27 July 2022

Recession looms. Marketers, you know what you should do, right?

In this guest blog from Nigel Hollis, Nigel unpacks what marketers need to do to stay head as the recession looms large. Read more to discover practical advice for managing uncertainty.

5 minute read

This guest blog is by Nigel Hollis. It was originally published here.

Let me put this as simply as I can. Recession is not a one-size-fits-all event. How brands, sectors, and countries fare varies according to your marketing strategy. If your brand is in decent shape, stay the course. If not, it is time to consider alternative strategies. And if you want a more detailed refresher than this, read on.

Turbulence ahead as the recession hits

The economic signals are mixed, and changing rapidly, but there is a strong probability that recession is looming. Strong consumer demand, coupled with supply side disruptions have triggered strong price increases. In the US, with inflation still increasing, the Fed has just implemented a the largest interest rate increase since 1994, trying to tamp down inflation, but risking an economic downturn in the process. The US stock market has entered bear market territory, down over 20% from the high in January. No surprise then that The Global Economic Uncertainty Index seems to be on the rise, as policy makers and business leaders try to figure out what is coming.

Less uncertain than the peak of coronavirus in 2020

With this context in mind, it is worth pointing out that we have been through difficult times before, but that was not in 2020, when the pandemic triggered a sharp decrease in economic activity. The pandemic caused a massive shock to the global economy because it choked off supply and demand, and although the Business Cycle Dating Committee classified it as a recession because the contraction was so severe, it lasted only two months, far shorter than most normal recessions. To understand what to expect in a financial crisis and how businesses should react we need to look back to previous recessions. And from a marketing viewpoint at least, the lessons are pretty clear.

Recession is not a one-size-fits-all event for all business owners

Look back to The Great Recession and its predecessors and you will find that their economic impact differed by business sector and by country. And The Great Recession, as the name implies, is an anomaly given how long it lasted. In each case, durables were hardest hit, with non-durables and services less so. In fact, as this paper notes, services tend to recover rapidly and help boost overall consumption. So, automotive, construction, and home furnishings companies should be preparing for significant and prolonged downturn in demand (with their difficulties exacerbated by their over-reliance on just-in-time inventories that are no longer on time). Groceries, fast food, and mobile communications might be better preparing for a relatively short stagnation in demand. And services should be assessing their exposure to these other business sectors before panicking.

Build demand, drive efficiency

What a company is forced to do during recession is different from what many choose to do. And the choices made are often driven by short-term factors and gut instinct, which is never a good combination. Too much attention is paid to media coverage and what competitors are doing, and not enough to what is in the best longer-term interests of the specific business. And when it comes to longer-term best interest, numerous studies have found that there is a relatively simple strategy which enables companies to perform well when a recession ends: build demand, drive efficiency.

Build demand

No, this does not mean switching spend to sales activation to boost short-term demand. If people are price sensitive and struggling to pay for your company’s goods or services, do you really think that they are going to respond to short-term incentives? Even if they are part of your regular customer base, they need to put food on the table. Customers’ needs shift, and they need to make payroll. Instead, you are investing to build demand for when the recession ends (and remember, recessions typically last about a year). That means investing in brand building marketing campaigns, to ensure your brand remains more salient than the competition, and, if advertising budgets allow, taking advantage of cheaper media costs to grow that salience. When pent up demand returns, your company is going to be better placed to benefit than the competition.

Drive efficiency

Study after study finds companies that make their systems more efficient tend to perform better when an economic downturn ends than companies that cut production and lay off staff. Why? Because when the recession ends and demand builds, your company will be ready to meet the increased demand, with its intellectual capital intact, and margins improved. And if your company is front of mind among consumers ready to buy again, increased sales will drive profits better than before. So, begin with optimization – search for inefficiencies and eliminate them, cut administration costs, find new ways to make production more efficient, before thinking about layoffs. In this regard, the same principles apply to marketing activities as any other aspect of the business; it is not about doing things cheaply, it is about getting a better return on your investment. So, think compelling creative that speaks to the target audience’s mindset right now, and focus on reaching a wide audience with your marketing spending (not trying to pin point new customers who likely cannot respond right now).

Prove your worth

As I mentioned above, there is little evidence to suggest that short-term sales activation or discounting is going to do more than temporarily boost demand, if only because in many categories demand is relatively inelastic. However, there is no doubt that as demand stagnates companies will start to think about incentives and price discounts. Bad idea. The likely outcome is lower margins now and for the future. What companies should do is focus on proving their worth, either in terms of value – lasts longer, more reliable, additional benefits – or reassurance – known and trusted. One of the most extreme case studies of a brand following this advice Fairy dish washing liquid in the UK, which despite being 50% more expensive than store brands, managed to grow market share with their marketing efforts and increase prices during The Great Recession by triggering memories of decades of advertising which highlighted the brand’s ability to clean more dishes than comparable brands.

Find opportunity in adversity

Kantar BrandZ finds that its strong brand portfolio outperforms the market, particularly during the recovery phase, likely for exactly the reasons cited above. They were strong brands to start with, they did the right things, and when recovery came, they benefited as a result. But there is opportunity to be found in recession, if you have the right mindset. Put yourself in your customers position, and then figure out how they feel. What can your brand do to alleviate their concerns, improving their customer experience?

During the Great Recession, when motor vehicle sales were once again hard hit, Hyundai stole a march on its competition by launching its “Assurance” program in 2009. This allowed new-vehicle buyers or those who had leased one to return their cars for up to a year after purchase if they lost their income due to job loss. This tactic not only made people feel more comfortable making a purchase, but it also implied that Hyundai understood the uncertainty many consumers faced and had their backs. The combination of good vehicles, lower prices and smart marketing helped accelerate the brand’s growth. Perceptions that Hyundai was different from other brands increased and sales jumped 24% in 2010.

Assess the situation before you act

For some companies a recession could prove fatal. If they start loaded with debt, rising interest rates, lower demand, and squeezed margins make for a nasty combination. But for companies that are on a sound financial footing, a recession might just prove to be the catalyst that helps them change their game for the better. Now is not the time to panic, but to assess the specific situation facing your company, and figure out how best to react. Just remember, build future demand, drive current efficiency, and your company will be more likely to exit the recession head of the competition.

If you want more thinking about what to do in recession and some case studies to illustrate what I have said in this post, check out my post from 2020 on the Kantar website. I am relieved to see that there is little that I would change, and my overall conclusion that market share will only change if a brand does something to shift the status quo in a product category remains valid. So, stay in touch with your customer, look for the opportunities to gain competitive advantage, prove your worth, and, if you can, invest more in advertising spend within your marketing budget.

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