By Nancy Smith, CEO and founder of Analytic Partners
Rising inflation, plunging stocks, war in Europ, and last quarter’s shrinking GDP: the omens of recession are upon us. While the jury is still out on the downturn’s official onset, many business leaders have wasted no time embracing a range of cautionary initiatives, from hiring freezes to layoffs.
Austerity measures like these are part of the standard playbook for businesses facing times of economic uncertainty. Marketing and ad spending is often close to the front of the line when budgets need to be tightened.
But in times of crisis, research shows that slashing marketing budgets hurts brands more than it helps. Rather than defaulting to austerity policies informed by panic, brands should protect and recalibrate their media investments, test recession-adjusted messaging tactics and use analytics to strategically allocate resources to build their brands in the short and long term.
Beware the Dangers of Overreaction
When a crisis looms, our natural first step is to act quickly by prioritizing caution and reducing risk. In light of the challenges and disruptions the pandemic brought to the world, business leaders are understandably sensitive to the risks of large-scale market shifts.
But despite the disruptions of the past two years, the changes that COVID visited upon organizations and business leaders have not been as fundamental or as lasting as initial dire predictions imagined. In fact, one key lesson the pandemic imparted is that times of economic uncertainty are not necessarily times of crisis for all brands. Recessions do not necessarily equate to lower ROI or diminishing returns, especially for businesses that continue to invest in long-term results.
Similarly, just as the pandemic did not usher in the demise of COVID-sensitive industries dependent on brick-and-mortar commerce, it did not realize lasting nirvana or perpetually skyrocketing growth for fully virtual businesses, which have come back down to earth during the current downturn. The lesson here is that knee-jerk reactions of market revolution tend to be overblown; the imperative for brands is to remain calm, follow the data on marketing performance and adapt without reimagining strategy from the ground up or retreating entirely.
Cutting back on marketing during troubling times limits a company’s ability to build and maintain consumer confidence during troubling times. So, only cut back on media if you must and consider that continuing to invest when others are pulling back can lay the foundation for a long-term competitive advantage.
Maintain Media Investments to Protect Long-Term Growth
When it comes to weathering the uncertainties of a recession, brands that maintain consistent marketing spend are better positioned to respond to the challenges of the present and thrive in the long term. A main reason for this is that times of stress allow businesses to test and adapt their messaging in new economic environments. Added pressure also leads many brands to decline investment, helping long-term thinkers increase their share of voice.
Studies of the 2008 recession revealed striking results that powerfully counter the tendency toward austerity as a response to crises. For example, the British consumer goods company Reckitt Bensicker increased advertising for more expensive, high-performing brands during the financial crisis. As a result, the company grew revenue by 8% and profits by 14%.
By contrast, the factor that nearly guaranteed loss during a recession? Cutting media investments or ad spend. Reckitt’s rivals cut spend and saw profits decline by 10% or more. Gaps in campaigns, even in the short term, require more spending to ramp back up to prior levels of exposure.
The key for brands who need to do more with less is to test new messaging that accounts for changes in consumer confidence and rising inflation. The messaging of the economic boom of years past should be tweaked to align with new consumer attitudes. Testing is the way to vet messaging changes while maintaining brand equity.
Follow the Analytics to Find a Path Forward
How do brands test without wasting crucial budget and while efficiently identifying opportunities for progress? The key is to lean into analytics to figure out which marketing initiatives will provide the best ROI in order to adapt, evolve and thrive.
Data is a commodity; analytics is a differentiator. Analytics can help brands test adaptations more effectively by modeling scenarios and anticipating consumer reactions based on past behavior. It can also help brands track emerging trends and continually re-balance investments to respond to the changing state of play. This way, brands can maximize ROI and minimize risk while preparing for a range of evolving scenarios.
Ultimately, when brands go dark or cut back on media, they are not only losing out on hard-earned equity and potential investments. They also give up a critical way to gather crucial information that will allow them to strategically weather the present’s uncertainty. In order to successfully balance short-term needs with long-term success, marketing leaders will be best positioned to succeed if they keep calm and measure on.