The ‘R’ word isn’t something any company likes to talk about, as it may be a self-fulfilling prophecy, but the omens don’t look good.
Britain’s economy shrank 0.1% in March and 0.3% in April, according to the Office for National Statistics. As a persistently high rate of inflation squeezes incomes and makes it increasingly difficult for millions of Britons to make ends meet, the nation is in a gloomier mood than it was during the crisis fiscal year of 2007-08, after the Brexit referendum and even in the early weeks of the pandemic. According to market research giant GfK, consumer confidence has fallen to its lowest level since the company started tracking it in 1974.
Buyers are already limiting their spending and negotiating lower. Retailers will need to show they are in the trenches with their customers, sharing the pain and working hard to retain their loyalty.
“If you don’t adapt to the prevailing winds as a retailer, you’ll be blown away,” warns Nick Cooper, global executive director for insights and analytics at consultancy Landor & Fitch. “Brands must remain competitive in terms of price. If they don’t offer value, consumers will be forced to switch. The trick is to retain customers when times are bad and bring them back when times are good.
As their budgets tighten, buyer preferences are likely to become more extreme, more diverse and, therefore, harder to predict. They will also seek more control as the economy becomes less stable.
While many companies will start discounting, “smart retailers will continue to try to decipher what customers are really looking for in their lives. As everyone cuts prices, they will focus on creating value,” says Martin Bui, director of experience design at marketing agency Tribal Worldwide. He points out that Amazon launched its first Kindle e-readers just as the global financial crisis was unfolding in late 2007 – “and people bought them then because they were perceived to have value.”
No strategy is worth its salt if it’s not guided by high-quality data. More effective data-driven planning and targeting will become crucial as consumer habits change during the recession.
Brands will need to dig deeper into first-party data to truly understand why consumers behave in certain ways. The goal will be to target and reward customers with timely and personalized promotions and increase that value offering.
“Focusing on data-driven tactics that are fully trackable, highly targeted, and more capable of delivering quick results will naturally appeal,” says Siobhan Simpson, chief strategy officer at ad agency The Brooklyn Brothers. “It will be interesting to see what consumers reduce. Over the past few years, we have reassessed our perceptions of what is essential and non-essential. The things we think we just can’t live without have changed as we reconsidered what’s really important to us.
Physical retail could also be hit hard again, just as it was during the darkest days of the Covid crisis. Inflation in fuel and energy prices, staff shortages and supply chain disruptions are all hurting street retailers, who are desperate to pass on high trade tariffs to consumers. Having a multi-channel and quickly adjustable emergency plan will therefore be crucial.
“It’s hard to implement a business change strategy to weather the recession just months before it hits,” observes Hugh Fletcher, global head of consulting and innovation at Wunderman Thompson Commerce. “Retailers that weather the storm tend to have deep cash reserves, allowing them to thrive while their rivals struggle. They also tend to have omnichannel strategies, allowing them to access most impacted channels.They also designed technology solutions that can scale easily.
The last two years of upheaval have shown that brands can do more today to prepare for the economic shocks of tomorrow. We all need reassurance and familiarity in these uncertain times, so expect retailers to focus on showing off such qualities. But a recession will ultimately mean some form of compromise. They will therefore have to determine what consumers are ready to concede and what they are not ready to concede.
“If it’s not price, what are customers willing to compromise on? In the case of Netflix’s new subscription tier, it’s the inconvenience of watching ads,” notes Andy Humphreys , senior strategist at branding agency Coley Porter Bell, “Cosmetics retailer Beauty Pie has found huge success after compromising a luxury brand for products at less than half the retail price. Identifying what the negotiable and non-negotiable items for clients could unlock exciting new recessionary strategies.”
Above all, expect businesses to build resilience. There are new technological tools in the retail arsenal, including AI systems that can identify new consumer trends as they emerge. A slowdown certainly leads to changes in buyer behavior, which in turn creates new business opportunities.
Bui cites Lego as an example, noting that the company’s profits rose during the previous recession while those of its rivals did not, “because it recognized that customers wanted durable toys. It has therefore adapted its message to promote the sustainability of its products,” he says. “There is still a lot to play for.”
Consolidate to accumulate
Gobbling up struggling and/or strategic brands is the name of the game for a bold retailer who sees opportunity in a recession. This operation also allows the buyer to consolidate its position in a stagnating market. Identifying customer preferences is crucial to the success of this process.
“We’re following a trend among big names accumulating portfolios of well-known brands as they pursue fulfillment model business strategies,” reports Luke Weston, director of brand experience strategy at agency Household. . “That way they can extend their reach while benefiting from lower fixed overhead.”
This helps retailers hold much more data about their customers than they ever have. This allows them to identify the most valuable products and services, and where an acquisition or new partner might be a good fit and not cannibalize their core brand offering.
Partnerships are also a way to project retail brands with less risk – think M&S and Ocado or Next and Homebase. Store-within-a-store concepts have become popular here, whether it’s Missguided teaming up with Asda, Pret A Manger with Tesco or Costa Coffee with M&S.
“Reconciliations make sense, especially in a recession,” says Andy Humphreys. “It’s much easier than creating your own offer. For example, Next had no references in gardening products, unlike Homebase. So rather than spend the next three years trying to develop this area, Next brought in a partner to do just that. It’s a quick way to extend and improve the customer experience you provide during a downturn.
More and more retailers are launching initiatives around promotional subscriptions, in order to retain customers and secure their turnover. VERTONE deciphers this trend, often complementary to a loyalty program, and provides the reasons and mechanics for launching a subscription of this type.
How to revitalize loyalty programs and ensure customer engagement?
For many years, retailers have gone to great lengths to engage customers with their brand. Among the essential devices, we obviously find loyalty programs and customer animation plans, but new initiatives have emerged based on a subscription logic :
- A first type of subscription allows holders of a “membership card” have the right to access a point of sale with prices close to those of wholesalers, thanks to a monthly or annual payment. This offer, still little known by the French, is already well developed on the other side of the Atlantic. CostCo, which operates on this principle, is the 3the player in the United States and has already opened 2 warehouse clubs in France.
- L’“subscription on delivered products” allows you to have a percentage reduction on a selection from products, depending on the number of products purchased and/or the chosen delivery frequency. Adopted by Amazon, Leader Price, Casino and even Carrefour, this system aims to build customer frequency and engagement over time.
- Finally, the“promotional subscription” allows the customer to have a discount on a wide range of products. With specialized distributors, this subscription is often combined with the loyalty program (for example, the FNAC paid loyalty card offers 5% on a selection of product universes). Innovative promotional subscription initiatives have recently been developed in large distribution (Casino, Carrefour, Monoprix) in addition to the existing loyalty programs.
The promotional subscription in gsa
Several promotional subscription initiatives have emerged in large distribution, breaking with the usual loyalty mechanisms in the sector:
Launched in July 2019, Casino has developed casinomax, subscription that offers an immediate 10% discount in all Géant Casino stores and Casino Supermarkets*, thanks to a monthly payment of €10, or €90 per year (that is, 3 months free). An offer for students gives access to this subscription, from July 2021, for only €2 per month.
Monoprix has also rolled out its program monopflix in August 2021: members of the loyalty program can thus benefit from -10% on all food, maintenance and hygiene products for €9.90/month or €99.90/year (that is, 2 months free ).
Latest initiative to date, Carrefour has been testing since September 2021 a promotional subscription dedicated exclusively to its private label, in some stores in the Rouen region. For €5.99 per month, cardholders benefit from -15% on the Carrefour brand. In March 2022, Carrefour launches another subscription offer for traditional fresh products: insert customers can thus benefit from -15% on traditional fresh products for €7.99 per month.
The promotional subscriptions of these 3 brands have several common features :
- It is essential to have a loyalty card to subscribe to the subscription
- The discount can be combined with all other promotions and is legally limited to 34% on food.
- No maximum spending limit beyond which the discount no longer applies
In short, today two main subscription modelsin France :
Why launch a promotional subscription?
The brands that have already launched a promotional subscription (Casino, Monoprix, Carrefour) are the ones that have lost the most customers in the last two years, with decreases in the penetration rate between 1 and 4 points:
Versus retention problems With a drop in the penetration rate of -3.6 pts in 2 years, the Casino and Monoprix brands are relying on an expensive system to retain their best customers and revitalize their market share.
As for the Carrefour group, which sees its penetration rate drop by one point between 2019 and 2021, the objective seems to be, therefore, strengthen customer loyalty through their own brands.
For the time being, its promotional subscription offers are therefore focused on a logic of customer retention, rather than on a capture objective.
What subscription mechanism for what type of brand?
We estimate that the food rate (% of food spending of a customer in the brand) is a key element in the definition of the subscription mechanism:
We note that monoprix and Casinohave a relatively low feed rate , which attests to a strong fragmentation of purchases by customers of these brands. The other way, Crossing an high food rateand that has been evolving positively since 2019.
This large gap in food rates between Carrefour and Casino/Monoprix reflects a different customer base structure between these brands:
Thus, in monoprix is a minority of customers which reaches €100 in monthly spending allowing you to make your subscription profitable.
The other way, a large part of Carrefour customersspend €100 a month, given the much higher food fee. If Carrefour had proposed an offer similar to that of Monoprix, the brand would undoubtedly have spread a lot of generositywhich would not have allowed profitability (too large a subsidy effect).
We can assume that Carrefour initially concentrated its offer on its own brand to reduce this subsidy , because few customers spend more than €40 a month on Carrefour-brand products (the white-label share usually represents around 20-30% of total purchases in the sector). The same goes for Carrefour’s subscription offer launched in March 2022 on traditional fresh produce: relatively few of the brand’s customers will make more than €54 in purchases of traditional fresh produce per month.
By offering a promotional subscription offer in line with their fleet structure, Monoprix, Casino and Carrefour can expect generate profitabilityin their promotional subscription offers.
An article written by Elvina Mercier and Matthieu Meurisse