How does marketing work in a recession?
This article was first published on BrandWerks: How Does Marketing Work in a Recession?
Recessions happen once every decade on average. It’s not too difficult to predict when they are likely to happen, but somewhat more difficult to predict what will cause them. Contrary to belief, a recession provides a window of opportunity for firms to strengthen their brands.
Mark Ritson pointed out a wonderful quote from Walmart founder, Sam Walton, which offers probably the best philosophy for dealing with a recession.
“I was asked what I thought about the recession. I thought about it and decided not to take part”
The Ehrenberg-Bass Institute for Marketing Sciences offers similar advice. To oversimplify, they recommend to continue with business as usual, and find many advantages in doing so.
However, there are some nuances brands may want to adhere to.
To summarise how brands do this, they should decrease bottom-of-funnel (lead generation or sales activation) activities, and focus on top-of-funnel (brand building) activities, maintain marketing budgets, and adapt marketing messages to advertise within the context of their brand and the macroeconomic climate. There is evidence which shows brands who hold their advertising spend during economic downturns recover quicker than those do don’t. How to manage this is explained in more detail below.
Decrease bottom-of-funnel activities and focus on top-of-funnel activities
Top-of-funnel (ToF) and bottom-of-funnel (BoF) activities is industry jargon for brand building (ToF) and sales generation (BoF). ToF long-term brand building activities focus on increasing brand awareness and promoting brand image, while BoF short-term sales generation focus on generating immediate leads or sales.
Typically, ToF activities include emotive advertising, not aiming to persuade the consumer to buy today, but to make them aware of the brand and help them perceive a certain positive image of the company. ToF advertising is important because not all consumers will be in the market for a product or service today, however they may be at a future date. Hence, when they are, brands will want their products to be top-of-mind.
Most marketers focus on BoF: this is wrong. Studies show that in general, businesses operating in business-to-consumer markets should spend 60% of their marketing communications budget on ToF activities, while those in business-to-business markets should spend around 50%. These figures are a general rule of thumb and apply differently depending on context.
However, during a crisis, this is no time for a hard sell. Non-essential items will be at the back of people’s minds. BoF marketing is probably not only inappropriate right now, but unlikely to produce the same returns as pre-crises. A total lack of regard for the state of the world right now will likely leave consumers with a bitter taste in their mouths for you as a brand.
On the contrary, ToF brand activities can be used to establish a greater good, however it is dependent on your brand’s positioning.
Maintain marketing budgets
It’s hard to suggest maintaining marketing budgets while businesses are facing staffing and cash flow issues. However, there are important principles called Share-of-Voice (SoV) and Excess Share-of-Voice (ESoV). SoV is your brands percentage of advertising revenue amongst other advertisers in your sector. So, for example, if all competitors advertised on a single page in a magazine, and your brand had a quarter of that page, your SoV would be 25%. ESoV is the percentage of extra SoV a brand has over its market share. So, to go back to the earlier example, if I had 20% market share and 25% SoV, my ESoV would be 5%.
There is an intriguing yet relatively unknown law in marketing. It’s a law that has been replicated in studies and seemingly stood the test of time. That is, for about every 10% ESoV, there is a return of an additional 0.5% market share increase. That means, if a brand commanded 15% market share, and it held its SoV at 25%, it would expect to increase its market share to 15.5% within a year. I
Combine ESoV in a recession, when others are reducing their marketing spend (and SoV), it opens an opportunity to increase market share at bargain prices. As the economy begins to recover, competitors will increase marketing spend and the window of opportunity will close. However, a brand who has taken advantage and increased market share will benefit from industry growth in the recovery and will maintain their share in a larger market.
Adapt marketing messages to advertise within context
Any advertising which clearly shows no consideration or empathy for the current situation seems misplaced and clumsy. The Fiji Tourism Board recently promoted ‘Visit Fiji’ style adverts to New Zealanders, without any consideration that this is a terrible time to travel during the COVID-19 crises. Had they adapted their message to that of one of community or togetherness (depending on their brand image), yet using Fiji’s clear brand assets (possibly white beaches, blue seas, culture and more) they could have communicated relevant advertising, while still building the Fiji brand as a holiday destination for New Zealand tourists post-COVID-19. It was a case of good strategy, poor execution.
Qatar Airlines are promoting the hygiene and cleanliness of their airplanes (a prerequisite to premium travel), while empathising that it’s not the best time to travel, but they appreciate some people may still need to travel by air. This is while the news of other airlines reports of cuts and redundancies.
Recessions are tough but present an opportunity for brands to increase market share and benefit from the following upturn in the economy. If possible, they should take this opportunity to focus on brand activities and maintain marketing spend.
If you can keep your head when all about you others are losing theirs…