Marketing During A Recession: Finding The Upside Of An Economic Downturn
Dec 8 - Brands and advertisers settling into a post-Covid marketing frenzy could face another major disruption, this time in the form of a global recession. With 60% of economists expecting a recession in the eurozone and global growth forecasting just 2.9%, down from 4.6% at the start of the year, an economic slowdown seems inevitable.
As consumers adjust their spending to keep pace with inflation and rising interest rates, many brands and advertisers are following suit. According to data from Nielsen Ad Intel, the US advertising market fell 7% year-over-year in the second quarter of 2022, indicating that many marketers are anticipating or have already experienced budget cuts.
But while a drop in media spending might make sense for near-term budget concerns, marketers focused on mitigating the impact of the recession and increasing the effectiveness of their marketing budgets should think twice about spending during a recovery.
Recessions don't last forever
The good news for traders fearing a long downtrend is that many downtrends are short-lived; Historically, 75% of recessions end in less than a year and 30% in just two quarters. Therefore, any cost reductions will only be short-term and result in nominal savings, putting brands at a disadvantage during the payback period, which is likely to be fast approaching.
With most brands already spending less (reducing ROI by an average of 50%), further cuts in media spend can only reduce ROI at a time when brands no longer need to maximize their returns.
The solution is not to cut the budget, but to improve the media mix and invest in high-performance channels. Finding the right balance ensures that costs are correctly allocated to scope, efficiency, and redundancy. For example, a car manufacturer recently increased their reach by 26% and impressions by more than 39% by optimizing their media placement without breaking their budget.
Investing in media during an economic downturn can ultimately save a brand money, as industry downturns create supply-demand dynamics that benefit ad buyers and lower media costs. In fact, some brands increase their media spend during recessions. In addition to a favorable environment for media spend, brands may also find that competitors have cut back on advertising, creating an opportunity for campaigns to have greater impact.
Growth is possible even in an economic downturn
Before assuming a decline in sales due to a recession, brands should assess the landscape and closely monitor consumer behavior for changes in spending habits. Shifting spending habits from large indulgences to small indulgences, for example, creates growth opportunities in some categories, like lipstick, while shrinking in others, like food service and hospitality.
As consumer awareness increases, brands need to adjust their messaging and media plans accordingly. Recession-friendly messaging can help build brand equity and ensure consumer loyalty after a recession.
Brands and advertisers looking to maximize category growth potential during a downturn should focus on analyzing consumer behavior to improve messaging and maximize the impact of ad spend.
cut (right)
Sometimes budget cuts are unavoidable. When you know you need to adjust your spending, be sure to cut the right expenses, in the right places, to maximize the return on your remaining dollars and minimize the negative impact on your ROI.
And while reducing media spend may seem like an obvious way to cut costs and meet financial goals, the payoff can be very small. A Nielsen study of media plans found that just 25% of channel-level investments are too high to maximize ROI, and the average amount spent within this group is 32%. And while reduced costs will improve channel ROI by a modest 4%, brands will see a significant drop in sales volume due to fewer ad-driven sales.
It can also be tempting to add incentives as consumers reduce their spending, but this approach has its challenges. Periodic promotions can cause consumers to shop only when there is a promotion, leading to poor sales and tight margins on regularly priced items. Based on Nielsen's marketing mix models, ROI tends to be lowest on ads and 45% lower on media, as only a small portion of ad sales actually grows and ad sales they must be much higher to make up for the lost margin. .
Instead of relying too heavily on promotions, think about the channels that can be cut or shortened with the least impact on your ROI. If a channel is already underperforming, it may be better to eliminate it entirely and reallocate spend to channels with better performance and higher ROI.
Whatever the mix of means and budget allocation, at the end of the day, remember that spending is better than not spending. According to Nielsen Marketing Mix models, non-broadcast brands can expect to lose 2% of their long-term revenue each quarter, and when media efforts resume, it will take 3-5 years to recoup lost revenue. . capital resulting from this interruption. . . And your bottom line isn't the only thing that will suffer if you cut media spend. Nielsen data shows that marketing accounts for 10-35% of brand value.
Written by Abhinav Maheshwari, Vice President of Performance Marketing, APAC Nielsen
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