• Jake

Marketing your way through economic turbulence


Brexit impact – deal or no deal

Given the outcome of the latest Parliamentary vote around Brexit, it’s still impossible at this stage to second guess the exact endgame and specific impact this will have. So, Brexit uncertainty continues to be debated, with lawmakers, policymakers and decision makers trying to formulate what it all means for people and businesses within the UK.

Nevertheless, those more foresightful businesses will already have a variety of adaptive scenario plans prepared to mitigate against the possibility of lower demand, restrictive barriers and tightening margins as a result of Brexit – hard, soft or otherwise.

However, not too surprisingly given all this uncertainty, many other businesses have yet to devise any form of plan or are even planning to do so, in taking a more reactive ‘wait and see’ approach. In fact, according to a 2018 Econsultancy report ‘less than two-fifths of marketing professionals either have put, or will put, a dedicated Brexit strategy into place’.

This could be too late in an undefined changing marketplace where time becomes a luxury few can afford. Just look at the car manufacturer Jaguar Land Rover who announced 4,500 global job losses after a drop in 2018 sales. Many of these cuts are set to happen in the UK. Their CEO Ralf Speth warned that a no deal Brexit could lead to further job losses and uncertainty. Where problems in purchasing parts could lead to a struggle in "keeping the company alive". He went on to say in the event of a no-deal Brexit the company could stockpile for "only days" before production comes to a halt.

Domestic impact – sales or no sales

Aside from EU Brexit worries is the ongoing domestic malaise unfolding on Britain’s high streets. The Guardian newspaper proclaimed in December 2018 ‘No end in sight to UK retailer troubles’. Retailer casualties last year included Maplin, Toys R Us and Poundworld. The British Retail Consortium estimated that about 85,000 retail jobs were lost last year.

And analysis of the 2018 Christmas period with supporting sales offers to entice shoppers only adds to the gloom leading into 2019. Again, the British Retail Consortium reported 0% year-on-year growth across all retail sales during this month. This makes it the worst December performance in a decade since the financial crash of 2008.

Businesses need to be business ready

Any economic downturn and uncertainty will affect businesses at virtually every level of profitability. Even companies that are successful can expect to see lower profits than they did when the economy was healthy.

So, it is in the self-interest of firms to have pre-prepared adapted and/or devised plans. Having these ready to deploy and refine at speed post-Brexit can help mitigate against any diminishing business opportunities. Such areas include:

  • Business strategy

  • Organisational structure

  • Operational processes

  • Financial management

  • Supply chain management

  • Sales & Marketing activities

However, to the last point, Marketing is often one of the first ‘cost centres’ to be scrutinised. And, so the thinking goes, why not cut advertising expenses due to the financial pressure borne out of economic uncertainty?

This thinking has been reflected by the slowing down in advertising spend growth to an estimated 0.8% throughout 2018 as companies became more cautious with their money. And it is further evidenced in a report this week forecasting a 3% reduction in overall ad spend due to a no-deal Brexit.

What the evidence says about reducing ad spending

What’s interesting is that cutting ad spend during a recession hasn’t been shown to make companies any more profitable. Some years ago, advertising guru Stephen King published a paper that demonstrated ‘…businesses that cut their advertising expenditures in a recessionary period lose no less in terms of profitability than those who actually increase spending by an average of 10 per cent'. According to King, reducing ad spending doesn’t help the bottom line.

In addition, an Econsultancy report ‘A Marketers Guide to Brexit’ also proposes that the response to tough economic conditions should not necessarily be to cut marketing budgets: ‘Marketing managers who take a more cautious approach when submitting their next budget may find it harder to compete’.

Furthermore, academic studies analysing the effect of advertising spend on sales or market share backs this up. One such study found strong and consistent evidence that cutting back on advertising during a recession can hurt sales during and after the recession, without generating any substantial increase in profits. Converse to this, it also found that not reducing relative advertising spend during a recession could increase sales during and after the recession. Also, businesses who increased advertising spend during a recession experienced higher sales, market share, or earnings during or after the recession. Most importantly the studies showed that the strategy adopted for advertising during a recession had effects that persisted for several years after the recession.

Marketers are best served holding the line and attacking the weak

Smart marketers know brand visibility and consumer preference for trusted brands drive market share. So uncertain and recessive times are not the time to cut advertising. Rather, it’s a more beneficial strategy to maintain or increase marketing spend (in defined cases) to win in the long term.

Advertising spending can determine advances and retreats in market share—but only when significant spending differences among competitors has been maintained over some time. According to a Harvard Business Review (HBR) cited study the relationship between spending and share change appears after about 18 months.

Market leaders win the ad spending war for market share by creating or exploiting disequilibrium and outspending their competitors by a wide margin for a sustained period. They use ad spending as a competitive weapon, and they benefit from a relative share of voice (SOV) effect on market share.

HBR analysis also states where there is a similar level of advertising spend between market leaders – as measured by SOV - then competitive equilibrium exists. When one rival widens the gap beyond a certain level, positive changes in market share can occur which correlates to the advertising spend.

This comes about either by a market leader increasing spend beyond the current equilibrium or, as a rival leading business decides to reduce their spend, making the decision to maintain and/or increase one’s own ad spend. It’s akin to yelling loudly. If only one does so, that’s the one people will notice. Likewise, in a marketplace the share of voice effect takes hold, and the 'quieter' competitor loses share while the 'louder' competitor gains. The equilibrium is usually disrupted when one rival’s SOV eventually exceeds the other by 20-30% points, with share of market changes correlating with ad spend.

HBR goes on to state ‘This assumes that total spending is enough to drive primary demand and each competitor can influence only its own share. If total category ad spending falls below a certain threshold, these assumptions will not hold because any competitor would be able to stimulate primary demand. For this reason, the relative SOV logic does not extend to ad spending for new products or highly differentiated products occupying niches’.

For smaller market players, they are best served investing just enough to be sufficiently heard by their target consumer. In this case, the focus isn’t on share of voice but on allocating the minimum spend required to achieving adequate reach and frequency.

For each it is about picking the best strategy against market conditions, with leading brands targeting competitors who are underspending. This is where the rigour of zero-based budgeting (ZBB) can help deliver the desired impact. To do so, Marketers need to assess each competitors’ relative cost position. Without a systematic cost advantage, it is unlikely that the spending premium needed to gain share can be sustained very long. Budgets are then built around what is needed for the upcoming period, regardless of whether each budget is higher or lower than the previous one.

The wise marketer therefore selectively attacks, aiming at markets for share gain where the competitor is vulnerable or where competitors are underspending; and in markets where the share of voice can be raised without breaking the ad spend budget.

Also, they must resist the lure of short-term cost savings by unnecessarily cutting advertising budgets. While most brands can survive in the short term, the myopia of cost savings can lure marketers to continue to maximise near-term savings and boost profits. Evidence shows, pursuing this over a longer period can do terminal damage to the value and success of their business.

Be bold and spend smart to leverage results

Of course, it’s not enough for businesses to just hold their marketing spending nerve. Aligned with getting the previously mentioned business factors in order (great advertising by itself won’t prop up shit product/service experiences overtime), where and how you deploy your marketing budget is of vital importance. Implications include:

1. Maintaining balance in driving short and long-term sales opportunities

The IPA's director general, Paul Bainsfair, reminds us “businesses that rely on the strength of their brands need to follow the general 60:40 (long term brand building vs. short term sales activation spend) rule of thumb”.

This is based upon the rigorous research findings of Peter Field and Les Binet, through analysing years of IPA Effectiveness submissions. More recent research of theirs suggests this 60/40 split varies depending on the nature of the category and the brand being operated. You therefore then need to look at where your weak spots are and what drives and diminishes the consumer’s movement from one stage to another.

Those who cut budgets or disproportionately divert funds into bottom-funnel sales promotion (at the expense of top-funnel brand building) may win the cost and sales battles in the short term but will certainly lose the competitive war in the longer term.

2. Establishing the most effective marketing channel mix

According to the 2018 Ebiquity 2018 report ‘Re-evaluating media’,there are 5 important attributes for growing a brand in the longer term that influence media selection. These are:

  1. Targeting the right people in the right place at the right time

  2. Increasing campaign ROI

  3. Triggering a positive emotional response

  4. Increasing brand salience

  5. Maximising campaign reach

This research is worth digging into as it provides compelling evidence about the true worth of media for brand advertisers in considering what are the most potent channels to engage intended consumers. Of course, this will also be based upon specific business challenges aligned to target consumer media receptivity within those channels and the available budget.

Whilst the impact is highlighted by channel, don’t forget the multiplier effect of combining different media to amplify impact, given the synergies this generates through working in combination.

3. Cultivating attention generating cut-through

To quote Michael Todd, Google’s head of ad industry relations for EMEA, “Arguably, it's more important than ever to experiment and innovate... history shows us that when times are hard the winners do things differently".

For retailers it can be about creating the optimum omnichannel experience.

With Greggs the baker it has been commitment to a series of initiatives such as their major supply chain transformation strategy that has enabled it to move away from a traditional bakery-based operation to an affordable national food on-the-go retailer. It is also investing £100m into its manufacturing and distribution centres during 2019, further providing end-to-end control of its operations and pricing model. Meanwhile it continues to have a finger on the pulse of evolving customer tastes, resulting in the recent launch of it’s much heralded vegan roll to overwhelmingly positive feedback.

Turning to creativity, this can generate disproportionate attention and interest. The standout example that springs to mind from 2018 is the bold, divisive but ultimately successful Nike campaign fronted by Colin Kaepernick. This showed Nike weren’t frightened to stand for something brave, rather than adopting a safer route which arguably more people might have found more acceptable but less galvanising. And so, rather than being just a mere slogan or tagline, Just Do It is a rallying carry driving the brand forward.

And just to show imagination doesn’t require deep pockets lets come back to Greggs with some simple but impactful creativity. They used their loaf to capitalise on the popularity of Fenwick's famous Christmas window display opposite in Newcastle by reversing their store signage. Beyond local attention, this also garnered a lot of free media publicity with the story being carried by TV and the national newspapers.

In the words of Dr. Seuss, ‘Think left and think right and think low and think high. Oh, the thinks you can think up if only you try’.

Those marketers who are savvy with their marketing execution, placement and spend will better help to navigate their businesses through turbulent economic waters.

#Brexit #Economicturbulence #Advertising #Recession

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