Recession looms. Marketers, you know what you should do, right?

javier-allegue-barros-C7B-ExXpOIE-unsplash-2 Credit: Javier Allegue Barros on Unsplash
Let me put this as simply as I can. Recession is not a one-size-fits-all event. How brands, sectors, and countries fare varies. If you brand is in decent shape, stay the course. If not, it is time to consider alternative strategies. And if you want a more detailed refresher than this, read on.

Turbulence ahead
The economic signals are mixed, and changing rapidly, but there is a strong probability that recession is looming. Strong consumer demand, coupled with supply side disruptions have triggered strong price increases. In the US, with inflation still increasing, the Fed has just implemented a the largest interest rate increase since 1994, trying to tamp down inflation, but risking an economic downturn in the process. The US stock market has entered bear market territory, down over 20% from the high in January. No surprise then that The Global Economic Uncertainty Index seems to be on the rise, as policy makers and business leaders try to figure out what is coming.

Less uncertain than 2020
With this context in mind, it is worth pointing out that we have been here before, but that was not in 2020, when the pandemic triggered a sharp decrease in economic activity. The pandemic caused a massive shock to the global economy because it choked off supply and demand, and although the Business Cycle Dating Committee classified it as a recession because the contraction was so severe, it lasted only two months, far shorter than most normal recessions. To understand what to expect from recession and how businesses should react we need to look back to earlier recessions. And from a marketing viewpoint at least, the lessons are pretty clear.

Recession is not a one-size-fits-all event
Look back to The Great Recession and its predecessors and you will find that their economic impact differed by business sector and by country. And The Great Recession, as the name implies, is an anomaly given how long it lasted. In each case, durables were hardest hit, with non-durables and services less so. In fact, as this paper notes, services tend to recover rapidly and help boost overall consumption. So, automotive, construction, and home furnishings companies should be preparing for significant and prolonged downturn in demand (with their difficulties exacerbated by their over-reliance on just-in-time inventories that are no longer on time). Groceries, fast food, and mobile communications might be better preparing for a relatively short stagnation in demand. And services should be assessing their exposure to these other business sectors before panicking.

Build demand, drive efficiency
What a company is forced to do during recession is different from what many choose to do. And the choices made are often driven by short-term factors and gut instinct, never a good combination. Too much attention is paid to media coverage and what competitors are doing, and not enough to what is in the best longer-term interests of the specific business. And when it comes to longer-term best interest, numerous studies have found that there is a relatively simple strategy which enables companies to perform well when a recession ends: build demand, drive efficiency.

Build demand
No, this does not mean switching spend to sales activation to boost short-term demand. If people are having trouble finding the budget to pay for your company's goods or services, do you really think that they are going to respond to short-term incentives? If they are a consumer, they need to put food on the table. If they are a customer, they need to make payroll. Instead, you are investing to build demand for when the recession ends (and remember, recessions typically last about a year). That means investing in brand building advertising, to ensure your brand remains more salient than the competition, and, if budgets allow, taking advantage of cheaper media costs to grow that salience. When pent up demand returns, your company is going to be better placed to benefit than the competition.

Drive efficiency
Study after study finds that companies which make their systems more efficient tend to perform better when recession ends than companies which cut production and lay off staff. Why? Because when the recession ends and demand builds, your company will be ready to meet the increased demand, with its intellectual capital intact, and margins improved. And if your company is front of mind among consumers ready to buy again, increased sales will drive profits better than before. So, search for inefficiencies and eliminate them, cut administration costs, find new ways to make production more efficient, before thinking about layoffs. In his regard, the same principles apply to marketing as any other aspect of the business, it is not about doing things cheaply, it is about getting a better return on your investment. So, think compelling creative that speaks to the audience's mindset right now, and focus on reaching a wide audience (not trying to pin point people who likely cannot respond right now). 

Prove your worth
As I mentioned above, there is little evidence to suggest that short-term sales activation or discounting is going to do more than temporarily boost demand, if only because in many categories demand is relatively inelastic. However, there is no doubt that as demand stagnates companies will start to think about incentives and price discounts. Bad idea. The likely outcome is lower margins now and for the future. What companies should do is focus on proving their worth, either in terms of value – lasts longer, more reliable, additional benefits – or reassurance – known and trusted. One of the most extreme case studies of a brand following this advice Fairy dish washing liquid in the UK, which despite being 50% more expensive than store brands, managed to grow market share and increase prices during The Great Recession by triggering memories of decades of advertising which highlighted the brand's ability to clean more dishes than comparable brands.

Find opportunity in adversity
Kantar BrandZ finds that its strong brand portfolio outperforms the market, particularly during the recovery phase, likely for exactly the reasons cited above. They were strong brands to start with, they did the right things, and when recovery came, they benefited as a result. But there is opportunity to be found in recession, if you have the right mindset. Put yourself in your customers position, and then figure out how they feel. What can your brand do to alleviate their concerns?

During the Great Recession, when motor vehicle sales were once again hard hit, Hyundai stole a march on its competition by launching its "Assurance" program in 2009. This allowed new-vehicle buyers or those who had leased one to return their cars for up to a year after purchase if they lost their income due to job loss. This tactic not only made people feel more comfortable making a purchase, but it also implied that Hyundai understood the uncertainty many consumers faced and had their backs. The combination of good vehicles, lower prices and smart marketing helped accelerate the brand's growth. Perceptions that Hyundai was different from other brands increased and sales jumped 24% in 2010.

Assess the situation before you act
For some companies a recession could prove fatal. If they start loaded with debt, rising interest rates, lower demand, and squeezed margins make nasty combination. But for companies that are on a sound financial footing, a recession might just prove to be the catalyst that helps them change their game for the better. Now is not the time to panic, but to assess the specific situation facing your company, and figure out how best to react. Just remember, build future demand, drive current efficiency, and your company will be more likely to exit the recession head of the competition.

If you want more thinking about what to do in recession and some case studies to illustrate what I have said in this post, check out my post from 2020 on the Kantar website. I am relieved to see that there is little that I would change, and my overall conclusion that market share will only change if a brand does something to shift the status quo in a category remains valid. So, stay in touch with your customer, look for the opportunities to gain competitive advantage, prove your worth, and, if you can, invest more in advertising.

But what do you think? Please share your thoughts. 

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Comments 1

Nigel Hollis

on Friday, 17 June 2022 11:57

Offline, a couple of people have pushed back against the recommendations made in this post, suggesting that they are "academic" and that individuals have little leeway to influence the company's recession spending. So let me push back against the push back.
1) The evidence demonstrates that, whether by luck or judgement, companies that build demand and seek efficiencies have a higher probability of growing once a recession ends, by contrast, companies that play it safe are more likely to perform worse. Them's the facts. Do with them what you will.
2) If you are in any sort of senior management position, are you just going to roll over and accept the risk that your bosses will make the wrong decision? Or are you going to prepare the case for what your company can best do to respond to recession and share it with them? Kudos to the people who were already doing so weeks ago.
3) If nothing else, if you are a marketer, you should be thinking about how you can best spend the funds available to you, in order to get through the recession as best you can. And here is a hint, think pricing power not just short-term sales. Protect the former, seek the latter.

Offline, a couple of people have pushed back against the recommendations made in this post, suggesting that they are "academic" and that individuals have little leeway to influence the company's recession spending. So let me push back against the push back. 1) The evidence demonstrates that, whether by luck or judgement, companies that build demand and seek efficiencies have a higher probability of growing once a recession ends, by contrast, companies that play it safe are more likely to perform worse. Them's the facts. Do with them what you will. 2) If you are in any sort of senior management position, are you just going to roll over and accept the risk that your bosses will make the wrong decision? Or are you going to prepare the case for what your company can best do to respond to recession and share it with them? Kudos to the people who were already doing so weeks ago. 3) If nothing else, if you are a marketer, you should be thinking about how you can best spend the funds available to you, in order to get through the recession as best you can. And here is a hint, think pricing power not just short-term sales. Protect the former, seek the latter.
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August 13, 2022

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