3 Key Marketing Lessons from Past Recessions
Looking at how brands survived and thrived in previous recessions yields several important marketing lessons for getting through this one.
Written by
Michael Murray
March 23, 2023
3
min read
Perhaps the most common “recession marketing” questions that arise during an economic downturn are the ones with the most data:
Category-specific questions also have answers supported by significant data. For example, should CPG/FMCG brands worry about private label alternatives? Marketing professor Mark Ritson argues, no, not unless their marketers commodify their brands by underinvesting in brand marketing.
Marketers have over a century's worth of advertising data on recessions and how brands responded. From Tellis and Tellis’s famous meta-analysis of recession advertising studies to the empirically robust research from the Ehrenberg-Bass Institute of Marketing Science, marketers have the data that shows cutting advertising during a recession is, in theory, unwise.
And yet, despite all this data, during economic downturns, many organizations tend to cut marketing early as a way to save money. It happened in previous downturns. It seems to be happening again right now. “Generally speaking, marketing equals overhead,” said Andy Nathan, Founder, and CEO of Fortnight Collective. “Marketing is seen as an expense, and that’s why it’s the first to go.”
This tension makes recession marketing rather frustrating. As Peter Drucker famously wrote, "Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business." Years of economic growth give marketers the opportunity to shift the perception of their work or department from that of an expense or cost center to one of value creation.
But this hasn’t happened. If anything, the perception is worse. CEO trust in CMOs has fallen to a dramatic low, while the average CMO tenure hovers at well under two years. Speaking at Marketing Week Festival, Rory Sutherland argues that “this issue has been compounded by the fact FMCG brands like Unilever and P&G, which inherently believe in the value of marketing, are now below 25% of all ad spend, compared to around 68% in the 1980s.”
Marketing is actually one of the last aspects of a business that should be cut. It’s a point worth repeating.
History shows that marketing can actually be one of the most important investments a brand can make during a recession—and not only to survive the tough times but to come out ahead and thrive when the downturn passes. Companies that bounced back the fastest from previous recessions didn’t cut their marketing budgets and, in some cases, actually increased them.
Convincing a CFO to increase advertising investment during a downturn is hard. Sisyphean almost.
Survival is the priority. For those with deeper chests or ambitious growth goals, there are many opportunities recession marketing can offer. For those that can’t maintain or increase their advertising investments during a recession, three lessons can be drawn from past recessions.
Because advertising is competitive – in the sense that as one brand rises, another must fall – marketers can transform the recession from a major challenge to an opportunity—even if the budget is reduced by increasing the effectiveness and efficiency of their work.
Kantar’s BrandZ data shows that, following the financial crisis of 2008, strong brands recovered nine times faster.
The value brand-building investment brings to a business has increased in the last half-century. Following the 2008 recession, the market capitalization of the S&P 500 was largely driven by intangible assets like Brand Value. In 2020, the S&P 500’s market cap reached 90% – up from 17% in 1975 (almost a 5x increase).
A strong brand is the ultimate competitive advantage. They grow brand value faster, deliver superior shareholder returns, and recover faster after economic downturns. While marketing budgets should be viewed as an investment, the proportion divested into brand-building is critical. Especially, if elasticity is a priority.
And yet, long-term brand marketing tends to be the first to be cut during a recession. For example, media costs (as measured by CPMs) tend to fall because most brands pull spending back or redistribute to more attributable and activation-led channels. Dangerous if elasticity is a priority.
This becomes a huge problem for both marketing and the organization as a whole because activation-led marketing and long-term brand marketing have always supported one another. Brand marketing builds equity for activation-led marketing, and then activation-led marketing produces results through that equity. Without long-term marketing to build future demand, brands tend to see diminishing returns on their short-term activation marketing, which only puts pressure on marketing even more. It becomes a vicious cycle of increased price sensitivity and erosion of brand equity.
This cycle is more pronounced during recessions. Marketers who maintained their brand-building investments during a recession found it became even more valuable over time than usual. Research from Kantar showed that the bulk of advertising’s impact happens more than six months after the initial investment, meaning long-term marketing is more important to a company’s bottom line than demand—even if its value isn’t as immediately apparent.
Moreover, because so many organizations cut brand spending in a recession, Extra Share of Voice becomes cheaper to acquire during brand marketing. It also becomes approximately twice as valuable. In an analysis of 1000 businesses during previous recessions, Malik PIMS found that increased ad spend was linked with long-term business success and changes in market share during the first two years of recovery. Firms that increase their spending by “an average of 48% during a recession win virtually double the share gains of those who increase their expenditures more modestly.”
The marketing lesson here is to do exactly the opposite of what is typically done: investing in brand building is one of the best ways to thrive in a recession.
Cash is king during a recession. As a result, organizations need sales immediately.
Some big brands can afford to be proactive with their marketing during recessions without making big cuts elsewhere. Everyone else is under pressure to prove immediate value—especially marketing teams. As a consequence, brand marketing suffers, while marketers double down on short-term activation marketing. Marketers spent 14% more on activation-based online ads in the first three-quarters of the 2008 recession than they had over the same period in 2007.
“There’s a lot of questions about what good marketing is at the board level,” explained CEO of GoDo Discovery Company Erik Herskind. “It’s always been hard to quantify, and despite all this innovation of technology, it’s still fairly hard to quantify. Boards historically undervalue the power of the brand.”
Activation-based marketing isn’t more effective than brand marketing, but it is easier to track and connect to immediate results. As such, it becomes more popular during a recession because it is more quantifiable, efficient, and provides a greater degree of certainty. It appears less risky than brand building. Marketers, under pressure to prove value quickly, over-rely on those quick results.
The solution to this problem is the second lesson: During a recession, marketers should find innovative ways to make the results of their long-term, brand-focused marketing just as measurable as their short-term marketing. This is easier said than done. Most long-term measurement does not isolate for the creative, despite the fact that it delivers 12x the profitability multiplier as target optimizations. Consider adding creative data to existing measurement frameworks to better understand the impact of both brand-building and activation-led creative decisions.
With the help of creative data, it’s far easier to prove the measurable value of long-term branding than it was in previous recessions. Creative data can help prove the value of brand marketing to the C-suite and stakeholders, even during a recession. It will also go a long way toward both safeguarding brand marketing’s budget and helping the organization recover and come out ahead.
High-quality creative is more efficient than lower-quality creative. Award-winning creative advertising drives up to 11 times more market share growth for the same budget compared to less creative ads. The creative provides up to 47% of ads total sales impact—more than reach, brand, or targeting.
Like ESoV, high-quality creative becomes even more valuable in recessions and has the potential to turn the tides favorably for its brand. Procter & Gamble, widely regarded as a recession-proof stock, took a gamble during the 2008 recession to great success. Repositioning their Old Spice brand against a yonder cohort required a distinctive campaign that could take share from the “hip” competitor Axe. Led by high-quality creative, Old Spice expanded its category through a new target market and demolished its 15% target sales increase (they increased sales 125% YoY).
This kind of award-winning creative success is rare. Most companies can deliver significant media efficiencies by raising the quality of all of their image and video content for all their brands and markets, thereby saving millions of dollars. They can also do this without necessarily increasing their marketing budget. They can do this by building on lesson two.
Since the 2008 recession, brands have invested more of their advertising budgets in digital media. This transition requires more content to cover more channels. Unfortunately, for the average Fortune 500 company, this transition has resulted in an erosion of creative quality. For example, in most cases this shift, from TV-first to digital-first has been clunky and resulted in an erosion of creative quality as TV ads have been re-cut to Meta, TikTok or other platforms, ignoring creative best practices recommended by the platforms themselves that are statistically linked to media efficiencies.
By leveraging platform-recommended best practices, marketers can begin to regain lost media efficiencies. Creative data can help here. Some of the world’s most effective advertiseres are leveraging creative to help track and measure hwo many of their ads feture these best practices – as measured through a Creative Quality Score (CQS). By raising that CQS by incorporating creative best practices derived from the data, they potential gains in media cost savings they could see are massive.
In a recession, marketing efficiency becomes more important than ever. Marketers have to do more with less. Increasing Creative Quality is one of the most efficient ways to improve marketing impact because it’s fast, measurable, and doesn’t require raising the marketing budget.
There is a statistically proven relationship between a higher CQS and improved media efficiencies. Increasing CQS has been shown to:
A more recent analysis of Meta In-stream Video ads revealed markers could see even greater media efficiency cost savings. For Example, increasing CQS correlates with:
With the help of these three lessons and creative data, marketers can mitigate some of the risk associated with economic downturns. Even if a team’s marketing budget is cut and they’re under more pressure than ever to prove value despite those cuts, they have options to increase efficiencies and effectiveness..
Focus on demonstrating the value of long-term brand marketing by making it more measurable, more efficient, and more creative. Not only could this help brands survive the recession, but it could help deliver new advantages too.
To learn more about finding your CQS and deriving data-backed Creative Best Practices from it, get in touch with CreativeX today.
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