In Tough Times, Cash-Strapped Consumers Shift Brands, as Ads Shift to Cheaper Digital

Gian Fulgoni

The global recession has devastated many industries and left millions of Americans without a job or underemployed. The negative impact on consumers' spending power has been brutal. Average U.S. household income fell by 10% from December 2007 through June 2011, according to Sentier Research, and even for households headed by a full-time worker, median income has fallen by more than 5%.

How can we quantify the impact that this loss of spending power has had on brand choice? Since 2008, comScore has been tracking consumers' response to the question: "Do you buy the brand you want most?" We have examined brands in health & beauty aids, over-the-counter (OTC) medicines, food, household products and housewares.

The results aren't pretty. In 2008, about 54% of consumers said they bought the brand they wanted most. By 2010, this had dropped to 45%, and 43% this year. Declines were observed in every category, with the most severe drop (17 points) in over-the-counter medicines and the lowest in the household category (6 points).

If consumers aren't buying the brand they want most, what are they buying? Often they are switching brands when a "peer" brand is on sale, with 38% in 2011 saying they did this compared to 33% in 2008. But they also turn to a cheaper product. About 19% of consumers switched to private-label products in 2011, up from 14% in 2008.

Marketers are reacting in a variety of ways to this new economic reality. Some are introducing lower-priced brands. P&G, for example, recently announced a bargain price Gain dish soap. It's too early to say how successful it is.

Some manufacturers are introducing smaller product sizes. This can be risky. When comScore asked consumers if a product's downsizing caused them to switch to another brand, 14% said it usually did and 54% said it occasionally did. But when asked which cost-controlling action they would prefer, 62% more consumers chose a smaller size over a price increase. Brand marketers appear to be backed into a "damned if you do, damned if you don't" corner when pursuing a price-increase or downsizing strategy.

One bright spot for marketers is the growing realization that digital advertising can be an effective way to drive top-line growth, at a lower cost. Information Resources has reported an average 8% lift in sales of consumer packaged- goods brands retail sales over the course of a year, as a result of TV advertising. This matches the sales lift comScore has observed from digital advertising over a three-month period. The faster sales lift from digital traces to a greater use of price and promotion messaging when compared to TV, but it is also caused by digital's superior targeting ability, which allows more ad impressions to be delivered against a target audience in a given period of time.

The Interactive Advertising Bureau reports that online advertising grew by 23% during the first half of this year, well ahead of the 3% growth reported for all measured media. Both search (+31%) and display-related (+27%) advertising registered impressive gains. Research by comScore shows that consumer packaged-goods are beginning to use digital as a substitute for print to communicate price and promotion messages.

Most major indicators suggest that the economy will be a challenge for brand marketers for some time. Cash-strapped consumers will be the new normal. We'll continue to see strength in digital-ad spending, but for brand marketers it's is going to be a bumpy ride.