How Too Much Doom and Gloom Dampens Consumer Spending

Lesson From Germany: Firms Are Slashing Budgets -- and That's Not Good

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Gunnar Brune Gunnar Brune

Two months into 2009 we're learning the first things about marketing strategies this year. And while there might be one global reason for a crisis it becomes more and more obvious that what's going on differs a lot from country to country, market to market. In Germany the first statistics on consumer and marketing behavior have been published. What is most striking is that current marketing thinking is not driven by consumer behavior but rather by internal company factors -- and marketers might be unwillingly firing up consumer crisis behavior!

First off, it's clear that the German consumer is still in buying mood. GfK, one of Germany's best-established research companies, just released data for the first weeks of 2009. Guess what? Consumption went up by 2.2%! How is that possible? It is because prices -- especially for energy -- went down. The German consumer hasn't had so much buying power with his income in some time. Opening rounds of layoffs might have happened, but they have not had an overall impact yet. Furthermore, the growing distrust in the financial sector has made the savings level decline -- even against the growing fear for income and job losses in the near future.

This is quite a clear strategic situation: People still have money, buying power and little tendency to save. You would think that marketers would try to make the most of it as long as the German economy has not yet been hit by the possibly growing number of insolvent companies and layoffs.

It's worth noting that the German situation is not typical for Europe. Germans tend to rent flats rather than buy them and are therefore not as hard hit by the housing crisis as people in the U.K. and Spain, who often own flats and have to serve mortgages.

Yet despite this, advertising spend already going is in "tactical" crisis mode. This is a strange example of anticyclical spending: Consumers' moods goes up and advertising spendings go down by 1.6% in January, according to Horizont/Nielsen Media Research. Cinema spending go down by 55% in January, print magazine spend goes down by 11.9% and TV spend goes down by 4.7%.

But there is also a contrary trend. Outdoor spending goes up by 37.9%, newspaper spending increases by 6.4% and radio spending goes up by 5.5%.

Also, it turns out that discounters are investing while brands are being cautious. The discount trade companies reinforce their investments; the food discounters raise their budgets: Penny plus 19.6%, Lidl plus 42.8% and Aldi (mother company of Trader Joe's in the USA) plus 9.4%. Procter & Gamble, on the other hand, reduces spendings (as measured by Nielsen in Germany) by 14.6%.

In sum this means that while consumers still spend, marketing has already anticipated a crisis and unwillingly seems to drive consumers into crisis mode.

Strangely enough the big companies have the strongest urge to reduce marketing investments. In a survey by Handelsblatt, the German business newspaper, it turned out that the bigger the company, the more marketing cuts are planned for 2009. Are the market leaders the ones who let go first?

There is another proof, also from the Handelsblatt study, that some marketing strategies are more driven by internal thought than consumer insight. Big companies in Germany mention the crisis three times more often in their communications than small companies do. Does consumer insight relate to company size? It never has and now is no different. There should be a strong indication that mentioning the crisis is relevant to the consumer. Do not confuse consumer insight with maketers' worries.

2009 will be a very challenging year, whatever happens. But what marketing does should relate to consumer insight and relevance. And at least today there is a great gap. This is a clear chance for every brand that does it right and makes a difference.

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