The Value of Marketing in a Recession

The past two years have been challenging for many across the globe. Starting with the covid-19 pandemic of 2020, people have been left in economically challenging circumstances. Worsened by events such as the Beirut port explosion, the start of the war in Ukraine, flooding in Pakistan and a cost of living crisis exacerbated by soaring inflation rates, it’s safe to say that times are tough.

As the world comes to terms with the recessions that are taking place in several countries, companies take a look internally into cost-saving techniques and ways to increase revenue during uncertain times. With many aspects to consider, there are two sides to the debate – one saying ‘cut the marketing spend first’, and the other that says ‘brands that advertise during a recession emerge stronger than the competition that cuts.’ But which side of the coin should brands and agencies take?

To hear more about how to overcome economic challenges and find creative solutions, experts from McCann Central, Wunderman Thompson Consulting, M&C Saatchi Sport & Entertainment, Ogilvy UK and Siegel+Gale share their thoughts with LBB’s Nisna Mahtani.

Ringo Moss

Chief strategy officer at McCann Central

In tough times, we know that brands that advertise during a recession emerge stronger than the competitor that cuts, but marketers need not only to keep advertising, they need to double down on a common-sense approach, maximising effectiveness by adopting an evidence-led, investment mindset; scrutinising their budgets and marketing activity to make sure that every penny will produce a provable return on investment.

As we deal with the tail-end effects of covid-19, global supply chain issues and the first European conflict in three decades; it's an oversimplification for us to think about this purely as ‘recession’.  The real bogeyman for marketing in the next few years is the inflation component. We've enjoyed such a long period of all-time lows; we've forgotten how to deal with inflation properly.

My top three: 

Avoid the discounting trap

Increasing costs for consumers encourage us into the trap of discounting, but econometric evidence repeatedly shows us that price promotion just subsidises volume; eroding margins over time and increasing price elasticity, which is the opposite of what you need to do during periods of rising prices and short supply.

Firstly, a better approach is to shift marketing investment away from promotions and towards advertising, all the available evidence suggests that this increases sales volume and reduces price sensitivity, helping to sustain margins that will be needed more than ever.

Invest in media

Secondly, the investment mindset applies to media too as there are often discounts to be had for those willing to invest during a downturn. Brands with a higher share of voice tend to grow their market share, and this is where a game of media investment ‘chicken’ ensues. During times of economic uncertainty brands can gain the advantage by simply maintaining their media spend, while competitors cut back. More bullish brands increase their media spending to take advantage of the law of double jeopardy, pushing smaller competitors out of the game completely.

Get your creative right

Last but not least, creativity is more important than ever. Getting the creative right can stretch the returns on media investment by up to 10 times, so making sure that advertising is as entertaining and stand out as possible is the key. The reference point for advertising in a downturn should be ‘will people see, remember and then talk about this ad?’… Otherwise, it’s just pretty wallpaper.

The brands that invest their budgets in common sense marketing science and apply it to stand-out creativity will emerge from the downturn in a far stronger position. Those who continue to spend their marketing budgets will see them being cut.

Chris Gant

Global head of business transformation at Wunderman Thompson Consulting

The perceived wisdom is that marketing can be significantly more important during a recession than at any other time. And that those who cut marketing spend are likely to harm their prospects and possibly take longer to recover when the recession is finally over. With that in mind, a recession could offer brands a rare opportunity to improve their competitive edge through increased marketing – if the marketing activities are well thought through and carefully focused.

So, what’s the secret to doing this successfully?

Does marketing exist solely to drive short-term sales activity in a tactical sense or provide a more strategic support capability? Is marketing represented at board level? Does marketing scan the industry for new opportunities, anticipate changes in customer needs and bring innovation to the go-to-market approach? A recession is a time of change, so brands need marketing to be agile and responsive. 

Customer service excellence is hugely important in retaining customers in a recession where getting ‘more for less’ is often the expectation. Here innovation becomes paramount. Shift marketing spending to those activities which improve customer service leveraging creativity and harnessing digital and new technologies in the process.

And what to do with advertising spend – often the first victim of cost cutting in a recession? Advertising spend is an easy target – the short-term payback through cost savings is instant. Yet cutting back on advertising risks undermining the brand, resulting in erosion of market share and customer loyalty. Customers find reassurance in seeing brands continue to advertise in a recession. And because the market is less congested, brands can often achieve a greater share of awareness than in the good times.

When it comes to marketing in a recession, remember these three buzzwords: agility, innovation, and awareness.

Steve Martin 

Global CEO at M&C Saatchi Sport & Entertainment

As economic adversity looms, brands face the important decision of whether or not to protect marketing investments and prioritise long-term brand-building in the midst of a recession. This isn’t a new dilemma for brands; in fact, it’s familiar territory for brands which weathered the covid-19 pandemic. Covid taught us that passions are resilient to even the most challenging of circumstances. We learnt that the brands which continue to invest in marketing throughout times of great difficulty are ultimately the ones that win.

The reason for this is that passions are deep-rooted in the fabric of our everyday lives, they define us. In times of social and financial challenge, when the routines of day-to-day life are tough, we actually see consumers divert to their passions more. Brands should go into the market with value propositions, but the opportunity remains to capitalise on the current circumstances because people are, and always will be, most invested in the things they love.

We know that the rules of brand strategy don’t change in a recession. While sales strategies can afford to be versatile and flexible to meet consumers’ changing needs and reduce spending power, brand strategy should be a constant. Brand strategy isn’t built on everything being amazing all the time, it’s built on clarity, resilience, and the ability to endure the highs and lows of the times. Brands should be able to take recessionary hits without the brand itself being diluted. While those brands that do turn off brand strategy, risk turning off brand sales too.

Matt Waksman

Head of strategy advertising at Ogilvy UK

We need to move away from the idea that there is one right or wrong way to market in tough times.  Every ‘tough time’ is different. Words like ‘recession’ don’t help us understand what is actually happening and what to do.

The economy is responding to a collection of unexpected factors and reeling from a unique period of restricted growth and supply chain disruption. Chuck Brexit in too if you like.

The other thing that’s different about today’s ‘tough times’ are the tools at our disposal. Dr Grace Kite (founder and economist at magic numbers) makes a compelling case that the supposed crisis in effectiveness is behind us, in part, down to our growing ability to use digital media effectively. So why follow blanket rules when you don’t need to market in a blanket way?

We need to spend more time analysing the particularities of categories, not follow recession marketing blueprints.

Take the auto category, for example. New cars are expensive items that aren’t behaving how we might expect. From August last year, there were four consecutive months of growth, and record sales of electric vehicles, just as inflation was making headlines and the cost of living was biting. This is down to particular and varied factors at play, like a demand bubble from a lack of semiconductor chips to a consumer group who enjoyed a once in a lifetime household saving-to-spending ratio during the pandemic. The factors influencing our economic climate are so diverse and unique that whatever category you are in, a bespoke analysis will be much more important than recession rules of thumb.

Chucking around ‘spend your way through’ may be punchy, but it’s the lowest common denominator answer to a complex environment that we have the tools to understand and navigate through. Most of all, it’s only going to create ‘tough times’ for your client when they have to present their plans to the boardroom.

Patrick Kampff

Strategy director at Siegel+Gale

While cutting marketing spend is the natural, ‘survival-mode’ reaction from most marketers dealing with a recession, empirical evidence from the Ehrenberg-Bass Marketing Science Institute shows the opposite: pausing advertising or quitting it altogether not only leads to a decline in sales, but also one that is hard to recover from.

On average, brands saw their sales fall 16% after one year without advertising compared to the last advertised year, and by 25% after two years. While the slope of decline varies from the size of brand and industry, one thing is certain: stopping advertising means brands reduce their power to build mental availability in consumers’ minds, making them take a back seat during the all-too-important moment of purchase. And this is even worse for smaller brands, which rely less on in-store displays or activations to insulate this effect.

Strong brands know better. In a recession, just like in any crisis we’ve seen in the past, it’s time to remind consumers of the benefits that they’ve experienced with their brands, the value that was provided and the needs that were met. Going off the air only diminishes the brand’s ability to stay relevant in people’s lives.

Interestingly enough, in a moment when most brands go silent, the brands that continue communicating suddenly have a higher bang-for-their-buck for their ad budget; it provides a significantly better share of voice in a market that has fewer brands competing for attention. And the excess share of voice has been shown to deliver sales and market share growth. It’s also worth mentioning that when most brands cut back on ad spend, the cost of media usually drops, meaning the brands that keep their ad budget only see it stretch further and further – an argument that convinces most CFOs.

During the 2020 pandemic, we saw Coca-Cola pause its global advertising efforts by 35%, only to witness later their disappointing drop in revenues of 11%. In this cola wars example, PepsiCo came out on top, maintaining ad spend and reporting revenue growth of 5% in the same period.

So when most people zig, bold brand managers zag. Time and again, history shows that marketers who push forward, double down in the face of a downturn and focus their efforts are most often rewarded with higher brand salience, sales and loyalty.

[Picture from Unsplash creator Eleni Afiontzi]