Winter Is Coming
It has been over three years since Game of Thrones ended, and several more since the infamous phrase “Winter is coming” was first uttered. While it refers to an upcoming extended period of darkness and cold within that universe, the saying quickly became a universal and playful meme to acknowledge coming change.
Despite the unexpected and outsized impact of the pandemic on most industries, and in the lives of most consumers, the global economy bent but did not break during the “winter of COVID.” The response of national governments undoubtedly had a critical stabilizing effect. We collectively bounced back when the medical community declared it safe-ish and the societal conscious decided we’d had enough. Activities and spending habits that had been on hold were no longer, to the delight of US citizens and businesses.
The honeymoon was short-lived, however. Heightened geopolitical unrest, ongoing supply chain issues, a fragmented and regional response to the ongoing pandemic, and recent inflation have many business and marketing leaders wondering if another financial winter is coming, or possibly already begun.
According to the June 2022 Global Outlook from the World Bank, “the world economy is again in danger.” This admission and jittery outlook have everyone thinking about a recession.
Understandably, the uncertainty clouding the near and long-term health of the markets, businesses, and consumers has reintroduced scrutiny across all expenses at the P&L level to conserve cash in the short term. And this pressure is often felt most acutely in marketing, forcing many to answer the question “Should I reduce or pause our advertising and marketing?” in an effort to contribute to short-term conservation initiatives.
Signal From Noise
But three circumstances of the early phase of the pandemic, a unique imbalance of supply and demand across most industries, the meteoric rise of e-commerce, and mask and social distancing health measures overshadowed a familiar pattern that seems unfashionable to admit: sales are often the result of spend.
Before COVID two critical learnings had emerged:
- Generally speaking, brands that are under-advertised are likely to lose market share
- Generally speaking, brands that stop advertising have a noticeable decline in sales
Despite this knowledge, many businesses did what felt responsible at the onset of the pandemic, slashing marketing and advertising budgets, or stopping activities altogether. The “retreat from marketing” had a noticeable effect, as the pandemic also caused many people to shop across different brands and in different places, per McKinsey. The recent – but short-lived – “return to normal” had new beneficiaries. Efforts to conserve had created limitations on growth.
Perhaps we’re asking the wrong question. Instead of focusing on how much to withdraw from the market, we should instead be asking “How do I best use marketing and advertising to drive sales in downturns and recessions?”
Making Your Next Move Count
Difficult conversations about marketing expenditures should be expected while global and regional economic outlooks remain bearish. It is therefore critical to prepare to justify maintaining, or even increasing, your overall marketing and advertising budget.
While going against the grain of conventional thinking is never easy, it is critical to prepare yourself and your organization for an appropriate response. Below, are 5 steps that can help you manage uncertainty.
- Know your customers. Remind your organization which customers are purchasing today, and which are likely to buy tomorrow. Then, remind everyone of the role your category and brand play in their lives.
- Understand how consumers’ spending impacts your industry during economic downturns. View historical periods of economic tightness and recessions to better understand the likely impact on your near-term sales.
- Understand the impact of inflation on your pricing and your consumers’ spending. Work with your business partners to understand how material and distribution price increases may affect your profits and decide to either maintain or adjust your pricing strategy. Price increases across categories (food, energy, etc.) may reduce consumers’ purchasing power within your vertical, so explore if your industry may shift to become a discretionary purchase, and/or if price and value take on greater importance.
- Fight for the investment but be flexible with execution. According to Harvard Business Review “In this environment you must accompany your customers on their new, different journey, shifting your message and even re-engineering your value proposition. This is a time not to stop spending money but a time to change how you spend it.”
- Scenario plan. It has been said that plans can be useless, but the act of planning is indispensable. This line of thinking applies to marketing; often simply imagining a range of possibilities puts organizations in a proactive mindset rather than a reactive one, shortening the time to act and creating the space for more measured strategies.
The next few quarters, and possibly years, are going to test marketers and businesses. Smart organizations will resist the urge to retreat, and by doing so, set themselves up to reap near and long-term rewards.