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We won’t know for certain until Q4’s figures are published in early 2023, but it seems likely that the UK is now in a recession. Our economy shrank by 0.2% in Q3 2022 and rising costs and stagnant wages make it hard to maintain hope for growth in the last quarter of the year.
Unlike the recession caused by the pandemic, this one probably won’t see an immediate bounce back. 75% of recessions end within a year with almost a third only lasting the two quarters necessary to technically qualify as a recession. I’m a marketer not an economist so I’ll skip the predictions, but we should expect to be in a recession as we go into 2023 and should approach our marketing expectations accordingly.
Setting marketing budgets during a recession requires a delicate balance. On the one hand, businesses need to be mindful of their finances and allocate resources where they will be most impactful. On the other hand, marketing is a key tool to help a business maintain its presence and visibility in the market, especially during times of economic hardship. Therefore, it is important for businesses to be strategic and considered in their approach at a time like this.
The first step is to make sure that you have a clear and accurate understanding of your business's current financial situation and goals for the coming year, particularly if these might have changed in recent months. This will help you to know exactly what you need to achieve and what budget you have to work with.
You might find that your budget and your goals for the year are unchanged and that your industry is unlikely to be heavily impacted.
If you are under pressure to reduce your marketing budget you will need to set new goals which are in-line with a lower level of spend. You may also need to replan your marketing team’s activity to ensure you’re focused on what will generate the best results without any unnecessary detours. Now might not be the time to target that new audience segment or launch a new service.
We can be certain that stopping your marketing completely will have a negative impact on your company’s performance through the recession but also in the longer term after the recession ends. Levels of competition, and therefore spend requirements, may fall during a recession but they’ll soon ramp up once the economy sees growth and if your company hasn’t been present at all in the previous 2-12 months you could find that re-growth happens without you.
Most companies already underinvest in marketing compared to the levels of spend which have been shown by numerous studies and econometric models to result in growth. Before you change your budgets you should understand how your current level of spend measures up against your competition (not just like-for-like competition, who will be under similar pressures to you, but large competition with higher budgets) and against what is required to compete.
Dropping down from 10% of your revenue invested in marketing to 8% may be viable. Dropping from 5% down to 3% is unwise. A Nielsen report found that 50% of planned media channel investments are too low for maximum payback, 50% of planned spend is lower than optimal spend levels and, if marketing teams committed the ideal amount of resources, their ROI could jump by 50%.
If you plan on cutting back your marketing spend it’s absolutely vital that you fully understand how the different elements of your marketing activity impact on results before making the call. At times like this it can be easy to fall into the trap of assuming that your most frequent final touch point is what drives conversions, without considering which activity got people into the conversion funnel in the first place. If you’re relying on last-click attribution, focusing on ROAS or ROI (a measure of efficiency not effectiveness) then a deep dive into previous performance, using a better method of attribution, will pay dividends in the long run.
With this data-led approach you can use previous successes to calculate likely results and get buy-in from key stakeholders in your organisation. You can also track results more closely using SMART KPIs to be reviewed on a monthly basis.
Les Binet, Adam&eveDDB group Head of Effectiveness and co-author of the highly influential Effectiveness in Context , says that marketers should focus on optimising price in the face of rising inflation:
“Inflation rates have been so low that marketers have forgotten of the four Ps – product, place, price and promotion – price is the one you need to get right to make all the others work. If you don’t get your prices right, you don’t make money. Optimising your prices in this turbulent world is priority number one and to do that you need to understand supply and demand in your sector.”
You can have all the "brand purpose" you like, but if your price isn't right nothing else will fall into place. You may need to avoid promotions which can cannibalise other sales and reduce the perceived value of your product.
As the economy contracts we may be tempted to reign in our brand building activity and focus on activation activity with the assumption that this is the half of our marketing which really works. “Never mind telling people about my brand, let’s just target the people looking to convert!”
The danger with this plan, as adidas and Airbnb both found out, is that investing in performance over brand is a short-termist approach which leads to diminishing returns. Instead, focus on brand building by narrowing in on targeting key audiences you know well and refine activation activity based on historical performance. The results won't be immediate, but you can't build ongoing revenue off "quick wins", so be brave and think long term.
If your industry is one of the lucky ones likely to see growth, or remain stable in 2023, (groceries, healthcare, financial services, legal services and others) then investing in achieving a significantly higher share of voice will, as ever, lead to a higher share of market. This effect, which can be quantified using Extra Share of Voice, is key to outperforming competitors, particularly those who reduce spend, as Lidl showed when they doubled their market share in 5 years.
It's difficult to know what's best sometimes, or to gather the data to support your decisions, so if you'd like our advice when refocusing your marketing plan get in touch.
