Grace Kite on why there is no ‘blanket’ rule for 2021 planning

At the end of October the government’s furlough scheme will come to an end. So far, the economic recovery from the Covid-19 pandemic has been V-shaped, with data in areas including retail sales, credit card spending, eating out and retail footfall rising quickly following a dramatic fall during lockdown.

But economist and founder of Gracious Economics, Grace Kite, says how the end of the furlough scheme impacts employment will be “super important” not only for ongoing economic recovery, but for how marketers think about their strategy and budget next year. That is because if everyone on furlough were to become unemployed, that would be an unemployment rate of about 15%, compared to 3% pre-Covid.

“That is the big risk for the recovery, unemployment,” she said, speaking at the Festival of Marketing this morning (5 October). “A huge amount depends on whether people on furlough become unemployed or whether they go back to work.

“[If the unemployment rate is 15%] that is 15% of all people in all our target markets. And probably a 15% lower return from our marketing investments, because 15% of people are probably not going to want to spend money because they haven’t got a job.”

However, she warns that brands will need to take different approaches to strategy and budget setting depending on how much their category is impacted by the recession. Unlike past economic downturns, this recession is having a varying impact depending on whether the job losses (which are typically among younger people) are impacting a brand’s target market, whether there is pent-up demand and how digitally mature it is.

As you go about 2021 planning, don’t try to apply a blanket rule on budget setting. You need to think about your category and the potential in it next year and then work back to how much you can really justify spending.

Grace Kite, Gracious Economics

“The story about how to market in a recession needs to be amended depending on whether you are in a category that will emerge stronger or one that will continue to suffer,” she explained. “That has a direct bearing on the marketing budget decision.”

She points to two examples. For branded restaurants, the category is likely to get smaller over time meaning that even if investment is increased, the brand will be buying a slice of a smaller pie. For online fashion, however, with the category in growth marketers should spend more than they did pre-Covid.

“As you go about 2021 planning, don’t try to apply a blanket rule on budget setting, you need to think about your category and the potential in it next year and then work back to how much you can really justify spending. Then go to the CFO, ideally with your analytics partner by your side,” she said.

Should brands go dark during the coronavirus recession? It depends

The pandemic is also having an impact on the media mix, with online advertising set to become a bigger part of budgets. This is because as spend shifts online, so too do marketing budgets, with it becoming increasingly important for brands to be visible online.

“Online ads don’t only act as an investment into future sales, they also act as signposts for ecommerce businesses. They are the modern equivalent of the name above the high street front door, the lights that stay on inside, the shelf space, even the entry into Yellow Pages,” she explains.

“These ads help people who are already on their way to a business website to arrive safely. And it is a signposting task that explains the media mix decisions that are being made at the moment.”

She concludes: “Offline budgets are falling just as they do in all recessions – it is no secret that businesses find it hard to invest in future sales when survival today is under threat. But online advertising can’t be cut when ecommerce is so important. Businesses need to remain visible online.”