Transaction or relationship: Brand strategies in recessions
Martin Roll | January 03, 2012

The year 1929 was a very important one for most of the developed economies and in turn for the entire global economy. It was the beginning of a decade-long global recession in which economies around the world experienced widespread economic slowdown.

Businesses slowed down, customer confidence took a massive dip, unemployment became rampant and the global economy was dragged to a screeching halt. The year 1929 has since to be termed as the Great Depression.

As the post-World War world moved on with renewed economic activity amidst flourishing trade and commerce, widespread acceptance of globalization, flattening of the world, and a rapid integration of the world's hitherto isolated economies, the challenges of managing such a multidimensional economic crisis was all but forgotten from the collective memories of companies and individuals.

However, nearly seventy years since the Great Depression, literally the entire global economy has been forced to face the pressures and challenges of what has become the worst global economic crisis since 1929.

The mortgage crisis in the United States very quickly blew up across the economies of Western Europe and around the world. Once again, global brands are experiencing challenges, customers are cutting down their consumption and despite the best efforts of governments, the economic engine has proved tough to get back into top gear.

Two very fundamental features differentiate this current global recession from the Great Depression of 1929. First, unlike in 1929, the current global business landscape is characterized by global competition, accompanied by limitless mobility of financial, intellectual and other intangible resources across national borders.

Second, unlike in 1929, the current global business is dominated by global, national and regional brands that are proactive and aggressive in differentiating themselves in order to appeal to an ever-widening segment of global middle class.

These two fundamental differences make it even more difficult for brands, businesses and customers to effectively manage their relationships with their stakeholder groups. While the connectivity among the economies and businesses around the world with each other make the diffusion of economic crisis quick and long-lasting, the hyper-competition in the global business landscape makes the acquisition and deployment of scarce resources even more challenging.

Despite the ubiquity and importance of such crises, much of the strategic advice that consultants and experts offer is almost exclusively focused on times of prosperity. Recessionary times bring about multidimensional challenges for brands.

Simultaneously, customers reduce their consumption of the usually higher-priced branded products; brands themselves are cutting down on aggressive advertising and branding activities, while store brands and other commodity products are rapidly claiming the brand territory through aggressive pricing; CEOs are often advised to cut down instead of expand.

Given such seemingly insurmountable challenges that accompany recessionary times, it is important that CEOs and brand managers understand the intricacies of devising successful strategies that can leverage such conditions for strategic brand growth and revival.

Brands and customer engagement

One of the defining elements of branding and successful brands is the notion of engaging the customer. Given the innumerable options that customers have in the current era of rampant consumerism, both brands and customers are in a precarious situation.

With newer emerging economies gradually integrating with the global business landscape, global brands are offered ever so much more opportunity to target newer customers. Given that, it becomes tough for brands to decide on their customer engagement.

The handed-down wisdom of marketers and brand consultants is that brands should strive to create engaging and exciting customer-brand interactions such that customers can develop some sense of loyalty toward those brands. This logic is rooted in the idea that as customers encounter innumerable options, decision-making becomes complicated as they evaluate these multiple options using some heuristics.

As much as brands offer customers both functional and symbolic value, they also simplify the purchasing process by offering simple external heuristics that can substitute the need for elaborate evaluations. This becomes even more important when the switching costs for customers are increasingly becoming next to nothing.

As the internet offers customers a very easy way to test out different brands without incurring search or information costs, the need for brands to create experiences that would persuade customers not to switch brands becomes even more critical to their eventual success in the long term.

A fundamental question that brands should ask in this regard is this – should their interaction with customers be transaction-based or relationship-based? The global strategies of brands in these times of global recession should be guided by their answer to this very fundamental question.

A transaction orientation mandates that brands minimize their customer engagement and strive for short-term sales whereas a relationship orientation mandates that brands strategically invest in creating engaging brand experiences for customers with an ultimate objective of becoming an integral part of their customers’ lives. Two important strategic realities need to be explored by firms to address this central issue.

Nature of the product

Companies have come a long way from inherently believing that branding is relevant to only certain types of products to acknowledging that branding has ceased to be a tactical option but has become a strategic necessity in literally every single industry and product category.

While the importance of branding to both products and services of all kinds is undoubtedly critical, the tactical ways in which global brands go about implementing their brand strategies ought to change depending on what is being branded as the variance in the type of product and the type of customer is integral to the design of the underlying brand strategy. As such, while this realization is good, it also begs clarification.

In times of recession, brands will have to examine the nature of the product being offered before considering their underlying orientation. Broadly, products differ in the extent of involvement they require from customers, the nature of benefits they offer customers and the level of perceived risk experienced by the customers.

As such, products that require a lot of customer involvement, that primarily offer symbolic instead of functional benefits, and convey higher perceptions of risk can immensely benefit from customer engagement strategies, whereas products that demand minimal customer cognitive involvement and emphasize functional value and minimal risk, affords brands to minimize their customer engagement investments.

Level of competition

Competition is the underlying reality of the current business landscape. While brands would ideally want to be proactive and aggressive in dealing with their competitors, recessionary times call for extreme caution and strategic restraint.

In deciding whether brands want to engage in a transactional or relationship orientation, they should actively consider the nature of competitive rivalry as competition indicates differential endowments of resources and capabilities across the many brands operating in the industry. The greater the disparity in such endowments, the more critical it becomes for brands to account for competition in deciding their branding orientation.

Greater competitive rivalry indicates an increased involvement of other brands and differentiation becomes important, thereby making a relationship-oriented strategy much more meaningful.

On the other hand, lower levels of competition afford brands to postpone investing in customer engagement investments. As such, decisions regarding the underlying strategic orientation should be made in the specific context of the level of competition present in their markets.

Nature of the broader economy

One of the defining characteristics of the current global economic landscape is the inherent level of globalization and international presence of companies from around the world. This is even more exacerbated with the opening up and integration of the Chinese, Indian and other East European economies into the global economic landscape.

This inherently global aspect of brands' businesses highlights the need to take into account the nature of the national economy that the brand is operating in.

While the developed economies of North America and Western Europe are characterized by well-developed institutions, sophisticated institutional intermediaries, established business norms, demanding customer preferences, and high disposable incomes, the emerging economies where most of the growth is rampant is characterized by fragmented markets, institutional voids, aspiring bottom of the pyramid customer segments, middle class populations that demand high quality at low cost and hyper competition.

As brands try to navigate the challenges imposed by the global economic recession, their decision whether to engage in a transaction or a relationship-bustling orientation should be adapted to the nature of the national economy where they operate.

Brands that operate in advanced economies would benefit by focusing on enhancing their efforts to create more engaging experiences for their customers that reinforces the underlying brand value proposition.

However, brands that operate in emerging economies would do well to devise their strategies around a transaction orientation such that they could focus on growing their brands in an appropriate way to the BOP segments.

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