Should companies cut their marketing budget in a recession?
Marketing teacher and consultant, Professor Mark Ritson says the “data is clear”:
- Decreasing marketing budgets will not hurt you – yet.
- Maintaining budgets will grow your share as the economy comes out of recession
- And, increasing budgets in a recession will set up a brand for the long term
If you believe Ritson, these are pertinent points as the UK economy is poised to go into recession, care of the response to COVID 19.
As the Professor made clear in today’s Marketing Week webinar on the topic – and as I also referenced in a recent blog post on the Business Marketing Club website – the humanitarian cost of the current pandemic is everyone’s first consideration, without question.
That said, the work of marketers – after companies have taken care of their employees – is to use the available money to take care of the brand and gain competitive advantage.
And though asking finance directors to retain marketing budgets in a downturn is a difficult conversation, Ritson reminds us that “marketing is an investment in the business not a cost” and cites the rigorous studies to show how it works.
Marketing strategy vs tactics during Coronavirus COVID 19
The immediate, tactical responses by companies and marketers to the current situation gets a pummelling by Ritson for some and plaudits for others. More of that later.
What is perhaps better connected to the concept of fighting to keep marketing budgets (and even increasing them) now is what he calls the thing “that happens from the chin up”: strategy.
For marketers, he says, this means answering key questions:
- Who are we targeting?
- What brands are we supporting?
- What is the brand positioning?
- What are the brand codes?
- What are our strategic objectives?
This highly unusual moment in the world’s workings are, Ritson says, “A great chance to plan for what you’re going to do in 2021” and how to “play the game when the world starts turning again”.
Marketing spend to emerge from recession stronger
The good news for marketers is having the weaponry to deploy in a recession: brand equity and advertising spend.
Using trends from Kantar’s BrandZ brand valuation ranking taken during the financial crisis of 2008-9, Ritson showed how brand equity proves valuable when existing a recession; aiding recovery and accelerating growth.
In addition, companies that maintain advertising spend are rewarded with long-term impacts versus those that cut back during a recession.
This is proven – according to Ritson – by the Excess Share of Voice (ESOV) analysis, which is a brand’s share of voice minus its share of market. In essence, either spending more or less on share of voice will eventually correlate with your share of market.
The example he outlines is: if your company maintains its $5m ad spend in a recession and your competitors reduce their spend by 50%, your spend is now worth double and you will grow market share for the same spend. And if you increase spend to $6m during recession the effect on ESOV is even more significant.
The experience of companies that either maintained, increased or decreased marketing spend in previous recessions – from the Great Depression in the 1920s, through the economic ructions of the mid-70s to the recession of 1990-1 – bear out the theory.
Marketing in the here and now – tactics
Companies’ tactical responses to the Coronavirus crisis, says Ritson, fall into three groups:
Flex – where an industry is less affected and even seeing sales growth, such as the supermarkets.
Fix – still going but shifting to different ways of doing business. For example, garden centres offering deliveries of plants.
Freeze – an inability to operate at all (such as airlines) so trying to look after employees and survive.
Current examples of marketing best practice Ritson points to include:
Adapting its product by allowing independent restaurants to join without fees, paying them daily rather than weekly, doing cross-promotional work to consumers and altering the app to enable doorstep delivery without human contact.
The Scandinavian supermarket is tackling the panic buying of hand sanitiser purchases by making the cost of buying one unit £5 but a second purchase £126. In effect, using price as a way of getting around strategic problems.
What pleases Ritson about these examples is how they exemplify some of the famous “4 Ps” of marketing. What displeases him is the apparent, tactical focus right now on “promotion” – in other words, using this one “lever and pulling it like mad”.
For example, he points to brands’ COVID 19-driven communications, such as pulling apart their logos to reinforce the idea of social distancing as “misplaced” at a time of such seriousness or the current flood of customer communications from CEOs: “Brands have forgotten the key lesson that they are a small part of customers’ lives,” he adds.
Rather than pushing out tactical comms, says Ritson, marketers should be completely single-minded: “I’ve had enough of people feeling pain with large and beautiful gestures – the best thing marketers can do is make money for companies, value for customers and help companies to pay their employees.”
Oh, and whatever you do with your marketing spend when we eventually emerge from recession, try to avoid coming up with content soundtracked with songs like I can see clearly now (and welcoming a “bright sunshiny day”). If there’s anything that will fire up Ritson’s derision, that’ll do it.
The new Marketing Week webinar series, The Lowdown, featuring Mark Ritson’s views on marketing in the time of Coronavirus is repeated on Thursday 9 April at 10am (UK).