Making recessionary de-risking profitable

5 minute read

The Canadian marketplace is a wild mix of personal anxiety, social concern and pent-up consumer demand. Despite solid consumer spending driving economic growth, Canadian consumer confidence has declined to record lows. We’ve got economic indicators pointing in different directions, which makes de-risking more complex and unpredictable. While economists expect a gentler recessionary landing in 2023 than experienced during the 2008 recession, it’ll still be a bumpy ride considering the events being felt at home and abroad and the added inflation issues.

Recessionary rumblings inevitably turn to conversations about budget cuts, layoffs and efficiencies. It’s our go-to de-risking strategy, our first defense against growth disruption. We respond to disruption by creating more business disruption.

But de-risking isn’t singularly about dollars and cents. De-risking is about strategic decision-making that supports business resilience. By focusing on cost-cutting, we limit ourselves to a one-size-fits-all, reactionary line of defense that prevents us from using other strategies that support value creation. Unfortunately, marketing budgets are often the first to be offered up to the altar of cost-cutting. This is problematic for two reasons: it implies that marketing is a cost centre (discretionary) and that it doesn’t have a role in creating resilience.

Here’s an example pulled from the marketing headlines that demonstrates what happens when you respond to disruption with more disruption. Coca-Cola and Proctor & Gamble have a lot in common – both are big CPG companies that are mature and typically looking for efficiencies. But while Coke pulled back its global advertising spend during COVID, P&G invested. P&G, known for prospering in hard times by not cost-cutting, not only continued its advertising, it increased budgets in the face of COVID-19. The company saw 4% revenue growth for 2020. For the CFO of P&G, Joe Moeller, this was about serving consumers, retail partners and the broader society not retrenching. Coke, like many other fortune 500 companies, went dark. This gave Pepsi Co. the upper hand with revenue growth of 5% for 2020 while Coke lost 11% in net revenues.

This example provides an important lesson to Canadian marketers who are particularly vulnerable to cost-cutting. During COVID, Standard Media Index tracked deeper cuts and slower spending recovery in Canada compared to other English-speaking markets. Under these conditions, marketing must create value. To do this, we need to think past recessionary reactions toward a more resilient approach that honours the important role of marketing.

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Five ways to more meaningful and profitable de-risking

What does this all mean to marketing in uncertain times? What happens if uncertainty, change and disruption become the status quo? Here are five ways to think more holistically about de-risking marketing budgets:

1. Align with customer context

People are squeezed among GDP growth, debt servicing costs and inflation. Under these conditions, people are more contrarian in their choices – trading off, trading out and sometimes trading up.

What’s scarce to people? Where are they experiencing trade-offs in how they spend their money? Have their attitudes and behaviours changed toward the category? Aligning with the context of your customers is ultimately the best way to build business resilience and de-risk marketing spending. This will mean different things by category, brand and consumer group. These differences create opportunities to serve people differently, innovate and uncover new growth opportunities.

Interbrand summarized from its Best Global Brands 2021 brand valuation report that “trust always wins.” Brands that increased their Trust Brand Strength score increased by 18% in brand value.

2. Lean into brand building

During downturns, companies tend to cut budgets and focus on lower-funnel activities like price promotion. But the ‘is it worth it’ effect comes from growing brand equity because it has both short-term and long-term impacts on revenue, while short-term activities like price promotion do not have long-term consequences. It’s important to remember that in today’s marketing landscape, you don’t have to choose between brand and performance – brand building and activation are easily integrated.

Brand building supports pricing power and reduces trade-offs and trade-outs. Maintaining or increasing investment in marketing activities that build the brand is critical as marketers also need to justify inflationary price increases. Understanding the dynamics between brand and price exposure relative to the category is necessary. When thinking about customer experience, marketing can reinforce a brand’s value proposition in owned channels like physical stores and websites. Omnichannel customer experience strategies help make the relationship with the brand more tangible and responsive.

3. Spend more

With ongoing inflation and supply chain issues, marketers have added complexity to consider when it comes to spending. Cutting ad spend is made riskier by these factors. In 2008, Millward Brown shared research that 60% of the brands that went dark during an economic downturn saw ‘brand use’ decrease by 24% and ‘brand image’ decrease by 28%. Brands that cut their ad budget higher than their competitors were at a greater risk of share loss.

While everyone else is cost-cutting, brands could gain valuable ground by maintaining budgets or spending more. Research cited by WARC estimates that when marketers increase spending during economic downturns, they increase incremental sales significantly. You can spend more on specific marketing activities (brand or performance), certain channels, or specific target audiences. Spending more is determined by what’s worth investing in.

4. Targeting the right people

A targeting strategy is one of the most critical aspects of marketing resilience – the trifecta of right time, place and message drives advertising effectiveness. Targeting is the backbone of smart marketing, yet changing customer behaviours, media inflation and digital data deprecation can make it elusive.

During hard times, reaching the right audience with the right messaging is critical to driving more investment impact. Discerning who is at risk of leaving the brand, reducing purchase frequency or a new opportunity to trade into the brand de-risks spending. Data (first-party data combined with second and third-party data) will help you target valuable groups, find look-alikes and increase personalization. The combination of data sources can also provide a more robust, stable and resilient picture of different audiences and their value to your business in the short and long term.

5. Shift your media channel mix

Canadian media inflation differs significantly by channel (print 0.8%, radio 2.7%, linear tv 10.8%, digital video 8.1%). In the digital space, there’s also the impact of third-party cookies and mature digital platforms reducing investment impact. During downtimes, it’s important to adapt your spending strategy concerning channel mix to make your media investments more resilient.

Media that doesn’t improve visibility, receptivity or attention isn’t doing its job. You may need to lock in earlier to secure pricing, quality inventory and manage frequency. You’ll want to look for ‘AND’ channels – ones that can build brand and activate people, that cut-through ad clutter and have proven performance to drive website or store traffic. This is when under-estimated media channels can become heroes – like direct mail, which is moving up the ranks in terms of resilience and its ability to connect, captivate and convert audiences post-pandemic.

You’ll also want to consider how your media works together (paid, earned and owned) to drive greater integrated effects and omnichannel connection for consumers. The simple act of diversifying channels or changing how you use media can improve resilience.

And from an owned channel perspective, consider what features like free shipping, returns and different fulfillment modes mean to your customers before cutting back or eliminating them. In hard times expectations increase and you can lose valuable customers when you pull back.

Making recessionary de-risking profitable

Cost-cutting limits us to one de-risking strategy, reducing the valuable role of marketing in building business resilience and ignoring the opportunities disruption creates for value creation and growth. It might seem counter-intuitive to lean into hard times – to spend more, exceed customer expectations, and try new things, but businesses flourish by doing so. Meeting risk with safety is human nature, but de-risking is about strategic marketing choices in the context of your category and consumer, which improve the odds of success. In this marketplace of mixed signals, the riskier move is cutting spending when misalignments between brands and people (the value-action gap) are only growing wider. In business, as in life, people remember who showed up in the hard times. Look at the simple act of Costco’s founder telling the CEO not to raise the price of the hot dog and soft drink combo, which has been $1.50 since 1985. A small act with big resilience rewards.

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