What should marketing directors and their teams do in a recession?
It’s a question very much secondary to the life and death issues caused by the Coronavirus COVID-19 pandemic right now. However, the health of the economy – and the businesses and buyers that drive it – has also been high on the public agenda, notably the extraordinary measures now taken by the UK Government to protect commerce and employees.
At time of writing, the FT reports the UK economy “plunging into a deeper recession than the 2008-9 financial crisis”. Markit’s latest survey of UK purchasing managers shows the “worst monthly decline in economic activity on record” (since 1998).
So – back to the recession question – what are marketers to do?
According to a survey by Marketing Week and Econsultancy, 55% of UK brand marketers are delaying or reviewing campaigns and 60% doing similar with budget spend. In some cases, that makes sense: as Sarah Vizard in Marketing Week notes, “There is certainly little reason for brands to be investing in activity that sales activation given demand has either reduced dramatically or peaked, putting pressure on supply chains”. However, she also quotes marketing consultant, Peter Field, who cites “long term brand building” as a course of action during a recession because “the role of that investment is for the recovery, not for now”.
Looking back to the EU referendum vote in June 2016, marketing sector commentators were already highlighting concern among companies, with The Drum claiming marketers were pulling or pausing advertising in the wake of Brexit allegedly “sucking confidence out of brands” and the fear of recession. But buried somewhere at the bottom of The Drum’s report was a quote from marketing agency CEO, Alex van Gestel, who said:
“Our advice to clients is to play the long game. There are enough studies out there to show that those companies that invest into recessions come out healthier and earlier than those that cap budgets.”
If that’s true, then why are companies faced with a recession more likely to cut marketing budgets than not? Looking back at news reports from start of the 2008-9 financial crisis, the Bellwether report found that nearly half of companies cut their marketing budgets towards the end of 2008, the largest downward trend in the report’s nine-year existence.
This type of response by companies to the threat or onset of a recession is also challenged by professionals beyond the marketing department. For example, the Chartered Institute of Management Accountants in its study on The impact of economic recession of business strategy planning in UK companies, says:
“Perhaps one concern is that cutting back on some…items too much may inhibit the company’s developments in a post-recessionary climate. For example, much of the costs of travel are incurred on marketing and selling products. However, reducing emphasis on these functions too much may inhibit business recovery from recession.”
And companies operating B2B need to be even more mindful of cutting back on their marketing spend, according to a paper produced by B2B International, Effective Marketing Strategies for a Recession:
“B2B companies have far fewer customers than b2c companies and in general tend to have strong relationships with their customers, especially their largest customers. According to the Pareto principle, these largest customers comprise 20% of all customers served by a B2B company and yet account for 80% of turnover. In a recession, a B2B company is thus highly dependent on this small clutch of valuable customers and is significantly affected if any of these customers goes bust or cuts demand. For obvious reasons, B2B companies need to work hard on keeping their existing customers during a recession and, of course, on finding new ones.”
And the paper goes on to emphasise that doing nothing about marketing in the face of recession is not an option:
“The right marketing strategies therefore act as insurance against risk, making companies less vulnerable to the vicissitudes and volatility of the business and economic environment, as well as act as an aggressive marketing tool that ensures survival and unleashes potential opportunities.”
London’s Cass Business School has investigated in depth the arguments for and against marketing spend in a recession in its study Building the case for preserving or increasing marketing budgets in a recession.
Its view is that the “main reasons for the effectiveness of spend in downturns”are “Increased share of voice, brand value reinforcement, inspiring consumer confidence, less brand loyalty, justifying premium prices, lack of competitive response, less self‐fulfilling prophecy and changes in type of marketing spend.”
Cass’s paper quotes a study of marketing spend between 1971 and 2003 among more than 3,000 companies which found that compared with normal (non-recessionary) periods, “greater earnings affect results during and after recessions when expenditures are increased or maintained rather than decreased”.
And so, according to Cass Business School, the benefits of increasingmarketing spend in a recession are:
· Obtaining a greater share of voice against competitors that reduce marketing spend in a recession
· Increasing the salience of the product and perceived quality
· Justifying premium prices for consumers
· Communicating confidence to customers and encouraging a switch from rivals
· Attracting new, trial customers
· Harnessing calls to action rather than long-term brand building
· Grabbing market share while competitors fail to defend theirs vigorously
So, if you’ve been persuaded by the expert commentators quoted in this blog post – that taking an axe to marketing spend in the face of recession is a mistake – then hopefully you’ll have a few arguments up your sleeve when talking to your bosses about maintaining your budgets.
Jon Clements, Metamorphic PR.
The Guardian – IMF chief highlights recession risk of no-deal Brexit
The Telegraph – Record fall for marketing spend as recession hits
B2B International – Effective Marketing Strategies for a Recession
Cass Business School, London – Building the case for preserving or increasing marketing budgets in a recession
Chartered Institute of Management Accountants – The impact of economic recession of business strategy planning in UK companies