JM Smucker Co, which recently acquired Folgers from Proctor & Gamble, is launching an immediate price reduction plan in their Folgers Ground prices as well as their Dunkin’ Donuts retail roasted coffees which it manufactures and distributes.

The aggressive price reduction strategy is in response to the pressure of the worsening economy and consumers’ growing propensity to forgo pricey café brews in favor of home brewing and less-expensive cups of coffee. In order to stay competitive, passing savings onto customers is their way of gaining customer loyalty, especially in a sagging economy.

With ever-increasing competition from McDonald’s and Dunkin’ Donuts, do these kinds of price reduction moves necessarily mean bad news for premium brands like Starbucks?

What really happens to consumer loyalty in a recession? When we are forced to cut back on our spending, do we automatically downscale? Instead of Starbucks, do we opt to go with the more cost-effective means of having coffee by brewing Folgers at home?

According to Eric Anderson, VP of Emerging Media at Whitehorse, consumers will, indeed cut back on their spending, but not necessarily in the way most of us might think. Instead of making decisions between brands, consumers will make decisions between the types of luxuries that they enjoy. So, instead of Starbucks versus Folgers, for example, the decision is more likely to reside between Starbucks and say, Netflix.

If this is true, then this can make it more difficult for traditional marketers to keep customers since their brands may be competing against a completely unrelated product or service.
Starbucks CEO Howard Schultz told analysts last week that it’s critical that Starbucks not undermine its premium brand position in the face of economic pressures. Starbucks is not “a fast-food operator” or “discount business,” he stressed.

True. Starbucks is, in fact, built around a community and the brand, itself, is a part of people’s lives.
Watch this.

It’s no wonder that in the face of tough economic times, their new Gold Card program which carries a $25-per-year fee and offers benefits –notably, 10% off on most purchases–drew 350,000 sign-ups in the first four weeks after it began to be promoted in stores in November, Starbucks reported.

Clearly, some folks are not willing to forego their beloved coffee of choice for its lesser-priced counterparts.

So, what can we learn from this? What can businesses do to maintain customer loyalty in times like this? Anderson suggests we need to have a deeper level of engagement with our consumers about where our brand fits in their lives. Advertising alone will not achieve this, but social media might. Why? Because the impact of social media is a matter of trust. It’s about connecting with people in their daily lives and engaging them.

With the web consisting of a giant network of humans interacting and a mass of conversations, Anderson believes it is communities that will drive brands and inspire brand loyalty. And because of this, businesses can’t afford to ignore the importance of the social media space.

Bottom line: Increasing loyalty, which can be leveraged through communities (esp. social media), is a key way to recession-proof your brand.

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