Recessionary Position: Branding Attitudes Of UK Automobile Consumers - Literature review Example

Recessionary Position: Branding Attitudes of UK Automobile Consumers in 2010 Literature review Branding Branding is one of the key factors that can be used to capture the attention of consumers during times of recession. According to Bates (2010), relationships with customers must be rebuilt if companies are to move forward and take advantage of the opportunities of rebuilding the economy. It is also during times of recession that manufacturers can take note of their positive consumer attitudes by re-branding themselves (Barmor, 2009, p. 5). The importance of doing this can be related to the fact that brand is what consumers think they are getting from a product or service. Hence, the brand becomes a key tool to divert consumer spending in a given manufacturer’s direction (Docters, Reopel & Sun, 2004, p. 77). Any brand that is able to provide an incremental value addition in service during time of recession is likely to be perceived better by niche consumers (Kumar, 2007, p. 46; Strugatch, 2011, p. 46). Today, because of recession, financial valuations have become more prudent and the existence of strong brands still gives a remarkable added value to companies (Kapferer, 2008, p. 18). But with the recent recession, have automobile companies been able to add value to their products? This question can be answered by assessing the market facts of the United Kingdom automobile industry in the recent years. In 2008, it was predicted that the recession would lead to a severe market contraction and extensive closing of franchised workshops as well as standalone garages in the United Kingdom within a period of five years (Just-Auto, 2008). This is one of the findings noted by the authors of the Castrol Professional Car Service & Repair Trend Tracker 2008. The report also predicted that the United Kingdom service and repair market would fall by five percent over a period of five years (Just-Auto, 2008). Branding attitudes The information above indicates that consumer attitudes were shifted from automobiles as a priority during the recession. In deed, it has been predicted that the United Kingdom new car market will do less well in the next two years: 1.95 million cars in 2011 and 2.15 million cars in 2012. Another point is that the mainstream brands will be squeezed from the bottom by budget brands, as well as from the top by premium offers. In addition, the budget segment is anticipated to continue to be dominated by brands such as Kia, Hyundai and Skoda in 2011. Further, the premium segment is expected to continue to be dominated by BMW and Audi, although Mercedes Benz is expected to also strengthen its operations. However, the outlook points out to an uncertain future for brands such as Saab and Jaguar (L. Glassock & Associates, 2010). During the recession period, various companies applied different strategies to maintain their brands. For instance, Jaguar Land Rover sought $ 1.5 billion from the government so as to survive the credit crisis. In the same line, Tata Motors declared its plan of injecting millions of pounds for Jaguar Land Rover Company. On its part, Nissan UK made known its plan to cut 1200 jobs from its plant located in North East England due to the automobile crisis that began in 2008. Another case is that of vehicle and van manufacturer LDV, which asked for a £30 million bridging loan from the United Kingdom government to facilitate a management buyout of the company. As it can be noted from the branding strategies, during recession spending is supposed to be identifiable, apparent and straightforward to reduce or cut cost. During this period, every step is made to facilitate savings (Schmidt & Ludlow, 2002, p. 47). In some instances, it might pay to be aggressive during recession so as to utilize the opportunities to capture the market during times of economic stress. Research has shown that being aggressive rather than defensive during recession can pay off provided there is a product, position, or a programme that can be leveraged to gain market position (McLoughlin & Aaker, 2100, p. 91). As it was shown above, one key strategy used by automobile firms is to acquire more funds to support their brands during the recession. Firms that can benefit from being aggressive during recession include: Firms that can be positioned as a value brand; Firms that can enjoy an offering that has pointers of relevant superiority; Firms that have a new products which is transforming the industry or affecting the company’s competitive position; Firms that have a comprehensive marketing programme; and Firms that have a financial advantage over their rivals (McLoughlin & Aaker, 2100, p. 91). Consumer decision making An economic recession has the effect of reducing real income for consumers (Michman & Mazze, 2001, p. 216). A recession leads to reductions in discretionary income, and this situation lowers consumers’ confidence in their ability to maintain current standards of living. As a result of recessions, consumers have become more price sensitive in purchasing automobiles and automotive products (Michman & Mazze, 2001, p. 216). In 2010, the GDP of the United Kingdom grew – and this benefited the new car market because consumers reduced their savings as a result of the temptation by price discounting. However, this is not likely to happen in 2011 as consumer spending will fall in line with a drop in government spending. The Bank of England forecasts that in 2011 consumer price inflation will remain at 3 percent or more – implying that consumers will see yet another real income squeeze in 2011(L. Glassock & Associates, 2010). The corollary is that mainstream buyers may have less appetite or capacity to repeat what happened in 2010 this year for three reasons. First, household bank balances are falling, and consumers may aspire to return to saving again to create a significant financial cushion. Second, the trend in consumer confidence has declined consistently since the beginning of 2010. Thirdly, fears of unemployment are growing (L. Glassock & Associates, 2010). Customers’ desire to have a reliable financial cushion during times of recession can be attributed the significant drop in car sales in August 2010. According to Wearden (2010), the automobile industry suffered from the decision to terminate the scrappage scheme that had initially boosted demand during the recession. Accordingly, the Society of Motor Manufacturers and Traders reported that 55, 305 new cars were registered in August, which was 17.5 percent lower in comparison to the preceding year when consumers could claim a £2,000 price cut by scrapping an old automobile (Wearden, 2010). Recessionary affects of the global automobile industry Recession affected the automotive industry the world over. In the United States for instance, the American Big 3 automakers were is a dire state. They were burdened by huge debt loads, high labour costs, high fixed capital costs, and immense health care and pension commitments. In addition, consumers in the United States found it difficult to obtain loans for purchase, and fear for financial instability led them to increasing their rate of savings (Sturgeon and Van Beisebroeck, 2010, p. 6). Consequently, vehicle sales plunged beginning 2008, pushing the industry into the most severe predicament since the Great Depression (Sturgeon and Van Beisebroeck, 2010, p. 6). In view of this, Martin Zimmerman, the Chief Economist and Executive Director for Governmental Relations and Corporate Economics of Ford Motor Company predicted that the company would sell 13 million units a year - down from 15 million units a year. The reason for the decline is that consumers in the United States were willing to hold onto their automobiles a little longer as a result of the economic downturn (Zimmerman, 2008). Similar scenarios were also experienced in other markets such as India, Spain and Brazil (Rangarajan, Betelu & Gomide, 2010). Retailer’s perspective on the automobile industry during the recent recession Retailers were literally at a standstill during the recent recession. This can be highlighted by the significant declines in retail sales of automotives in various countries. In India, passenger vehicle sales dropped by 13.86 percent in December 2008. Spain also witnessed a 7.9 decline in retail sales in June 2008 (Rangarajan, Betelu & Gomide, 2010). To counter the effects of the meltdown, retailers used a number of strategies. For instance, in the United Kingdom a programme was introduced in early 2008 to help push up sales of warranties in an initiative called “critical success factors” (AutoScene, 2009). This was meant to lure customers into purchasing in spite of their stance to hold firmly on saving. A key strategy that retailers can use to go about challenging times is to shift their product message to fit the times. They do not need to change their entire strategy, but simply change the packaging and approach to match the times (Kapferer, 2008, p. 359). As an example, Toyota retailers in New Zealand made significant sales in 2009 in spite of the recession. One reason for the high sales was the focus on smaller, environmentally friendly cars. Despite recording lower sales in 2009 as compared to 2008, Toyota’s market share in New Zealand remained unchanged, and retailers remained confident during the turbulent times (Toyota , 2010). Consumer attitudes towards the automobile industry during the recent recession Overall, the global automotive industry was crippled by the recession because consumers faced economic pressures such as increasing mortgage payments, increased household expenses, reduced credit availability and higher food and gas prices which made them withdraw their purchasing decisions from the automotive industry (Bankruptcy Court Decisions, 2008). The theory of consumer behaviour assumes an indifference map for a consumer. However, consumers’ preferences can change over time with experience, age, education and so forth (Besanko, Braeutigam & Braeutigam, 2010, p. 87). Prices sometimes decrease during a recession, and this is the reason why the United Kingdom market for instance recorded different trends at different times. Thus, consumers took advantage of reduced new car prices at the beginning of the meltdown but later changed their purchasing attitudes as the prices of other commodities and services soared. According to Zimmerman (2008), the automobile market is very income dependent. Hence, if income declines in all income categories as highlighted above, consumers enter the market less often, and this the reason why may of them could hold onto their vehicles for an extra year or so. Generally, this attitude was the major cause for the decline in sales in most automobile markets around the world. References AutoScene, 2009, Dealer programme pushing up warranty sales during recession, Available from http://www.autosceneuk.co.uk/dealership/dealer-programme-pushing-up-warranty-sales-during-recession/ (18th January, 2011). Bankruptcy Court Decisions, 2008, “Recession or not, this time is different,” VOL. 49, Issue 13, March 4, 2008. Barnor, A. 2009, “Corporate Responsibility and the Recession: Learning from Responsible Businesses: A Doughty Centre for Corporate Responsibility Occasional Paper,” Cranfield University School of Management. Besanko, D., Braeutigam, R. & Braeutigam, R. R. 2010, Microeconomics (4th edition), John Wiley and Sons, New York. Docters, R.G., Reopel, M.R. & Sun, J. 2004, Winning the Profit Game: Smarter Pricing, Smarter Branding, McGraw-Hill Professional, London. Just-Auto 2008, “UK: Recession to have 'lasting impact' on aftersales”(4th December 2008), Available from http://www.just-auto.com/analysis/recession-to-have-lasting-impact-on-aftersales_id97075.aspx (18th January, 2011). Kapferer, J. 2008, The New Strategic Brand Management: Creating and Sustaining Brand Equity Long Term (4th edition), Kogan Page Publishers, London. Kumar, S. R. 2007, Marketing and Branding: The Indian Scenario, Pearson Education India, Delhi. L. Glassock & Associates, 2010, “The UK New Passenger Car Market Forecast: An assessment for 2011 and beyond,” 20 December 2010, Available from http://www.fleetnews.co.uk/files/new-car-market-forecast-2011.pdf (18th January, 2011). McLoughlin, D. & Aaker, D.A. 2010, Strategic Market Management: Global Perspectives, John Wiley and Sons, New York. Michman, R.D. & Mazze, E. M. 2001, Specialty Retailers: Marketing Triumphs and Blunders, Greenwood Publishing Group, London. Rangarajan, A.; Betelu, M. M.; Gomide, A. B. 2010, “Automotive Sector - A Country Wise Comparative Analysis: India-Spain-Brazil,” Proceedings of the 2010 International Conference on Industrial Engineering and Operations Management, Dhaka, Bangladesh, January 9 – 10, 2010. Schmidt, K. & Ludlow, C. 2002, Inclusive Branding: The Why and how of a Holistic Approach to Brands, Palgrave Macmillan, Hampshire. Strugatch, W. 2011, “Turning values into valuation: Can corporate social responsibility survive hard times and emerge intact?” Journal of Management Development, Vol.30, No. 1, pp. 44-48. Sturgeon, T. J. & Van Biesebroeck, J.J. 2010, “Effects of the Crisis on the Automotive Industry in Developing Countries: A Global Value Chain Perspective,” Policy research working paper 5330, the World Bank, June 2010. Toyota 2010, “Toyota Beats Recession By Looking Beyond It,” Available from http://www.toyota.co.nz/AboutUs/Press+Releases/2010/299BF08ACC0040A8834B0422B90C8090.htm?category=0 (19th January, 2011). Wearden, G. 2010, “Car industry fears September slump after poor August sales,” the Guardian, 6th September 2010, Available from http://www.guardian.co.uk/business/2010/sep/06/car-sales-fall-scrappage (18th January, 2011). Zimerman, M.B. 2008, “A view of recessions, from the automotive industry,” Available from http://www.bos.frb.org/economic/conf/conf42/con42_20.pdf (19th January, 2011). 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