Brand Building Increases in Importance During Recession

A tower crane building the word "brand"

By Chris Kelly, CEO, Upwave

Never let a crisis go to waste.  Companies that make the right decisions can thrive in a recession.

The second half of 2022 was supposed to be a global coming-out party as vaccine effectiveness held strong against new COVID strains. Consumers want to travel, dine out, and participate in other activities they couldn’t do during the pandemic.

But life has other plans. A surging inflationary market, a depressed stock market and uncertainty around crypto and other new financial instruments are driving concerns about a potential recession.  The consumer price index rose to 8.6% in May, and factors such as the war in Ukraine and supply chain issues won’t help matters.

Unfortunately, having had a recent lasting recession (2008-2009), we understand how they impact consumer habits, what brands can do in response, and how their decisions impact their overall brand reputation.

TV networks have begun to report advertising slowdowns, as companies worry about consumer spending. But, as we discuss below, the overall ad market is relatively healthy and many brands will choose to take the economic uncertainty as an opportunity to strengthen their positions, especially if their competitors pull back.

What We Learned From the Last Recession

Consumers don’t necessarily cut spending during a recession; they just change what they buy– either to stretch the value of their dollar, or spend on what is most important to them. A study of the 2008-2009 recession found consumers increased food purchases but avoided mid-tier brands and looked for more bargains. In 2022, flight and luxury goods purchases are up; retail and new car sales have decreased.

We know recessions not only affect consumers differently but also industries. A McKinsey study found only a fraction of beer drinkers who switched to lower-priced options during the last recession considered sticking with those brands post-recession. The figure was much higher (more than double) for cold medicine. So brands need to have a deep understanding of how the recession is affecting their specific category.

During the 2008 recession, many brands responded to uncertainty by cutting brand-building spend and shifted investment to direct response and coupons. But that approach is a huge mistake, as this HBR study points out. Consumers have long memories. Even if sales of discounted brands temporarily increase, consumers are likely to ascribe a lower quality moving forward and purchase brands that did not discount when the economy recovers and their purchasing power increases.

A Shift in Strategy Is Emerging This Time Around

Many brands are thankfully changing their playbooks for the 2022 economic downturn, realizing their goal should be to persuade new customers, versus giving a discount for something they are already purchasing.

Our conversations with many of our advertiser partners and their agencies find they are not currently and actively planning to cut ad spend, which recent insights and intelligence reports affirm. GroupM expects global advertising to grow by 8.4% this year. Zenith concurs, citing 8% with an expected increase of 12% in North America.

After all, recessions are temporary, but the decisions brands make during them last much longer.

But with an averse market, executives will be counting every penny and focused on holding marketers accountable for advertising effectiveness and efficiency. So what should advertisers do? Increase spending, but smartly – by following these three recommendations.

1. Lean into Trust With Creative

Trust in institutions tends to decline during a recession, so brand building will be very important. This influences everything brands must do during these trying times, beyond mere advertising, social media, and marketing, to affect how they connect and communicate with the public/consumers. Building and maintaining strong brands is the best way to minimize business risk, especially during the recession, as this HBR piece asserts. Retaining trust in existing customers prevents them from choosing other brands, while building trust in prospective customers opens up new opportunities. The best way to drive trust is through a strong brand presence and strong creative messaging.

2. Drive Media Efficiency Through Segmentation

While inflationary markets impact everyone in one direct way (increased prices), the impact affects different income brackets differently. That’s why segmentation is key, which enables hyper-targeting audiences and the use of multiple creatives. Companies can ramp down and up media spend for segments that are changing their spending habits and target creative to the specific pain points felt by those groups. For example, Millennials are less price sensitive; only 35% would buy a less expensive brand to save money.

3. Do Not Cut Measurement Budgets

Measurement should be among the last of places to cut spending during the pandemic. It is a fraction of the overall advertising campaign, but its impact is oversized. Companies will expect their marketers to be as efficient as possible with their spend, which they can demonstrate by investing in real-time measurement. Measurement, especially during adverse conditions, is not about producing an immediate report card, but needs to be an always-on proposition that helps you identify well-performing revenue-driving opportunities and under-performing tactics where you can eliminate waste. Companies must also closely monitor their spend and reassess segmentation as conditions change.

An economic recession is a challenging time for consumers and brands alike, but the lesson from the last one is that people will still need to purchase goods and be swayed by media. Brands should take a long-term, brand-building approach that focuses on the value of their product versus creating knee-jerk price reductions. And by investing in media segmentation and measurement, brands can find an opportunity for growth even during an economic downturn.