trends and investment data available to download in Excel format. More information is available here.

Regional channels take three quarters of India's GEC ad volumes

Advertising volumes on India’s general entertainment (GEC) channels recovered in the second half of 2021 to peak in October, according to a new TAM AdEx report, with regional channels leading the way.

By the numbers

• Regional channels claimed 78% of ad volumes in the GEC genre in 2021, compared to 22% for National channels.
• The top five language sub-genres accounted for two thirds of ad volumes; Hindi GEC was the largest, taking more than 20%.
• A total of 1,300 advertisers and 2,800 brands exclusively advertised in the GEC genre. 
• Ads of 20-40 seconds were preferred for advertising on GEC channels; shorter ads of fewer than 20 seconds accounted for just 24% share of ad volumes.
• The top two categories accounted for half of all ad volumes: Food & Beverages (27%) and Personal Care/Personal Hygiene (23%).
• The top 100 advertisers accounted for 86% of overall GEC genre advertising, with HUL, Reckitt Benckiser and Brooke Bond Lipton the top three.

Sourced from Economic Times [Image: Glenn Carstens-Peters on Unsplash]

LinkedIn and advertising lead Microsoft revenue growth

LinkedIn and advertising were two of the quickest growing segments for Microsoft in the final three months of 2021, according to the latest company data.

Key stats

• Revenue from LinkedIn, including from subscriptions and advertising, increased by 37.0% to reach $3,531m.
• Microsoft advertising revenue, from its search and news properties, grew by 28.4% in the latest quarter, quicker than the overall growth rate and tied-second among business segments.
• WARC Data forecasts search advertising spend to equal $427bn this year, though social media investment will overtake for the first time.
• Revenue in the company's gaming segment grew by a slower 8.2% following a strong 2020 performance due to heightened consumer demand.

WARC Data subscribers can access the latest data on Microsoft's performance here. If you do not currently have access, find out more.

Sourced from Microsoft, WARC Data

What reaching net zero means for marketing

Companies will have to do much more than they have pledged to if the earth is to avoid the most catastrophic effects of the climate crisis – all levels of their operation, including marketing will be involved, according to a new report by management consultancy McKinsey.

Why it matters

“Achieving net-zero emissions by 2050 would entail a fundamental transformation of the global economy,” the report states. While it will cost a lot of money, there are opportunities to be found, but the task will not only involve marketers communicating what their companies are doing, but in helping to change behaviour among citizens/consumers. These skills will be critical to business’s management of this transition.

What it says

• In short, companies will need to increase capital spending by $3.5 trillion every year until 2050 – a 40% increase on current investment levels to reach $9.2 trillion – if global temperature increases are to be held to just 1.5C, the point at which we avoid climate emergency.
• Effectively, that’s half of corporate profits that need to go toward the climate effort.
• Because the effects of climate change are global, every company and every sector will have to make an important transition, even though some will be hit harder than others.
• “These effects would be front-loaded”, the report states. “Spending would need to rise to almost nine percent of GDP between 2026 and 2030 from about seven percent today before falling”, the report continues.

Most affected industries

In terms of carbon, McKinsey finds the following industries will have to make the biggest changes:

•  Power: responsible for 30% of CO2 emissions.
• Industry (including steel, cement, chemicals, fuel refining): 30% of CO2 emissions.
• Mobility (road, rail, aviation, maritime): 19% of CO2 emissions.
• Buildings (including heating): 6% of CO2 emissions.
• Agriculture: 1% of CO2 emissions, but 38% of methane, and 79% of N2O emissions, both of which are greenhouse gasses.
• Forestry: 14% of CO2 emissions.
• Waste disposal and treatment: 23% of methane and 3% of N2O emissions.

Transitions in these industries are likely to have a massive impact on jobs, with about 185m lost. However, certain industries must be greened; this process will create an estimated 200m jobs.

Why it matters to marketing

Companies like the Danish energy company Ørsted provide instructive case studies for making profound transitions to net zero while protecting the business.

While Ørsted’s story articulates a huge technical challenge, the role of marketing was complex and important. As much a story of the discipline’s ability to galvanise employees as its ability to quel investor jitters.

Setting and, more importantly, articulating strategies now that can achieve the 1.5C goal will require thorough marketing expertise. Now’s the time to get clued up.

Key quotes

“The economic transformation required to achieve net-zero emissions by 2050 will be massive in scale and complex in execution, yet the costs and dislocations that would arise from a more disorderly transition would likely be far greater.

“The required economic transformation will not only create immediate economic opportunities but also open up the prospect of a fundamentally transformed global economy with lower energy costs, and numerous other benefits—for example, improved health outcomes and enhanced conservation of natural capital.

“The key issue is whether the world can muster the requisite boldness and resolve to broaden its response during the upcoming decade, which will, in all likelihood, decide the nature of the transition.” 

Sourced from McKinsey, WARC

Microsoft sees ad growth opportunity

Over the past 12 months, Microsoft has brought in more than $10bn in ad revenue and is stepping up its efforts in this space.

The ad business 

Announcing Q2 results for the quarter to end December, CFO Amy Hood flagged better than expected figures for search and news advertising revenue which increased 32% (excluding traffic acquisition costs) during the quarter. Continued advertising market growth also drove another strong quarter in LinkedIn Marketing Solutions, she added. 

For the future of search and news advertising (ex-TAC), Microsoft anticipates revenue growth in the mid to high-teens.

Background

• The recent acquisition of adtech firm Xandr is intended to enable Microsoft to bring to market new advertising solutions.
• The launch of coupon and price comparison features in Edge has surfaced more than $800 million in savings over the past year.

Key quote

“Across Bing and Edge, we are creating differentiated, high value experiences for consumers and advertisers in key verticals, including shopping” – Satya Nadella, CEO Microsoft.

Sourced from Seeking Alpha, Microsoft [Image: Tadas Sar on Unsplash]

Korean beauty brands need a new strategy for China

Korean culture continues to make a splash around the world, but in China, where the K-wave first became a thing, there are signs it is waning in influence, and Korean beauty brands may be one casualty. 

Background 

Relations between the two countries have been strained since South Korea’s 2017 decision to allow the US to deploy an anti-ballistic missile system (THAAD) on its soil. That has since affected Korean brands in all sorts of categories, from retail, where Lotte sold off stores, to entertainment, as the streaming of TV shows and music videos were blocked. 

An apparent thaw in early 2021 was followed by an autumn crackdown by Beijing on pop culture on social media which appeared aimed at K-Pop.

And the beauty brands? 

• Exports of K-Beauty products to China increased at an average 41% a year from 2013 to 2018, before dropping to 14% in 2019. Since then, the pandemic has hit travel and sales through duty-free stores. 
• More and better quality Chinese brands are entering the mid-market where Korean brands had a firm grip, Jing Daily notes. 
• At the same time, younger Chinese consumers are increasingly opting for domestic brands which are less likely to involve the often complex regimes that come with Korean ones. They may also be influenced by the government’s call for more “cultural confidence”. 
• Innisfree, owned by South Korea’s Amorepacific, has slashed the number of stores it has in China from 800 to 140; Etude House, also owned by Amorepacific, operated 48 stores at its peak but is now online only.

Final thought

South Korea’s culture minister is optimistic that China will remove its restrictions on Korean pop culture as the Beijing Winter Olympics start.

Sourced from Jing Daily, Korea Times, Vox, WARC [Image: K-beauty.co.uk]