After a record 10-years plus of economic growth, the U.S. and other parts of the developed world are starting to worry about recession. If history is any guide, many retailers and CPGs will take a close look at their marketing spend as a potential source of savings should growth falter. In doing so, they may be missing an opportunity to invest for the long term and to build market share.
Companies have typically reacted in two ways to a slowdown: they cut costs across the board, including marketing, and they seek to optimize the remaining marketing spend, focusing on activation and ignoring brand. This is short sighted. Brand is a key determinant in the path to purchase, while brand loyalty is expensive and time-consuming to build, but easy to squander. As an article in the Harvard Business Review (HBR – How to Market in a Downturn) put it, “Building and maintaining strong brands—ones that customers recognize and trust—remains one of the best ways to reduce business risk.”
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There are other advantages to continuing to maintain marketing spend during a slowdown. Competitors may cut back, allowing others to capture a larger share of voice. As demand for advertising space declines, media pricing becomes more favorable to the buyer, meaning you get more impact for the same amount of money, or the same amount of impact for less money. In short, there’s a chance to capture market share.
We know of one consumer retailer that decided to cut its media budget by about 15% and to reallocate significant parts of the remaining budget from brand building to activation. The idea was to invest more in price promotion, drive short-term sales, and cut costs. (The decision was not based on media or sales modeling optimizations.) The result was a drop in sales of almost 10% the following year and even more damage to the brand. Later analysis showed that media investment had contributed about 20% of sales and that investments in traditional brand building channels had been an important part of the program’s overall effectiveness.
In that same Harvard Business Review article, the author wrote that, “marketers may forget that rising sales aren’t caused by clever advertising and appealing products alone. Purchases depend on consumers’ having disposable income, feeling confident about their future, trusting in business and the economy, and embracing lifestyles and values that encourage consumption.” All these are challenged during a slowdown – making brand a more important factor in whether a customer stays with your product or finds an alternative.
“CMOs across the board are seeing shrinking budgets and increasing expectations. And with that, demand for more transparency around how their marketing investments are performing and effecting their long-term brand is more important than ever,” says Robert Beatus, Head of Research Design at Nepa. “Understanding today’s complex shoppers requires sophisticated analytical techniques like Marketing Mix Modeling (MMM), Attribution Modelling and other emerging marketing analytics.”
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One of the most promising analytical methods to recently develop is the space of Path-to-Purchase (P2P) analytics. It helps marketers measure changes to shopper psychology, as priorities are reassessed and new behavior patterns emerge, based on the touchpoints and combinations of touchpoints they experience on the way to buying a product or service. In a recession, shoppers are more open to switching brands or retailers, and P2P can help identify the reasons for that switch. As it does so, it simultaneously improves the ability to invest in the touchpoints that increase conversion, always an important function, but even more important during a slowdown.
On the corporate balance sheet, marketing is often treated as an expense rather than as an investment. In practice, it is an investment in the future growth of the company. Investing in marketing during a recession may allow a retailer or CPG company to expand market share, attract new consumers, and position its products for faster growth when the recession ends.