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Newsletter #7 |What to do in an economic downturn  

Last month, UK inflation (7%) and US inflation (8.5%) were the greatest they’ve been in 30-40 years. The Fed is raising interest rates to combat inflation rises. The consequence for businesses will be huge. Paul Worthington writes that many profitless brands will not survive the coming shakeout.

“One of the defining features of a fourteen-year-ish period of ZIRP (Zero Interest Rate Policy) was the exceptional growth of profitless, tech-adjacent brands. Including, but not limited to, WeWork, Uber, Lyft, Doordash, Peloton, and almost the entirety of the “revolution” that ultimately wasn’t, namely, venture-backed DTC retail.”

Marketing is often the hardest hit department during economic downturns - and the view is that there will be a recession.

How should marketers respond?

As with all marketing, the answer is “it depends.” Here are three pathways based on the past four recessions.

#1 Keep advertising

Brands that keep advertising enjoy greater sales and growth vs those that don’t. Despite record growth in marketing spend in 2021, IPA’s most recent Bellwether report predicts lower spend on advertising. This reveals an opportunity for those that increase advertising spend. CreativeX founder and CEO Anastasia Leng wrote in a recent Adweek column,

“Companies that advertise aggressively during the 1980 recession had sales 256% higher than those that did not continue to run ads. In fact, increasing advertising during a recession has been shown to double market share gains in comparison to boom time, as competitors are more likely to reduce their spend, thereby creating an opportunity for you to get ahead.”

#2 Prioritize effectiveness

Marketing experts, like Mark Ritson said that Kraft Heinz's $16bn market value write-off in 2019 was due to cost-cutting, efficiency-seeking, and short-termism. These tend to be recessionary business behaviors.

Outside a recession, marketers already have hundreds of considerations to make when building their marketing plans and producing content. For example, do you put profit before sales, growth before margins, mental availability before persuasion, and the long before the short? During a recession, these considerations are even more important. Here are some of the latest pieces that can help you prioritize effectiveness:  

• Profitability: Focus on profitability, not cost-efficiencies. Mark Ritson outlined how to raise prices empathetically during times of inflation. He also showed why Volvo is right to put profit before sales through charts of Apple’s sales, revenue, and profit. A strong brand is usually a prerequisite for success in both decisions. Airbnb is a great example of a strong brand - read how they reduced performance marketing and grew profit.

• Brand Equity: Recent data from Nielsen shows brand awareness is marketers' most important objective. The same piece reveals 10-35% of a brand's equity is derived from marketing. Factors affecting brand equity include physical and mental availability. To maximize mental availability through your Category Entry Points (CEPs), marketers might reframe brand awareness to situational awareness (i.e., in what situations can my brand come to mind for my category consumers).

• Long-termism: Nigel Hollis extends marketing time horizons to show five ways brand marketing creates financial value. Building on the long and short of it (great explanation thread from Les Binet), Alex Murrel assimilates multiple sources to provide a working definition for “big ideas.” He writes, “Big ideas are ‘big’ because they spread in three directions. They go long, they go wide and they go far.”

#3 Grow attribution

To maintain and maximize marketing budgets, attribution and cash flow prediction are essential tools in the marketing toolbox. Mike Colling shows how CMOs can predict how much revenue – and by when – they’ll bring to their business through their marketing efforts. Speaking the language of the CFO can also help. This report from Linkedin shows you how to convert marketing language and reporting to business language and reporting.  

Not all attribution is made equal though. The DMA reports that a fall in business measures (6% of all effectiveness measures) and a rise in short-termism (up from 44% in 2019 to 53% in 2020) have led to a fall in effectiveness. AB InBev was voted the #1 most effective advertiser by Warc in 2022. Anastasia Leng sat down with Luiz Barros, Commercial VP, Data & Analytics, Digital Transformation and Global Media at AB InBev. They discussed creative as the last mile of marketing effectiveness. Isolating media choices and creative choices against business outcomes is key, says Barros.

The danger with creative attribution remains the same as any other marketing attribution: short-termism. The rise of creative analytics offers a lot, but in many ways, it is stuck within a subset of performance marketing – a term one Nationwide Director said is “fuelling short-termism.” Often tied to efficiency metrics like ROI, which can, to quote Byron Sharp, “send you broke,” creative attribution should instead be mapped back to long-term business goals.

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