Friday, 17 October 2008

A time for courage in marketing.....

Times are tough, we are talking ourselves into a recession. As we will hear often, it will be survival of the fittest. But what makes you fit to survive?

The latest Bellwether survey (just published by the IPA, the Institute of Practioners in Advertising) makes for depressing reading - "in Q3 annual marketing budgets were revised down to the greatest extent ever recorded in the survey’s nine year history". Moray MacLennan, IPA President, said “I doubt these gloomy results will come as a surprise to anyone. In light of current headlines the biggest surprise may well be that 12% of companies’ budgets were revised upwards"

People will go on buying, after all the GDP will probably only fall a percent or two before we claw back again. But that percent or two will shake out some under-performers and there is a lot of evidence to suggest that a major contribution to failure is a lack of courage in maintaining marketing spend. In fact, when competition to get a new customer increases, can it make more sense to increase marketing spend?

So returning to the 12% spending more, what evidence is there to suggest that increasing their marketing budget is a good thing? I've done a bit of digging:

The Smeal College of Business conducted a survey in 2005 called "Turning Adversity Into Advantage: Does Proactive Marketing During a Recession Pay Off?" The survey interviewed more than 150 senior marketing executives from a variety of industries about the effect of the last US recession in 2003. It found "firms entering a recession with a pre-established strategic emphasis on marketing; an entrepreneurial culture; and a sufficient reserve of under-utilized workers, cash, and spare production capacity are best positioned to approach recessions as opportunities to strengthen their competitive advantage". Dr. Gary Lilien, one of the authors of the study is interviewed at the BNET Intercom blog. It seems that spending more will not work for everyone but if the existing culture is to value marketing, the nerve is there and you have the capital to give you the confidence to do it, then the outcome from the last recession suggests that increased marketing in a recession substantially strengthens the relative competitive position when coming out of it.

A well written piece by Millward Brown entitled "Marketing During Recession: To spend or not to spend" highlights anecdotal and survey evidence that cutting back on marketing is often a bad idea. He highlights an IPA analysis that suggests that "While companies that cut marketing spend enjoyed superior Return on Capital Employed during the recession, they achieved inferior results after the recession ended. During the recovery, the “spenders” achieved significantly higher return on capital employed and gained an additional 1.3 percentage points of market share." What's going on? Well, among other factors, cutting costs almost inevitably increases profitability in the short term, but if you keep marketing the brand during the recession then the relative profile of your brand increases. You can gain a brand advantage and then when there is more money available more of it is spent in your direction.

And here's some commentary on a report by media and communications group Carat: "the main point ... .. is that maintaining a marketing presence during economic downturns pays big dividends when better times return".

The message being repeated is that bold but wise spending on marketing becomes an investment in market share, that pulls in custom now but comes into its own when we emerge from recession. Much of the expenditure of the companies that showed post recession gains must have been on confidently marketing their brands. A longer term strategy winning out over the temptation to go short term cost cutting.

1 comment:

  1. Thanks for dropping by BNET and riffing on Jake's post. Now IS the time to advertise!

    Michael Mattis
    social media manager