Previous Next

Today’s basics will be tomorrow’s luxuries

July 26, 2011

Take a read of Paul Donovan’s post on FT’s Alphaville and he will introduce you to a new concept- The “Environmental Credit Crunch”- which defines a new world of scarce resources and significant constraint.

While most economies are no strangers to rising prices and the notion of inflation;  we’ve already seen and our likely to continue to see price increases in the core commodities for the immediate future and beyond. This will transform the pricing of the most basic products and services in ways we can’t yet imagine.

Affordability has been one of the key tenets of successful marketing and brands have done everything they can to “reign-in” price to ensure that they are not only competitive, but can be purchased on a mass scale. It’s the basic foundation of a strong economy and the capitalist system. In a sense, our progress has been defined by our ability to produce things with even greater sophistication, often at a lower cost. This has certainly been the case with technology,where we’ve been able to produce much more for less.

Over time, the consumer has been well trained and well on pricing models across various categories and have an expectations and a tolerance for what they might expect to pay for everything from their utility bill to a new car. If you start playing with and re-aligning these, you are going to radically change and transform consumption patterns with the knock-on impact of potentially shifting the basic products and services that we take for granted today, into tomorrow’s luxury items.

Such a radical shift will change the way people think about what and how they consume and what constitutes a basic necessity. We are already starting to see whole classes of consumers question such strongly held ideals as home and car ownership and to seek out viable alternatives. These shifts will create exciting new opportunities for incumbents and insurgents alike, but opportunities that will be very different to what we’ve seen before. As an example;  Collaborative Consumption isn’t going to be a pipe dream, it’s an extremely likely reality.

This means that marketing can’t continue along the same pathway as usual and is going to need a significant degree of re-tooling. With the current bifurcation of the US consumer, brands still have the chance to believe that things aren’t changing, because a small group of consumers are accounting for the majority of spending, but the rest of the population has already adopted to a new model of consumption, which means extreme selectivity and caution around every purchase.

If we look at the current scenario and factor in the potential price increases to core commodities- the number of consumers who don”t need to shift their spending patterns and behavior will shrink.

Marketers will need to be highly imaginative and creative to re-position their existing products and services as necessities to a skeptical and challenging consumer base. Real value will be more important than ever.

More importantly, they will need to use their imaginations and find partners who can conceptualize new opportunities and experiences that can deliver value in entirely a new ways.

Put simply; we all know marketing and branding is being transformed by massive external forces (technological, media and economic forces), but when you add the new dimension of increasing prices, against this backdrop every brand is going to need to take a new look at what it sells and how it’s selling it.

One potential source of inspiration could come from understanding how global brands are selling products and services in developing markets; where often the items we take for granted as basic necessities are marketing as luxuries, a model that might soon need to the applied to the developed world.