Don’t furlough the ad budget
With brands putting a freeze on ad spend for six months and only seven per cent of brands seizing the opportunity to invest during COVID, consumers might notice a few changes in advertising in the coming months including more online promotions like the recent inspiring Guinness Ad.
COVID-induced cancelling of marketing budgets is the most unmindful cut of all.
If you notice some companies lashing out on advertising during these difficult days – that is the point – you noticed. Businesses that maintain a marketing budget during the Covid-19 crisis are investing in a stronger future.
Most studies show that advertising and promotion expenditures in recessions produce ROI, contributing most to earnings in the year of expenditure, but also up to three years following for consumer goods, two years for industrial products, and much less for services. Advertisers that boost spending levels in a recession can gain 1.6 percentage points in market share in the first two years of a recovery.
But the message has not landed, with most organisations putting a six month freeze on ad spending and only 7% of brands seizing the opportunity to invest during COVID-19.
Rather than muting their corporate profile, firms should engage in counter cyclical promotion as this boosts consumer confidence, helps overcome inertia and sends reassuring signals to concerned consumers, it reinforces the reasons for brand choices in uncertain economic times and helps justify premium prices, it attracts the increased numbers of ‘brand switchers’ who are less loyal and more opportunistic in a recession.
There is also evidence about the type of firms that manage to increase marketing spend and do proactive marketing during a recession. Such companies have a strategic emphasis on marketing, an entrepreneurial culture, slack resources above the minimum to survive and strategic flexibility to adapt to changing circumstances.
So, keep calm and carry on advertising…
Marketers need to defend against threatened or actual cuts in marketing budgets and better explain the case for marketing expenditure the austere times that COVID has brought upon the economy.
Most studies confirm that advertising and promotion expenditures in recessions produce ROI, contributing most to earnings in the year of expenditure, but also up to three years following for consumer goods, two years for industrial products, and much less for services. Advertisers that boost spending levels in a recession can gain 1.6 percentage points in market share in the first two years of a recovery.
There are numerous reasons for this. Firms can achieve a greater share of voice as most companies cut back marketing spend during a recession; advertising increases both the salience of the product to consumers and the perceived brand quality, counter-cyclical promotion boosts consumer confidence, helps overcome inertia and sends reassuring signals to concerned consumers, it reinforces the reasons for brand choices in uncertain economic times and to help justify premium prices, it attracts the increased numbers of ‘brand switchers’ who are less loyal and more opportunistic in a recession, more promotional spend is put into call-to-action and point-of-sale oriented activities, media prices tend to fall in times of crisis even as media audiences swell, and finally market share is easier to get as competitors are too hard pressed to defend their position vigorously.
There is also evidence about the type of firms that manage to increase marketing spend and do proactive marketing during a recession. Such companies have; a strategic emphasis on marketing, an entrepreneurial culture, slack resources above the minimum to survive and strategic flexibility to adapt to changing circumstances.
However, persuading a CFO to release more money is easier if; the brand enjoys money saving points of superiority, has a balance sheet advantage over rivals and thus competition is unable to respond to aggressive marketing increases, can demonstrate the value of quality and has a large market share.
CFOs will often argue that; ‘Consumers have less disposable income and will not be spending anyway’. To rebut this, research shows that for a 1% change in GDP there is a 1.4% change in advertising expenditure, so often the marketing spend cut disproportionally. ‘We need to appease shareholders through continued dividends disbursements’. Again, the evidence shows that investor confidence declines for firms that discontinue corporate advertising campaigns and that annual growth in shareholder value for companies that do not tie their ad spends to the business cycle is 1.3% higher. ‘Resources could be better allocated to product development or R&D’ . The rebuttal to this is that increases in R&D has been shown to lower profits for B2B and B2C firms, but had no effect on service firms, while increased advertising improved profits for B2B and B2C, but not for service firms. ‘If everyone is cutting back, we won’t be hurt’. This is only if the assumption is true and even so, firms could capitalise on the opportunity to seize market share as competitors cut back. Two arguments are difficult to refute namely; ‘Media costs reduce in a recession’ and ‘We just don’t have the money’.
If you have to cut your budget in the COVID times, take a scalpel rather than a meat cleaver to the marketing budget by; shifting from 30 to 15 second ads and using cheaper radio rather than TV especially for reminder advertising. Advertise jointly with a brand in a different product category but same target segment. Adapt or extend existing campaigns rather than commission new ones and try to consolidate advertising at a single agency to maximise media buying discounts. Try to ensure your share of voice is greater than (or at least equal to) your share of category. Focus more on social media, rather than paid advertising and tune your creative and messaging to the moment by expressing empathy and enduring values which reinforce brand building rather than short-term sales. Finally, most consumers become more price sensitive during a recession, but this can vary by a factor of 13 by market and market segment so check before you start engaging in more and deeper price promotions.
Good luck with your marketing decisions in these difficult times.
This is part of a series of insights related to Coronavirus (COVID-19) and its impact on business.
Image: Jo San Diego
Vince Mitchell is Professor of Marketing at The University of Sydney Business School. He did his PhD in Professional Services Marketing at Manchester University where he became UMIST’s youngest Professor.
