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Cutting through recession: Why Marketing shouldn't be first in line.

Cutting through recession: Why Marketing shouldn't be first in line.

Mass global redundancies at the likes of Meta and Amazon may have raised concerns about the fate of the jobs market and almost certainly struck fear into marketers. Typically, in any business when times are tough, the first-place businesses look for cost savings is marketing. Tech businesses whose profits soared during the Covid pandemic scaled staff numbers aggressively, committed to a vision of a new post covid reality where everything would continue to be done online.

While online activity generally remains elevated from 2020 numbers, those tech profits have dwindled as society started to open up, changes to privacy and tracking rules have made core advertising businesses less attractive and more expensive for users and new entrants have appeared. Add to this a growing cost of living crisis, imminent recession, reduced consumer spending and climbing interest rates globally and we have a more traditional but no less catastrophic global event on the horizon for all businesses. Here in the UK, online used car dealer Cazoo said all staff were at risk of losing their job and they slashed marketing & sponsorship deals including its shirt deal with Aston Villa and sponsorship of a cricket tournament called The Hundred. For anyone who has spent any time working in marketing, cutting of marketing budgets is so often what happens as a first step, indeed this can be an annual occurrence, even when times aren’t tough. Once the budget has been hacked, marketing redundancies follow and If this doesn’t fill the financial void, then cost savings and redundancies progress through the business department by department. Despite such a bleak outlook, it feels slightly counter-intuitive to be talking about mass redundancies when employers have been struggling to fill 1.3 million vacancies. For now, the job market continues to be an employees market with businesses competing for the best talent, but that looks likely to recalibrate during 2023. In another report The Bank of England outlines that it expects unemployment to increase from its current low of 3.6% to around 6.5% by 2025 as the cost-of-living crisis grips. So the year ahead and beyond looks tough. Businesses will be under pressure to survive, hiring freezes are likely to come into play and cost cutting will be done. But let’s focus on marketing. Why are we as a function always the first to be cut and what impact does that have on a businesses ability to survive or even thrive during a downturn? Cutting your way to survival Henry Ford famously once said “A man who stops advertising to save money is like a man who stops a clock to save time”. So why do a lot of businesses still do this during times of financial hardship? Time and time again as marketers we see the “marketing cupboard” as the first port of call for cost saving. Almost certainly because it’s the easiest thing to do when businesses are faced with making significant cost savings, as they can be cut swiftly and it will have an immediate financial impact. As a side note, this financial approach, which isn’t a new thing, probably also fuelled marketers to adopt a more digital first approach. Because it enables marketers to justify marketing spend through more trackable results and where performance can be measured at a more granular level. Ultimately making it harder to cut spend, and therefore protecting their roles. Yet even with this much more accurate RoI view, huge cuts to marketing still happen in businesses where marketing isn’t at the top table. The steps are all too common. Cut all discretionary spend, then in no particular order reduce all spend down to mandatory & regulatory spend and/or reduce headcount. What are advertisers planning to do? At the backend of 2022 The Guardian reported that more than two-thirds of the UK’s biggest advertisers intend to cut back spending on traditional TV next year as the recession fuels a shift to digital media and last-minute bursts of promotion. A survey of 59 UK advertisers has found that 67% will make the deepest budget cuts to ads on broadcast TV, according to the Incorporated Society of British Advertisers (ISBA) and the media investment analysts Ebiquity. Overall, nearly 40% of those surveyed said they intended to cut spend in “offline” media including traditional TV, radio, print and outdoor sites such as billboards, on buses and posters sites. A third of businesses surveyed said they intended to increase spend on formats such as paid search and social channels, as well as digital formats such as podcasts, music streaming and digital screens. However, just over 30% acknowledged that campaigns to brand-build will also remain a focus next year. All that seems logical. Habits and how people consume media and therefore marketing are changing. So, it makes sense to shift spend. But don’t reduce it, redistribute it. If you’re really smart, and have enough authority with the decision makers you should probably increase your marketing spend during these times of hardship. Evidence across 100 years suggests that businesses which don’t reduce, but instead increase their marketing budgets during recessions, actually achieve proportionally higher sales than those which lower spend or don’t spend any at all. When you think about it, it’s obvious. When other businesses react to financial hardship with the old recession play book of reducing advertising activity, those that increase their spend have an exponentially larger audience to market to… Don’t believe us? In 1927, Roland Vaile published his Harvard dissertation. It tracked the performance of 250 major US businesses from the post-war recession years up to 1923 into the boom years that followed. He assigned each business into one of three categories:

  1. Those which did not advertise

  2. Those that reduced marketing budget

  3. Those who increased marketing budget

He demonstrated that businesses which increased their marketing budget during the recession enjoyed higher rates of sales than their competitors. Not just during the recession but also in the following three years. Businesses which lowered their budget saw their sales decline both during the recession and then for the following three years. Astonishingly, these businesses performed worse than those which did not spend at all. In the 1920’s, Post was the category leader in the ready-to-eat cereal category. During The Great Depression, Post cut back significantly its marketing budget and rival Kellogg’s doubled its marketing spend, investing heavily in radio and introducing a new cereal called Rice Krispies, featuring “Snap,” “Crackle” and “Pop.” Kellogg’s profits grew by 30% and the business became the category leader, a position it has maintained for decades. Another example is 10 years later in the 1930’s. Proctor & Gamble continued to invest in marketing during The Great Depression, turning Oxydol into a household name. They did this in between light-hearted drama stories aimed at women which is how we get the phrase ‘soap opera’. So, whilst others survived, P&G thrived. Buchen Advertising tracked budget vs sales trends for the recessions 1949, 1954, 1958 and 1961. They found that sales and profits dropped at businesses that cut back on marketing. After the recession ended, those same businesses lagged behind the ones that maintained their budgets. That was ages ago. What about now? McGraw-Hill studied brands during the U.S. recessions of the early 1980’s. Of the 600 businesses they analysed, those who continued to market during the 1980-82 recession were 256% ahead of their competitors who didn’t market. In the 1990s, a MarketSense study concluded the best strategy for coping with a recession is balanced long-term branding with promotion for short term sales. The study shows brands like Jif and Kraft Salad Dressing experienced sales growth of 57% and 70% respectively after increasing their marketing during the recession So, what does all this mean? Our view and in fact our own approach to our marketing activity, is you need to hold your nerve, maintain your existing marketing spend and believe in your vocation, even in a strained and uncertain economic climate. Here’s some points to remember: 1 - Competitive disadvantage The fundamental point of marketing, when done well, is to promote specific goods or services to a target audience. The end goal is to generate leads and convert these into sales, producing enough revenue to earn a return on your marketing spend. So, on the flip side slashing your marketing spend results in reduced reach and fewer leads, ultimately reducing your turnover. End result. Reducing brand awareness and recall over time, risking your market share. 2 - Marketing shouldn’t be viewed as a cost (easier said than done!) As before, marketing aims to generate leads and create revenue for your business. It’s an investment not a cost. If we say it long enough FD’s might just believe it ☺. Yes, you should optimise your marketing spend, with a view to continue to drive leads whilst maintaining viable profit margins. But arbitrarily slashing budgets is madness. And if marketers ruled the world we’d say it’s better to target actual non-strategic costs when attempting to reduce your business’s total spend, ideally those that don’t have a direct impact on your turnover or bottom line profits like marketing does. 3 - It’s Sales & “Marketing” that keeps business going, not just sales. Marketing is a discipline that maintains the flow of customers and money into your business, sales don’t just happen. What tends to happen is sales remain largely untouched for a while whilst the businesses slash marketing budgets as a cost-saving exercise. It’s a false economy and only delays the ultimate pain as less marketing makes sales harder which can strangle revenue at a time when costs are rising. Take the current energy prices for businesses in the UK right now. Businesses are potentially struggling to fund their overheads right now. They then take the easy route and slash marketing to fund this instead of trying to win net new business or new business from existing customers through marketing. Better to focus on making that budget work harder and closing the cost gap with extra revenue. 4 - Don’t abandon customers when they need you? Some businesses will be delivering goods or services that may be classed as “essential” or driven by need as opposed to casual demand. At the same time, a large percentage of revenue comes from existing customers, with those that have essential goods and services more likely to generate revenue through a motivated base of loyal consumers. So, people may rely on you to continue your supply and help sustain them through difficult times. By minimising your marketing spend, you could effectively be abandoning these customers at a time when they need you the most, or giving a competitor room to swoop in which could cause long-term reputational damage, undoing much of the previous work you may have done to target, capture and build relationships with your customers. How does all this affect marketers? Budget cuts, recession and strategic reviews have historically been met with trepidation from marketers. “We’ve seen and heard all this before. Let’s get ahead of the game and get ourselves out there on Linkedin looking for new roles.” is the normal, default response, so what now? Prior to the cost-of-living crisis and a looming recession there was a big drive to in-house marketing roles largely driven by a desire/need to own and control talent in a tough job market. The Drum recently reported that they expect to see a re-appraisal of in-housing and believe there’ll be a rebalancing between in-housing and outsourcing via agencies. The commercial flexibility, alongside the responsibility for the human culture/cost that agencies provide, will be of great value to brands in the current uncertain market conditions. In their opinion, they also believe that the total in-housing of marketing has offered little in terms of success. Will marketers feel the pinch if recession grips? Based on history, yes. And it will be directly through reduced budgets or redundancies but also through increased workloads for those not made redundant who are asked to stick around to keep the lights on. But it’s not all doom and gloom. At the beginning of February LinkedIn had 135,910 marketing jobs available in the UK. Of those jobs 85,759 (63%) were listed as onsite, 40,303 (29%) as hybrid and a further 9,848 (8%) remote working.(Which prompts another interesting question around working location, but that’s a blog for another day) Of those open vacancies, how long will these roles stay available or will hiring freezes see them coming off the market, roles that are available are they on terms you would be willing to accept and how stable are those roles when “last in first out” remains prevalent in UK businesses? Slash and burn doesn’t have to be the way? As a marketing lead or HR Director, you might be having these budget & headcount conversations. Contingency planning to ensure the long-term success of the business with these headwinds. If not, then your business is either very fortunate or very foolish. If you have available roles, or have to make difficult choices over headcount, then decisions don’t have to be black and white. Project based work remains very effective in delivering great results, with fast turnarounds whilst providing a cost effective and very low risk approach. This is exactly the reason we started the Inspired Marketing Group, to help marketing teams deliver great results with complete flexibility. When faced with a cost saving challenge, our clients often find that for example, 3 days of support is better than none and obviously cheaper than 5. Not only does this provide a cost saving to the business, but invariably our clients also find that they can get somebody in for 3 days with greater expertise, someone who can get more stuff done quicker and potentially somebody that they couldn’t afford to employ on a full time basis.. So it looks like the roller coaster years aren’t over and life looks like it’s going to continue to be tough for all of us over the next 12-24 months. Hopefully some of the positive changes that we have seen in the world of work as a result of the pandemic - flexibility, location and output focus will provide businesses with some new tools and ways of thinking when it comes to resourcing and navigating their way through the coming years. But of course, if you find yourself on the wrong end of the finance teams spreadsheet then come and say hello.


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