• by Sarah Mahoney , October 16, 2008

After years of launching premium, higher-end and customized products, marketers are getting an ear-splitting wakeup call: In this recession, less is more. Applebee's fans are eating at McDonald's, Target shoppers are switching to Walmart, and even individual antimicrobial wipes are losing sales to the humble washcloth.

What the winners have in common is that they are "inferior brands," explains consultant Leslie Moeller, head of Booz & Co.'s consumer, media, and retail industries, "an economic term for products and services that do better when the economy gets worse."

And in some ways, it's easy to predict which brands will hold their own. After all, consumers are shopping less, driving less, and delaying big-ticket purchases. And all demographic segments feel pinched, whether it's from a shrinking portfolio and falling home values to job loss and juggling gas and groceries on credit cards. A new Booz survey finds that 47% of those polled report their savings have dwindled in the last six months, and 41% say they are deeper in debt.

And they're radically rethinking how they eat: Some 43% of respondents say they are eating out less compared to six months ago, 39% are choosing less expensive restaurants, and 35% are packing their own lunch for work.

To find out how marketers can best benefit from this massive trading-down-a-thon, we asked Moeller a few questions about the art of inferior branding:

Q: Is there a hierarchy of how consumers trade down?

A: Yes. People are switching their consumption habits to fundamentally different occasions to have better value. Instead of eating out, they'll eat in--but they will still eat a branded product. Kraft's DiGiorno frozen foods brand is succeeding with the message that it costs half the price of a pizza delivered from a restaurant. People may not be drinking as much Grey Goose vodka in bars, but they'll drink it at home.

Q: So there's a surge in private-label goods, too?

A: Well, private label is growing, but I wouldn't call it a surge. I wouldn't say it's growing as fast as Kraft's Macaroni & Cheese. Brands are still important.

Let's say a family decides to cancel a trip to Acapulco, and that they'll spend more time around the house gardening. They may buy expensive branded gardening equipment to do that. Scotts Miracle-Gro Company is an example--sales of its mid-tier fertilizers and potting soils had recently declined, while products at the top and bottom price points had shown growth. That's because some customers were taking fewer vacations (and spending more time at home) or giving up contracted lawn services and doing the work themselves. Other consumers--the existing lawn-care customer base--were still loyal to the Miracle-Gro brand, but migrated to more affordable Scotts products.

But they didn't turn to private-label goods.

Q: How can companies cultivate inferior products in their portfolios?

A: If you have a brand that can stretch both out-of-home and in-home, that's a real opportunity. A spirits company that sells in both bars and supermarkets is a good example. I'm guessing that Starbucks in-store sales are up, for example. That way, you're getting people used to--and cemented to--your brand.

Q: How can marketers resist the pressure to simply lower prices on premium goods?

A: They need to understand that there are fundamental changes going on in how people consume goods. For instance, there were plenty of casual dining chains lowering their prices to help slower sales, but it didn't make a bit of difference. A premium restaurant might lower the price of an entrée from $12 to $9, but that won't draw in customers who have switched to eating at home, and are paying $5 to do so.

Q: What's next?

A: The renewal of cocooning is a big trend, and people tell us they will spend even more time at home if the economy gets worse, and delay purchases of consumer electronics, as well as cars and houses. Maybe they'll rent more Netflix rather than going to the movies. They'll continue to shop at lower-cost retailers and reduce their driving mileage. And when things pick up, people will be less likely to shift their new shopping patterns. But they'll likely start going out of the home as soon as they can.