Seizing the Uncertainty: How Challengers Can Capitalize on Economic Turmoil

A recent study by VCCP and Magic Numbers revealed that challenger brands have an advantage over their established competitors in times of financial uncertainty. This is because consumers become more sensitive to price fluctuations when faced with economic pressure, allowing challenger brands to gain a foothold in the market.

During the EffWork Global 2023 event hosted by the IPA, the two companies discussed why challenger brands have outperformed established brands in certain categories during the pandemic. Furthermore, they shed light on the implications of this insight for both challenger and established brands in the context of a weakening global economy over the next year.

According to Grace Kite, our website columnist and founder of Magic Numbers, challenger brands in the food industry have an advantage to take the lead, as eating is a necessity. She emphasized that intense pricing competition works in favor of these challengers.

"The opportunity to secure a purchase is available, but it requires determination. Consumers will compare what your competitors offer with what you are offering. Therefore, you must surpass your competition, and the relative price becomes crucial."

She claimed that the data shows that when your competitors increase their prices, you can confidently do the same. Kite asserted that financially constrained consumers prioritize the comparative pricing advantages of emerging brands. "Firstly, certain purchases remain secure even if you raise prices. By investing in your brand, you secure a position in that category," she explained.

“People will be shopping around this year. And they’ll be researching way more than usual. So it’s a rare opportunity for challengers to break in.”

Breaking into categories

Moreover, she observed that advertising around essential items yields remarkable results and generates a good return on investment. She emphasized that the boost a brand receives from advertising during a recession surpasses any other time, ultimately leading to intense competition. However, she mentioned that it is possible to emerge victorious by pricing products effectively and optimizing advertising strategies.

Mirroring this sentiment, Steve Taylor, the joint chief strategy officer at VCCP, highlighted the successful utilization of advertising by brands such as Little Moons confectionary and Yorkshire Tea to expand their market share within their respective industries.

He stated that FMCGs that advertise tend to have a larger customer base that is more tolerant or less sensitive to price increases. Little Moons was specifically mentioned as a great example of using social media advertising during the pandemic to successfully enter a market category.

However, when it comes to non-essential items, Kite noted that the situation is less clear. According to the Magic Numbers data, 62% of consumers are considering reducing their spending on optional purchases in the coming years. This aligns with the findings of the latest GfK Consumer Confidence Barometer, which indicates that consumers remain cautious about making major purchases.

In such circumstances, Kite recommended that it is best to approach your brand as if it is in a recession, in line with the overall state of your industry. While it is still important not to completely halt marketing spend, brands should assess their communications strategy in relation to their competitors. Calculating the impact of others reducing their marketing efforts is crucial, as their reduced presence may allow your brand's voice to be heard more clearly.

Data showed that media prices usually decline during a recession, but this trend is not expected to occur in 2024. The speaker expressed that media is currently not inexpensive and advised approaching the notion of media becoming cheaper in 2024 with great caution.