My, oh my, how things have unravelled.

Back in September, Research World looked at the impact of the downturn and the focus was on the collapse of financial organisations.

But now the focus has shifted to collapsing retailers, among them household names such as Circuit City in the US and Woolworths in the UK, one of the world’s oldest retailers.

What’s more, “Ten chains ‘face closure’ in 2009” declares a headline from a UK consultancy as a dismal prelude of the carnage to come.

In this Darwinian environment, retailers need to adapt or face the real prospect of death.

Global
It’s no surprise that the downturn has spread and is even hitting the high growth BRIC economies.

But, says Christopher Ruane, head of ?What If!’s retail innovation practice in China says that “The fundamentals in China are nowhere near as bad [as the West].” He says that Mercedes has enjoyed a good year, that Disney has successfully launched a premium-priced language learning centre, and that designer brand Marc Jacobs is opening a new branch “within 3 blocks of another Marc Jacobs store.”

Javier Medrano, VP marketing for Grupo Bimbo, one of the world’s largest bakery firms, concurs for Mexico and Latin America: “For the last two years the [Mexican] government has been campaigning against childhood obesity so a lot of companies are launching new products and lines…[thereby helping to stimulate the economy],” says Medrano.

Masstige
India, though, may be a BRIC exception. While still expected to achieve high single-digit growth, Piyul Mukherjee, director of Proact Research and Consultancy says that the number of stores in malls has mushroomed over the past five years, and that most “…are going to find it tough.”

That, says Mukherjee, is because the middle class have failed to embrace these new stores, many of which feature high-end brands such as Rolex and ‘Mango’. The result? They could well prove to be as much a victim of flawed business models as of the downturn.

Value, value, value
Perhaps predictably, consumers focus on value during harsh times. But what does that mean in practice?

In the West’s most mature economies, the focus seems to be on trading down, often to store or lower-priced brands. Gill Aitchison, president of global shopper & retail research at Ipsos, says that an Ipsos MORI study in late 2008 found that 61% of UK shoppers had started to buy more own label/store brands, while 26% had widened their repertoire of supermarkets to get better value.

Aitchison does, however, warn retailers to maintain their core offerings: “While shoppers are watching their spending, they still expect choice and variety. Therefore, full-service retailers who are limiting their stock and delisting products will see a decrease in shopper satisfaction. Discounters [e.g. Aldi, Lidl], on the other hand, who already have created expectations of reduced SKU options, will not suffer this.” In short, retailers that cater to both price and value seekers are expected to do particularly well in the current climate.

In fast-growing markets such as China, India and Mexico, where the growing middle class has developed an appetite for quality and variety, and where the effects of the downturn are far less severe, value is about more than simply price.

In China for example, foreign retailers Carrefour and Tesco do particularly well: “It’s partly about refinement, partly about quality, and significantly about safety – I can’t over emphasise how important product safety is in China, people are aware that food especially is often not safe here (eg. melamine milk scandal),” says Ruane.

And in Mexico, the search for value has led to a resurgence of local mom and pop stores: “A couple of years ago we really saw a slight decline in new traditional local stores opening. The supermarkets were offering really good value…but recently that’s been changing again because now people are now more conscious of prices, they don’t have enough money to spend for a week’s worth of products, they are buying two or three times a week in smaller quantities in smaller stores,” says Medrano.

Middle-squeezing
Vivek Sharma, group director, marketing strategy & insights at The Coca-Cola Company contends that during a downturn “it’s the middle men that get squeezed.” By which he means that retailers need to occupy a position of good value (e.g. Wal-Mart) or a distinctive niche (e.g. Whole Foods).

It’s the reason, he says, that Nielsen data shows that Wal-Mart and dollar stores are outperforming the likes of mid-market Target.

It’s also why the UK’s Woolworths is closing: “Woolworths sold a wide range of merchandise but never achieved a positioning of being the best at any one thing,” says Aitchison.

Foreign invasion
Western retailers have been making inroads into other countries for a while. And when they do, they need to be careful on the level of local adaptation.

Minimal adaptation can sometimes work. Ruane says that their influx in China has forced domestic retailers to “significantly raise their game, while other domestic retailers have gone to the wall. Price promotions and clean stores are much more common because of the impact of Tesco and Carrefour.” But, he says, Tesco and Carrefour have also adapted by installing wet markets (for selling fish etc.) to accommodate local preferences.

But foreign approaches don’t always work, however logical they may seem.

For example, Indian supermarket chain Big Bazaar has steadfastly eschewed the ‘clean and tidy’ look of Western supermarkets: “Big Bazaar knows that people like a mess inside, they don’t want clear, clinical aisles like in the West,” says Mukherjee. Big Bazaar also refers to the ‘bum-brush factor’ – they say that the moment bums fail to brush each other, sales go down!

GoMe, China’s leading electronics retailer, faced a similar dilemma a couple of years ago when US competitor Best Buy arrived. Best Buy decided to operate traditionally organised stores with clear information displays, in stark contrast to GoMe’s market-style setting devoid of information. GoMe was right, explains Ruane, because: “Shoppers tell us time and again that they don’t believe anything they read or hear in store. If they want an opinion they’ll use the internet and go onto a bulletin board or else seek a personal recommendation, even for a brand they trust.”

Medrano says that foreign retailers have had a mixed experience in Mexico. Wal-Mart successfully operates under four franchises: Walmart (hypermarkets), Bodega Aurrera (high discount), Superama (supermarket with a focus on higher quality and prices), and the members-only Sams´s Club. In contrast, rival Carrefour has exited the market.

And in the UK, German discounters Aldi and Lidl have made significant inroads, so much so that market leader Tesco has ‘copied’ their discount line as a defensive measure.

Winning retailer: Future Group
Mukherjee regards India’s top retailer, Future Group, as a significant success story, one that she expects to continue during the downturn: “…they have a whole bunch of [different] outlets…there’s a whole bunch of consumers out there who will always, whatever you may do, not really want to walk into a large supermarket because they say that’s not my scene.”

Future, she says, have seen off competitors by building a strong national presence under an assortment of value brands. Crucially, while competing brands focused on the middle class, Future targeted the lower middle class through its KB outlets, something malls initially resisted because they didn’t “want that kind of a crowd in the mall.” Malls soon relented once they realised Future’s power to drive footfall.

For now at least, the credit crunch has stymied the ambitions of competing players, both foreign retailers and domestic conglomerates such as Metro, Tata and Birla. The latter, says Mukherjee, “missed the bus on retail at a national rather than a local level,” by starting too late.

Future is now busy building its own portfolio of value brands across all the categories they sell, something they anticipate being very profitable.

Winning brand: Coca-Cola
Coca-Cola has been one of the more successful brands during the downturn. “We once again demonstrated our ability to perform consistently, delivering our eighth consecutive quarter of double-digit comparable earnings growth,” said CEO Muhtar Kent in last October’s trading update.

At the sharp end is Coke’s Sharma. He says that US consumers did not reduce overall grocery spending at first, instead choosing to reduce the number of supermarket trips to counter the sharp rise in fuel prices.

But now that the recession is starting to bite, consumers are trading down to cheaper brands and even eliminating certain categories altogether.

So how does Coca-Cola defend itself against price shopping? Sharma says by focusing on value: “People are starting to look more at value propositions…we look to provide the right price-pack offer and to reinforce our intrinsics.”

Two of those ‘intrinsics’, says Sharma, are the colour red and the distinctive contour-shaped bottles. The latter is now making a comeback in the US because “Whenever you come across Coke, we need to evoke those strong memories people have.”

If you read last month’s piece on ‘Buyology’, you will have seen the success Coke achieved from its sponsorship of TV’s American Idol. Coke’s seamless integration of red and the contour shape into the show was textbook marketing that resulted in very high brand awareness. Sharma modestly proclaims that Coca-Cola is “very happy with the program.”

Online
Despite the growth of online, retailing is largely still an offline story in many categories. In some categories such as financial products and services, electronics, books and digital products, online is significant. Beyond this, the Internet plays an important role in facilitating price comparison for value seekers.

An area of interesting development is China. It now has the world’s largest online population and “Chinese ecommerce has more or less doubled over the past year, albeit from a low base,” says Ruane.

Auctions are particularly popular. TaoBao, China’s answer to eBay, is driven by person-to-person sales of low ticket items. Delivery is extremely low cost due to the low cost of labour and the creative use of city subway systems.

Key barriers to growth include the limited availability of online payment systems, plus “Chinese consumers are much more visual and tactile than western consumers…and there’s a big concern about fake goods, particularly fake consumer goods,” says Ruane.

No Shit, Sherlock!
Shopper research, as distinct from consumer research, is a hot and fast-growing area, according to Ipsos’s Aitchison. This, she says, is because “…it helps retailers to pinpoint actions in store to recognise and counter the economic concerns that shoppers are feeling. And the beauty is, they are generally relatively low cost to implement, compared to advertising or deep price cuts.”

Sharma is testament to its importance within Coca-Cola: “I’ve been doing shopper insights for some years, but it is only relatively recently that we decided to [restructure teams]…my team is… focusing only on what we call commercial and franchise insights, which is all about trying to understand a lot more about the shopper as opposed to the consumer. And I have my colleague who is focusing a lot more on consumer insights. The key is ‘renewed focus’ on the shopper.”

The Millward Brown approach
Don’t say we didn’t try.

In the ceaseless search for simplicity, we ask Eileen Campbell, CEO of Millward Brown for a single measure to encapsulate brand health: “We aren’t really advocates of single number measures – the same way you wouldn’t monitor your personal health with a single number.” Sounds reasonable.

Instead, the philosophy behind BrandZ, their brand health tool/framework, is to measure the strength of the consumer bond, says global brand director Peter Walshe: “Consumers have relationships with brands, and the intent is to strengthen those relationships.”

Strength is derived from a couple of (exotic-sounding) metrics: ‘bonding’ and ‘voltage’.

Bonding refers to one of five levels that indicate the strength of the consumer bond. It is based on factors such as: spontaneous awareness, knowledge, relevance, performance, and perceived competitive advantage. For example, the lowest level (weakest bond) typifies a consumer who is simply familiar with a brand and nothing else. The highest level (strongest bond) reflects a consumer who regards the brand as relevant to them and way ahead of the competition.

And voltage? That, says Walshe, reflects how effectively consumers move up the bonding levels. Strong brands tend to have high conversation ratios between the levels.

Interbrand and Landor
Global brand consultancies Interbrand and Landor also run brand health monitors. But they do so for brand valuation purposes as well as for brand/RoI optimisation.

Interbrand launched the first ever brand valuation tool in the 1980s as a way for companies to recognise the intangible value of their brands as tangible assets on balance sheets (a controversial practice at the time but now an accepted financial practice). Our focus here is on the brand strength bits of the valuation tool.

Interbrand’s Rishi Dhir, senior consultant within the brand valuation team, says that seven factors contribute to their strength score. Only three of these are consumer-driven (the rest are judged by Interbrand folks and cover areas such as IP/protection, diversification, etc.). The consumer metrics include: leadership (based on awareness, familiarity and whether the brand ‘acts as a leader’); relevance (how the brand is performing vs. marketplace trends, and the distinctiveness and differentiation vs. the competition); and, stability (loyalty, repeat purchase, level of satisfaction, recommendation, etc.).

“It’s not a particular number that counts, it’s what lies behind that number,” emphasises Interbrand’s UK CEO Rune Gustafson, “It helps clients prioritise touch points and investments.”

WPP’s Landor uses sister company Y&R’s long-standing Brand Asset Valuator (BAV) tool. Landor’s president of Asia-Pacific, Michael Ip, says it uses two ‘pillars’ for strength (differentiation & relevance), and two pillars for stature (esteem & knowledge/understanding).

Efficacy
There are a couple of primary uses for brand health tools, notably identifying a brand’s impact on future sales (i.e. prediction) and measuring/improving RoI (i.e. diagnostics).

Millward Brown’s Campbell says the BrandZ model is “pretty predictable.” Walshe adds that over countless studies, the correlation between the strength ‘score’ and measured sales is at least 65% (r-squared = .65+). In other words, strong brands correlate with significantly higher levels of purchase.

And in terms of diagnostics, Interbrand’s Gustafson says that a study for hotel chain Intercontinental uncovered an unmet need that the chain could potentially ‘own’. They discovered that knowledge was a key loyalty driver: “The [guest’s] disappointment was that they weren’t learning more about the places they were visiting because they were darting between meetings.” This insight led to concierges being brought forward in the decision-making process, and rooms were equipped with ‘5 things you can do’ lists. “Staying relevant and coherent to customers is one of the mainstays of a brand,” says Gustafson.

Issues
All very well, then.

Well, not so quick, says Ian Gee, regional brand planning director, Asia Pacific, at global media agency Initiative. For one thing, he believes that the link between what people say and what they do is ‘vulnerable’, particularly nowadays: “Research is very bad at predicting the future, particularly during an uncertain [economic] period.”

While this is not a direct retort to Millward Brown’s correlation between brand strength and sales (because those sales are not self reported by consumers but based on actual data), it does raise the issue of a lag between attitudes/perceptions and behaviour.

A lag that concerns Gee: “People store attitudes that they may sometime want to use to inform brand/product choice. But when confronted with making a choice, suddenly external circumstances have changed so much that the actual decision they make, there’s no relation to the attitudes they may have stored up until yesterday.”

Another issue is differentiation. John Gerzema, chief insights officer, Young and Rubicam, and author of new book The Brand Bubble, reckons that plain vanilla differentiation has had its day: “Consumers don’t just want a brand to be different; it has to keep being different. We call this energized differentiation, the consumer perception of meaning, motion and direction.“ He sees brands as a direction rather than destination, where velocity rather than distance is the key strength metric.

However radical that sounds, Campbell has similar thoughts: “An important measure is a sense of momentum…if the public has a sense that your brand has a positive trajectory, that’s quite a good indication of share growth.”

Emotions
Robert Passikoff, founder & President of Brand Keys, believes that brand health monitors fail by focusing on the rational: “The decision process in brand adoption, engagement and loyalty is primarily emotional (70%).”

This is made worse by his belief that “the rational bits [of brands] are generally undifferentiated, the emotional bits provide the differentiation.”

And using image attribute statements does not help, he says, because the statements do not represent “the emotional elements that resonate within brands…plus, emotions are difficult to articulate with traditional image statements.”

His solution, developed over the past 24 years, involves the use of psychological questions/scales that measure what people believe. The result is a map of engagement (any marketing or communications activity that results in an increase in brand ‘equity’) vs. attitudinal loyalty.

Passikoff claims that “because it is psychologically-based, we are able to see changes to the configuration of categories…and of levels of expectation, usually 12-18 months ahead of traditional research techniques.”

Growth of online
Gee points to the growth in word-of-mouth/online buzz as a development that brand health monitors need to incorporate: “I can see these growing in the future as more of our lives get committed online…that will become probably a stronger measure of overall brand health than the more formalized questionnaire-based tracking.”

Campbell says they are starting to include this activity: “The other thing we are starting to measure are what conversations they are having about brands…are they talking to other people about brands…how much consumer propagation is happening.”

Music, no doubt, to the ears of Mark Earls, author of Herd: How to Change Mass Behaviour by Harnessing Our True Nature, and winner of best paper at ESOMAR’s 2007 Congress. He contends that we tend to copy others rather than make truly individual choices, and so when faced with reporting why we make certain decisions/our attitudes, we tend to post-rationalise. For him, understanding how we interact is key.

In general though, Earls is not a particular fan of brand trackers: “Monitoring brand health is a distraction. The real game is not with the brand but with people and their interactions - this is what shapes consumer behaviour, not brand perceptions or relationships.”

Winners and losers
Having opined about the tool itself, a few emergent themes then.

Given the economic climate and pressures, Campbell is starting to scrutinise attributes such as ‘brand willing to pay more for’ and ‘brand that is good value for the price’ on some of her clients’ trackers because “Marketers need to protect the sense that they are providing something special.

“We think it’s particularly important for marketers to try and prevent consumers from switching to lower priced or store brands…we found that the perceived gap in quality between a major brand and store brand is greater than the actual gap…then you’ve set an extraordinarily high hurdle for the brand marketer to get over once the recession is over to get them back.”

In other words, price promotions could be a false economy and ultimately damaging. “These are great times,” says Gee, “for challenger brands when old loyalties come into serious question. Like Lexus in the 1980s, an S-class car for an E-class price.”

Interbrand’s Gustafson talks of the chaos in the financial sector, particularly in the US and UK. Here, trust in financial brands has been damaged with the resultant loss of significant brand value among financial services brands, some (Merrill Lynch) more than others (HSBC) (as of June ’08).

Landor’s Ip, based in China, believes that despite the reduction in domestic growth rates, there is still an opportunity for Chinese and Indian companies to build share globally. And while Chinese companies currently lack a depth in global management, he believes that companies such as Lenovo are learning fast: “…they were very clever in appointing a CEO from outside the company, and in moving their chairman to New York.”

Future
Reflecting on the future, Campbell suggests that the research industry may well be on the cusp of a new challenge: “I think we went from ten years ago being very good at explaining why something happened…today we’re pretty good at predicting what will happen…what I think clients are increasingly looking for is to imagine a future and tell them how to get there…beyond a single brand and towards portfolio management.”