The Grapevine summer series
Economic headwinds mean that consumers are planning to cut back on Christmas spend, and looking for discounts where possible.
In this mini “sun-lounger” podcast, we look into how spending behaviours are changing, and what impact that will have on retailers.
Are people switching to lower-priced brands? Will there be a revolution on gifting? Is there a social stigma around switching brands to cut costs?
We discuss all of this and more, plus a fair amount of chatter about cheese straws and Baileys!
Vicky: Hello and welcome to a special summer edition of the Grapevine, brought to you by her Deify. My name’s Vicky. I’m the CMO at her Deify, and I’m in the driving seat this week while our usual host Tom, is taking a well-deserved holiday. So this is a mini episode, especially for marketers in the retail industry, and it’s only 15 minutes long, so we are thinking this is perfect.
Vicky: Sun lounger content if you’re so inclined. Our topic today is Christmas Peak, so as always on the grapevine, I’m joined by Ed. How are you doing,
Ed: ed? Hi Vicky. I’m good, thank you. How are you doing?
Vicky: Yeah, really good. Thank you. Are you excited to be talking about Christmas as we record in July?
Ed: Oh, it was just on the tip of my tongue here is what I’d be waking up.
Ed: Waking up thinking about every morning.
Vicky: I know exactly. It’s scary. It gets earlier and earlier every year,
Ed: doesn’t it? Yeah, though I’m hoping, I’m hoping it’s not, [00:01:00] you know, it’s not all we’re gonna have from now until now, until December.
Vicky: Yeah. That is a depressing thought, isn’t it? So the lens we’re, we’re looking at this through today, is kind of the cost of living crisis.
Vicky: Obviously that’s, it seems to be all that we talk about these days. But that really means that it seems consumers are planning to sort cut back on customer spend, um, and they’re looking for discounts where possible naturally. Um, so one stat that we found, according to cnbc, two thirds of retailers expect consumers to be looking for discounts during peak retail season.
Vicky: So Ed, I’d love to know, how do you think this will play out when it comes to consumer spending behavior? What changes can you see on the horizon?
Ed: Well, I think it’s, it’s really important to break this down, um, a bit, kind of dig into the kind of impact of the cost of living, uh, [00:02:00] crisis, as we might call it, um, for different sort of sectors or, or parts of the, the festive market, right?
Ed: And I think. What’s key is to, is to understand how this cost of living crisis came about. Um, or, or what’s going on kind of in the economic situation, which is different to pretty much every recession that we have good data for. We all have good sales data for, right? Um, and that is the, the, the role that inflation has played, right?
Ed: So, Wages are actually up right on, on last year. People actually have, are they more cash to spend on average? I think, I think the average base wage year on year in May was up like 7.5%, something like that. Right? So people have more cash to, to spend, but because of inflation running way above that number, um, they have, there, there’s, they have to spend a lot more of it on [00:03:00] essentials.
Ed: And also everything is costing more. Mm. And what that means for retailers is that people aren’t actually cutting the amount they’re spending, but the fra, the amount they have left over to spend on luxuries is decreasing. And also, if you think about it, um, at Christmas time in particular, right? The amount that you have once you’ve bought your Christmas dinner and all the, all the trainings and, and all the, you know, all the drinks that you might have for people who are coming round.
Ed: You have a lot less to spend on gifts. Right. And I think, um, this is gonna have like many kind of multiple impacts come, come Christmas. Um, and I think what’s really interesting, or interesting is probably the wrong word, but what’s make you gonna make this particularly impactful and what we’ve seen over the last year is that, oh, you know, [00:04:00] inflation was high last year.
Ed: But as inflation has continued to be high and the crisis has continued to kind of snowball with more, or people higher and higher up, the incomes and wealth spectrum have been cutting back on spending. And what that really means is that, no, I don’t think there are brands that will escape the effect of the this Christmas.
Ed: Um, and then in terms of what people actually do when they’re cutting, spending, There’s sort of two components of that, or two, two ways that, that lives out for brands. Um, one is that people might switch to lower price items, but they’re buying the same brands. So, um, in America in particular, uh, according to that CNBC study, the anticipation is that orders, uh, will shift sort of into kind of smaller products.
Ed: So in clothing, for example, that means. Jackets and jumpers and [00:05:00] purses over coats and handbags. So your cheaper products, but from the same brands. So we’ve seen a, a, a, a large increase in, uh, the retailers or pre-ordering their jackets over the big coats that you might have been ordering last year as people look to kind of still give a gift with the same brand on it, but a lower pri at a lower price point.
Ed: The other interesting. The other,
Ed: the other, the other way, the other thing that, um, people might do is actually then switch to lower price brands, right? So you, you wanna buy the same item, but you’re gonna switch to a lower price brand. What we find, uh, what research shows is that gifting is significantly less likely. We are significantly less likely to cut spending on gifts than on spending for ourselves.
Ed: So in that way, gifting is actually a really robust, uh, tends to be robust to changes. I think the [00:06:00] impact of the current cost of living crisis is enough that gifting will be heavily affected. Um, I also per personally think, and this is a bit of a prediction which I probably shouldn’t make, is that there will be dangerous sort of large amounts of discussion about, uh, around Christmas, about the, the kind of, the extent to which gifts are required.
Ed: Um, we’ve seen this actually the last couple of years. Martin Lewis has had a campaign about not giving gifts for the sake of giving gifts. And I think that that’s something that could actually take on a lot of traction this year. Um, and in that case that that’s where brands are really gonna have to kind of consolidate, I think their, their core audiences and try and really, is it it?
Ed: And this is not the place that brands wanna be. It will be a defensive position that they’ll have to take. Right? So try and try and defend their brand value over the Christmas period. [00:07:00]
Vicky: I’d love to see, um, and you, you, you mentioned it earlier, a
study into what people actually view as necessities over Christmas.
Vicky: So, you know, you said that most people still think gifting. You know, that’s really important, but that might change this year. But what else do people view as, you know, the necessities that they need at Christmas? That bottle of Bailey’s, that’s top of their list. I what? Whatever it is that’s, that’s crucial and they can’t cut back on Christmas.
Vicky: Be interested to see. Well, I
Ed: think that, well I think that that’s really interesting. It opens up a really interesting discussion about like, With a lot of items, it’s necessity, and then the question is, okay, but is it what? What part of it is a necessity? Right? So is Bailey’s the brand, the necessity, or is some form of cream liqueur that you might go and get that looks very similar to Bailey’s, but comes from Asda?
Ed: Is that, is that good enough? This year? Or is it [00:08:00] if it’s, you know, or does it have to be Bailey’s to make it Christmas?
Vicky: There’s a question, ed, and I think that’s the most important question of all answers in the comments, please.
Ed: Is that an And sorry, just going off, off, I’m just gonna
Vicky: say you kind of, you touched on that loyalty thing then, um, you know, loyalty to certain brands during times like this.
Vicky: Um, How do, do you think that customers still remain loyal? Um, and if they don’t, what can marketers do to make sure that they’re attracting those customers over their competitors? You know, if there’s a chance to, to take some of that market share from maybe some of the leading brands and, and you are a challenger, what could a brand do?
Vicky: Um, thinking about thinking ahead to sort of Christmas peaks this year.
Ed: So I, I think, uh, Generally loyalty is massively overrated, right? Uh, lo most studies into loyalty look at sort of self-reported [00:09:00] loyalty. And, uh, on average between 60 and 70% of people say they’re loyal to
certain brands. At the same time, a very similar percentage will swap, say they will swap for a cheaper price for the same product.
Ed: Right now what that really leads into is, is. Is often like a perception, the perception of, uh, consumers that they want to, they want to think they are more rational than they are. And in reality, loyalty is often actually just habit, right? You buy the same thing, you buy your Bailey’s every Christmas.
Ed: They’re getting a lot of play on this podcast. You buy, you buy, you buy your Baileys every Christmas out of habit, right? You don’t, you know, go out every year and try the alternatives to side Bailey’s is the best one, and then, and then have it right. And I think, um, what’s, what’s, [00:10:00] uh, for brands in terms of capturing, um, you know, cap capturing market share, they need to then consider, okay, what are the what, what are the things they can do to break those habits now?
Ed: One of the strongest things you can do in, in terms of habits, um, in terms of breaking them. This goes back to what I was saying about, uh, the gifting, you know, the potential for a campaign against needless gifting is target or, or get a message out that becomes commonplace and, and targets, you know, groups of people, right?
Ed: A lot of the time. People to change their mind about something, need to see that reflected in the world around them. Um, That’s for, for many reasons. One, one of the strongest of which is that you want to, as humans, as we have a very strong sense of consistency o of, of internally feeling the need to be consistent and also wanting to appear consistent.
Ed: [00:11:00] That’s seen as a very good trait, uh, in social groups. And so people will display consistency. So if you’ve been going around saying, oh, Bailey’s is the best. Right. Every year you need a very strong reason to change. You are not you, you will, you won’t be able to change, change to a different brand and then just shake it off.
Ed: Right? Um, I mean, on top of that, there is a social, a sort of, uh, I would say a social stigma in the UK in particular about changing brands specifically because of price, right? Unless you can communicate the message. That the more expensive product is somehow a waste of money, right? Mm-hmm. That’s the positive message is the, the expensive product is a waste of money.
Ed: Money rather than just, I couldn’t afford it. Yeah. And save, save face. And so as a [00:12:00] brand, I think that is actually what you need to work on. You need to build those messages that are. If you are trying to capture people who are trading down, you build a message, which is you would be a fool not to. Right.
Ed: Not we’re as good as it’s, we’re. Even better than. Um, I heard on the radio the other day there was an advert for, uh, an as I think it, it was cheese straws, an Asda cheese straws advert. Right. Which, which, uh, compares them in a taste test with Fortnam and Mason. And I think that is something we’ll probably see quite a lot of this Christmas, and especially in the food sector.
Ed: I can imagine there’s going to be a lot of that going on, right? A lot of, of taste testing. A lot of, you know, this is more people. So in the, in the ASRA advert, I think it’s 77% of people [00:13:00] prefer the Asda product. Um, And it even, even finishes with a, a cheeky tagline of, you know, yes, that Fortnam and Masons, right?
Ed: So they’re playing into this idea that, you know, there’s, that they, they’re kind of directly attacking the brand. That it’s not about quality, it’s about spending money. And I think marketers who are trying to capture market share can really play on our desires to not be seen, to be irrational and, and kind of, Therefore, and, and in claim market share that way much more than they can.
Ed: Like it’s great value. You could have this expensive one, but for half the price you can have something that’s 80% as good.
Vicky: Yeah. Got you. So that’s really, um, a message that the brand is trying to seed. But you mentioned earlier kind of the importance of. I guess we could term it sort of peer pressure really, right?
Vicky: Mm-hmm. Like, it’s okay not to be spending as much [00:14:00] on gifting or it’s okay to trade down. So how do those two play together?
Ed: So in terms of those messages, like they’re easy, they’re most easily shared with, uh, within communities, right? Um, even the, as the rabbit that I mentioned, right? No, no one, no one.
Ed: Believes the advert. Yeah, right. People might try the product, you know, in, in the case of like a two pound pack of cheese straws. People might try the product because of the advert and then tell their friends
about it, and their, their friends will believe them, but they won’t believe the advert in the first place.
Ed: And so when you are, when you are kind of, when, when you are producing those messages a brand, you’re not producing them for people to believe. You are producing them to nudge the behavior and nudge a behavioral change, which then can cascade through a community because people [00:15:00] share their results of their own taste test effectively.
Ed: Right? And we see this all the time, kind of how important a community is in that. Um, and how much, I would say, like more confident people need to be about a message. To share it with their friends than to try it individually. So going back to Bailey’s, right, you might have Bailey’s when you have people round, but you might not have it the, like when you’re at home by yourself, just because it’s acceptable to not drink it for yourself, but for your friends.
Ed: You, you know, they, it’s not, you don’t even present it as like, we need to look like we are buying Bailey’s. You present it as like, oh, but they like Bailey’s. Yeah. So if you can change the attitudes in the community in particular that your product is, is better value and not well, not just better value, just better, and you’d be a fool to buy a more expensive product, then that’s when [00:16:00] you know sales of that product will really take off.
Ed: Right. Yeah. Makes a lot of
Vicky: sense. I hope we, um, inspire a lot of taste tests for cream cures and cheese straws. Yes. In the next few
Ed: weeks, I’m, I’m sure there are some very, uh, lucky or luckier that US food journalists who are already working on that extensive absolutely dy, dy and Lidl taste test. Where is the value of this Christmas?
Ed: Like, you know, absolutely.
Vicky: Well, we’re, we are very open to getting involved. Yes. Um, okay, great, ed. So to wrap this up then, um, let’s think about sort of one thing that the marketers in the retail industry who are listening today, um, one action that they could take that would put them in a really great place when they’re preparing for peak season in
Ed: So I think there’s. The is, is, is, is one, one, uh, thing they should do. And then it, there’s kind of two actions that, that kind of follow from that. So [00:17:00] the most, what people need to think about is this year, given the situation we’re in, given the cost of living crisis, where will your customers come from? You know, what fraction of your customers do you expect to be?
Ed: People you’re retaining from last year, or do you want to be people you’re retaining from last year? And at the same time, what fraction of your customers do you want to be? People who are changing brand for your customers that you are trying to retain? How can you retain them? Can you offer them cheap, uh, products, you know, equivalent ish products at a lower price point.
Ed: Now food companies, uh, uh, kind of. All over this often, right? We talk about shrink inflation a lot, right? That’s very popular in the press, but come Christmas, that’s actually really important because there’s so much food waste, right? If you can offer your products at the same, or like smaller packages, same price point, you still get that purchase as a company.
Ed: You still make that profit on [00:18:00] it, and also someone can still engage with your brand, which is important going on to next year and years to come. Um, but they haven’t had to spend 20% more on it, because that’s where inflation means it should be. Um, and the same for retailers, um, as we’ve seen in the US right?
Ed: They’re already preparing for this. They’re, they’re buying kind of more of these mid price lines. Um, you know, having more mid price stock available is really, really where you’re looking. And then also marketing that right. You may, your marketing campaign may normally run along, run along the lines of your, uh, your sort of more high, your most highly priced items because they’re your most luxurious and they’re what you want to stand out.
Ed: But maybe you need to adjust your marketing this year to include more of the mid-range items to inc the ones that people are actually gonna come in and buy more often. So, explain, you [00:19:00] know, introduce those options to people. Um, that’s for the people you wanna retain. And then also for the people that you wanna wanna capture, you know, the market share, you wanna increase who you, you want to think
about where they’re coming from.
Ed: And so which brands are they coming from and what do they like in those brands that they might find? And how will you add that to your brand? And I think this is really important for brands in general, is. During, during when as people are shifting down, right? Like if you are a mid tier brand, how do you, how do you maintain your image as a mid-tier brand whilst encouraging people to switch down for more expensive brands and then also be retain customers who might be looking themselves looking to switch down to lower price brands than yourself.
Ed: So that’s great. To summarize,
Vicky: there’s loads there. Yes. Please do summarize it
Ed: to, to [00:20:00] summarize, think about where your customers are coming from, how many you are gonna re and have a plan for retaining customers, an offer which involves effectively, how can they remain a customer of your brand, but spend less money.
Ed: And then also a plan for capturing customers who are switching down from other brands. Right. And I’m really
Vicky: thinking about, you know, extending Christmas into 2024. Right? A lot of what you just, you’ve, you’ve just said is about creating a strategy with your own data, um, so that you, you’re going into 2024 in a good place having just ridden a really great Christmas wave.
Vicky: So that’s all brilliant. Thank you so much, ed. Um, and I hope you all enjoy listening to this on the Sunlounger, perhaps thinking of. Bailey’s and some cheese straws while you do it. Um, as always, please do leave a comment for us, um, and we’ll happily come back to you. And please check out herd deify.com [00:21:00] for more inspiration.
Vicky: Thanks and goodbye.