Marketing in a downturn and igniting your vision and strategic thinking
How do companies chart a prudent course through uncertain economic times, while maintaining their marketing budgets and initiatives? Paper + Spark director, Paul Everson, explains.
There is no shortage of uncertainty and potential economic strife, such as COVID-19, the war in Ukraine, supply chain issues and inflation. How do companies chart a prudent course through uncertain economic times, while maintaining their marketing budgets and initiatives?
Businesses may be tempted to cut costs across the board during such times, but is that the best approach to weathering downturns? That all depends…
Crystal ball gazing – a fool’s errand?
Economies tend to work in cycles, so it can be useful to take a long-term view even while staying abreast of financial and other news that can impact economies.
Since economic outcomes are rarely predicted with any precision and certainty, it may be best to acknowledge a range of possible outcomes and therefore hedge bets when it comes to investment during uncertain times.
For example, few predicted the financial crisis of 2007-2008. Ask 10 economists for (even short term) forecasts and you may get 10 different answers, sometimes wildly different. The global economy is a hugely complicated dynamic system that reacts to factors including government policy, consumer and business sentiment, and external political factors. The same is true at a more local level, for example the Australian economy.
The future is always uncertain, and no two downturns are the same. Whilst you shouldn’t ignore the prevailing consensus advice of economists, nor should you typically put all your eggs in the same basket. This of course depends on your particular circumstances and risk appetite, but in general, just like financial advisors recommend diversification to reduce risk when investing, so too should your business strategy and investments cater to a range of possible realities.
Factors you should consider – risk versus reward
So, what should you do when the economy is, or looks like it will be soon, in a downturn? Here’s a few factors to consider:
- Your current financial position (e.g., cash reserves)
- Your beliefs about what the economy, competitors and market will do in the short and long term
- Your organisation’s appetite for risk
- External factors such as government support and policies.
What about marketing investment during a downturn?
Not every industry, business or person is affected at the same time or equally in a downturn. For example, spending by individuals on non-discretionary items like food may mean supermarket revenue is relatively resilient even as restaurants struggle as people can’t afford to dine out as often. Expenditure on essentials like healthcare may be amongst the last things individuals cut back on, particularly for medicines or services either fully or partially funded by the government (for example bulk billed GP session and PBS medications). Some wealthy people may not even cut back on their discretionary spending.
It’s critical that you understand the developing economic situation of the market/s you operate in and your exposure to them, and that you formulate a strategy to weather, or even prosper.
Downturns can be an opportunity to increase market share and can cause industry shakeups like competitor insolvencies. Increase your chances of weathering the economic storm by doing your due diligence. If competing companies reduce their marketing, it can amplify the effectiveness of your spend as there are fewer messages vying for consumer attention and dollars.
According to Mark-Hans Richer, chief marketing officer of Fortune Brands innovations:
“Marketers have the toughest job of sacrificing the future just for the present. You can’t take a year off of marketing – it’ll take you two years to get back.”
There are risks in reducing marketing expenditure during a downturn. Consider the following:
- Your competitor/s may not reduce marketing investment and therefore may gain marketing share, even in a shrinking market.
- Downturns can accelerate market changes.
What you can do
- Be prepared to be flexible and agile in response to market demands – how has the market changed and how might your products or services need to change in order to flourish in the new reality? For example, if consumers have less money to spend, could you release cheaper products that still fit the needs of budget conscious shoppers?
- How deep and long do economists anticipate the downturn will be? What is the best and worst-case economic scenario? What is the consensus opinion of a range of respected economists? What are your short, medium, and long-term marketing strategies in light of this? Factor in contingencies, and be prepared to act quickly on them, to deal with the unpredictable business climate.
- As always, understand, and be able to articulate to your existing and potential customer base and how you add value – how does your product or service differ from that of the competition? Every sale is even more critical in times of downturns.
- Denise Karkos, CMO SiriusX, suggests “Use the time to get smart about your audience. Leverage your owned channels and think about investing in segmentation projects. Use any research you’ve previously done to build a research agenda and conduct test and learns.”
Examples of companies thriving through increased marketing during tough times
“Stopping advertising to save money is like stopping your watch to save time.” Henry Ford
This famous saying is most certainly applicable to the following examples of brands who chose to cut back during tough times, and their rivals who were able to pounce on the opportunity to their advantage:
In the late 1920’s, the cereal landscape was dominated by two main players – Post who was the market leader and Kellogg’s taking runner up position. With the arrival of the Great Depression, instead of cutting costs and ad spend, Kellogg’s doubled their ad spend (and invested in R&D) which saw their profits grow by 30%. Unlike Post who cut costs as well as ad spend. Kellogg’s well and truly won the cereal wars and owned the category for several decades to follow.
Another recession, this time in the 1970’s and triggered by an energy crisis, had car manufacturers dropping ad spend across the board. Toyota bucked the trend and instead increased their ad spend. Inside of three short years, by 1976 Toyota surpassed Volkswagen and became the top imported car in the US. A market it continues to dominate.
Recession in the early 1990s saw Pizza Hut and Taco Bell take the advantage when McDonalds made the decision to reduce their advertising spend. By maintaining their spend, Pizza Hut sales increased 61% and Taco Bell increased 40%. On the other hand, McDonalds fell 28%.
Paul Everson is a director at Paper + Spark.
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