With the tasteless timing of a drunk hitting on a widow at her husband’s funeral, marketers are in Cannes this week as the big grey clouds of recession barrel overhead.
While our economy constricts and inflation escalates, our best and brightest are on the French Riviera listening to Paris Hilton and Gary V explain what the NFT revolution means for brands.
Further down Le Croisette, middle aged men in faded black T-shirts angrily proclaim, “we put up with too much shit from people that don’t love creativity” while strikes, budget cuts and supply shortages take their toll.
A recession is a peculiar thing. No economist can ever accurately predict when one will arrive, how big it will be, or how long it will last. But once it begins everything is affected in an entirely predictable way. The only silver lining for marketers is that while we have no clue when the recessionary curtain will drop across our businesses, we know from experience how we should handle things once we are plunged into darkness. Provided you accept that we aren’t living in a paradigmatically different era of marketing in which history means nothing, there is a decent playbook that spells out the correct approach for the tricky months ahead.
R is for retaining the long
There is an idiot move at the top of the agenda of all those who do not understand history. They see marketing as a cost. Advertising as a luxury. And brand building as the ultimate vanity. Ergo, when times get tough it’s obvious that the first thing to go is the esoteric brand budget and not performance marketing with the proven and immediate ROI.
It turns out that is exactly the wrong move. In case studies going back a century the story is always the same. The companies that maintained ad spend, or even increased it, during a recession saw little advantage during the hard months of the squeeze. But the minute the green shoots of growth appeared, their growth was spectacularly superior versus competitors that cut back during the recession. You maintain the long of it because its impact is delayed but substantial and it will kick in exactly when you need it as the recession ends.
E is for excess share of voice (ESOV)
The reason the long of it not only works through a recession but works harder for your brand during a recession is ESOV. You have to ignore all the blowhards on marketing twitter that critique ESOV for this reason or that. It is the closest we have to a scientific law of advertising and it says an equilibrium exists between a brand’s share of voice and its share of market.
If a company increases its relative share of voice above it share of market, the equilibrium will eventually restore itself and market share will also grow.
Fuck failure, it’s really not welcome. It’s certainly not essential to success. And it’s especially unpopular when recession makes it a potentially fatal experience not a teachable moment.
In a recession this happens differently. Many, perhaps most, of your competitors will cut back on their advertising spend. Especially the brand building stuff. If your category cuts half its ad spend and you maintain your ad spend, for example, you get a massive boost in your ESOV simply because everyone else is investing relatively less. And if multiple industries cut back their spending, as they usually do in a recession, the cost of media often drops ensuring your relatively big ad spend is now stretching to even more media value.
Summarising a century of data, the reason brands should maintain their brand building budgets in a recession is not because of the recession itself, nor the behaviours of consumers. It’s because your competitors lose their nerve and are vulnerable because of it. If you can keep your head and your brand budget while those around you are reducing theirs, you will earn the post-recessionary benefits.
C is for consider maintaining the shorter spend too
This one is a little less definitive because it will depend on your category and the impact the recession will have on it.
If you market a consumer staple then it should be performance spend as usual. But if you work in an area which will be hit by recessionary head winds – luxury retail, restaurants, etc – then it may make sense to cut back on your shorter-term marketing spend while the recession impacts your target customers. Note, this is the reverse of traditional corporate logic which maintains short marketing spend at the expense of longer-term branding. If you really are going to cut anything, and you may want to maintain it all, it’s the performance stuff that should be reined in.
E is for the elusive balance
The greatest single analysis of the recession is Nitin Nohria’s assessment of the global financial crisis and the 9% of companies that came out of that recession in better shape than when they went in.
The secret? Smart companies learn where to cut and where to maintain their spend as the recession blows in. Firms that cut back dramatically on everything performed the worst in Nohria’s analysis. It was companies that deployed a mix of defensive moves to reduce costs while offensively investing in growth strategies that were most likely to not only survive but thrive in the recessionary and post-recessionary months ahead.
“These companies,” Nohria concluded, “reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest relatively comprehensively in the future by spending on marketing, R&D, and new assets.”
Ignore the dumb debate from those suggesting you can spend your way out of a recession or the equally dumb counter that companies simply cannot afford to maintain their ad budgets because of cash flow. There is a more nuanced approach that can allow companies to cut the operational fat while building the branding heft. Balance is the key.
S is for strategic changes to targeting
It’s an over-simplification to suggest a recession simply shuts down some categories because they are too frivolous for the serious economic times at hand. I remember working in the champagne industry during the global financial crisis and watching, with growing admiration, as several big prosecco brands saw economic constriction as a brilliant opportunity to make a move on customers and consumers that – until then – had been firmly and exclusively located in champagne territory.
It’s a similar story for the supermarket private labels that wait for the winter of recession to arrive before entering the baskets of the middle-class shoppers. And when the spring and summer of recovery arrive and their presence, value and quality have been proven they remain a regular purchase.
There are usually tiers within most established markets. As recession hits don’t mourn the loss of some of your traditional customers trading down and away from you. Look up to the premium customers who may well be in the elevator heading down to replace them. If you, ahem, run an online training programme then you are likely to lose some of the people who would otherwise have invested in themselves during better economic times. But there are suddenly 500 multi-nationals that cannot justify flying their teams to a five-star hotel for a four-day training course with three course meals. A dozen big companies saving 90% of their training budget on a superior solution will more than fill the gap. And they will probably stick around.
S is also for strategic changes to positioning
Hand in hand with a readjustment in targeting comes a review of product positioning. Your product or service might be the same, and the competitors just as they were before, but your customer has changed. They are now risk averse, keen to save, uncertain of the near future, tentative. These changes mean opportunity for those companies nimble enough to recognise and respond accordingly to market moves.
Ryan Reynolds, as usual, is already all over this approach. Get past the drop-dead handsomeness and Monty Python absurdist humour and Reynolds efforts with Maximum Effort and MNTN are in the vanguard of modern advertising. No surprise then that Reynolds is already positioning his Mint Mobile brand to recession hit consumers and against apparently recession ignorant competitors. His target consumer might remain the same but his message to those customers is very different. Mint gets it. Your phone company doesn’t. We are here for you.
I is for increasing prices
Recessions and inflation are usually seen as polar opposites of each other. The former slows the economy while the latter speeds things up and sends prices sky rocketing. We appear to be heading for a particularly strange period in which both forces will be at play at the same time. Sometimes called “stagflation”, it signals a more serious and enduring period of consumer pain.
It also means a particular pressure on prices. With inflation rampant it is hugely important that companies do not sit back and allow their stagnant prices to make them ever more unprofitable. Remember that when it comes to pricing the way you present a price is significantly more important than the manner in which you set that price, or the actual level of the price itself.
Marketers should be at the forefront of managing their company’s pricing efforts. Aim for fewer price increases, but signal the ones that are coming by explicitly explaining why and what the price increase will consist of. And don’t be tempted to euphemistically refer to price “reviews” or “alterations”. You are increasing prices, play it straight. Call it what it is. Explain why it is happening. Be clear on when the change will happen.
Linked to the challenge of price increases, don’t be tempted to run price promotions. Yes, I know Ryan Reynolds just reduced his price by half but that’s not the same as a promotion. Mint has made the decision to permanently reduce its prices to attract a new target customer. That’s a legitimate long-term strategy. As the government’s new cost of living tsar – ex Just Eat CEO David Buttress – made clear last week, there is an opportunity for British companies to cut their marketing spend and pass the savings on to the consumer with permanently lowered prices.
But more salient here is the literature on price promotions during a recession. There are a multitude of reasons why you would not discount your product in the best of times – commodification, profitability, bullwhip effects, price wars and so on. But in a recession there is an added reason why price promotions make no strategic sense.
By dropping prices temporarily, you can certainly attract some (lower margin) sales but the research is clear that when you then lift your prices back to their pre-promotional level the recessionary consumer takes offence. Either commit to permanent Ryan Reynolds-style recession prices or maintain your profits with occasional, explained price increases.
O is for orientation change
You may not have noticed it, but we’ve been living through a relatively engorged, lazy period in marketing history. Take the concept of profitability for example. It’s become an optional extra for most big businesses to generate anything like a decent marginal return over the last decade. The brands that we have lionised are very often devoid of profit and any criticism or concern at its absence. Uber has never made a profit and has no clear plan to ever make one. Caspar has led the DTC “revolution” and singularly failed to generate anything other than a loss. The giant streaming wars that now dominate TV are a bloodbath of cost over profit. And none of it seemed to matter.
Until now. The recessionary tide is finally drifting out and those companies without the ancient, essential ability to make more than they spend will find a new reality ahead. Investors are going to start using the P word again and I am not talking about purpose. It will no longer be fashionable to dismiss the need to make money with such easy disdain.
Linked to that orientation change is the ultimate marketing indulgence – brand purpose. Just as millionaires tend to focus on their purpose while working-class people dwell on rent and groceries, the arrival of recession will see a significant retrenchment in purpose wank across the marketing space.
Before some marketing bozo misquotes me as saying “recession means no more purpose” let us try and retain a level of nuance around the purpose debate. For some companies purpose is an ideal recession busting strategy that will help them survive and then prosper. But for the much broader array of brands that were playing around with purpose because it was cool and no-one was honest enough to question whether a toothpaste really needed a vision of the future, the arrival of recession will usher in a harsh reality check.
“The industry in general has just gone too far into the good,” Marc Pritchard the chief brand officer at P&G said last week in Paris. “And potentially not paying enough attention to growth.” It’s a crucial observation from the most important marketer on the planet who has attempted his own fair share of purpose wank over the years. In the middle of the largesse of the pre-Covid period P&G announced it wanted to become “a force for good and a force for growth”.
Now, with recession on the way it has recently reshuffled its corporate imperative deck. The sequence now leads with growth prioritised over good. “The order matters,” Prichard told an audience at the VivaTech conference in Paris last week. “Because first and foremost we’re in business. Our job is to innovate on our products. Our growth drives economic good. Growth drives jobs. And it decides the partners you work with, the retailers you work with. And then it enables you to do more good for society and the planet.”
Pritchard has a proven record for calling the wind just before it starts blowing. He was right about programmatic, about brand building and about Covid. And he is right about purpose. It has a role to play for some brands, some of the time. But the recession will blow a harsh wind of reality across so many of the companies that saw purpose as a panacea for every marketing ill.
N is for no more failure
And let’s add failure to the newly unfashionable concepts we won’t entertain during the recession. I am tired of everyone in marketing pushing failure as an essential pre-cursor to success. It can be. But it does not have to be. And in recessionary times, it’s really rather important that it’s not. Because you aren’t getting the pre-recessionary opportunities to fail, learn, boast about it on the conference circuit and then rework things for another go. You fail and you lose. And the lesson is you have lost and it’s over.
It’s not an imperative to fail and learn. Far from it. Blessed are those that manage to learn from the market, from occasional accidents and from success and somehow manage to avoid losing years and millions in order to become wise. As the recession arrives join me in an exorcism of sorts. Fuck failure, it’s really not welcome. It’s certainly not essential to success. And it’s especially unpopular when recession makes it a potentially fatal experience not a teachable moment.
Look at the grinning visage of Adam Neumann and glimpse the epitome of pre-recessionary thinking. Here was a guru that was lauded because his previous seven businesses had all failed. I would say that makes him an inveterate loser; idiot failure junkies thought it made him a guru with enormous potential.
He had purpose wank splattered over every aspect of his business. People, who should have known better, lapped it up. And there was zero profit, zero chance of a profit, for the company he created. In its most recent quarter it generated $718m in revenues and made a $803m loss. Even after Neumann was sacked and they restructured the business, WeWork is still losing shit tons of money. It’s a tale born entirely from the befuddled largesse of the early 21st century. And impossible to envisage in the decade ahead. Profit will beat purpose. Success will trump failure.
We face a shitty, shitty 2022 and probably worse in the year that follows. The only good news about a recession is that by the time we officially declare one to be upon us we will already have had six months of economic decline and survived it. And most recessions rarely exceed two years in length. So, we are already significantly though the worst initial stages. Keep your head down. Stay a student of history. And wait for the light at the end of the economic tunnel. It will come.