The rise in uncertainty accompanying this period of high-inflation poses a problem for advertisers, as they strain to match shifting consumer behaviors and compete against thousands of other brands over near-impossible price points.
With no indication of financial respite in sight, what does the current economic landscape, and looming recession mean for advertisers worldwide?
The Current Situation
Still suffering from the repercussions of Covid-19 and the ongoing Ukraine conflict, the global economy is in a state of deceleration as financial conditions tighten. Brands are beginning to exercise caution when it comes to budget planning for Q4 and 2023 – with some pulling back on certain areas and reinvesting in other channels. While there are countless explanations for this, we’ve identified three key reasons:
- Ambitious Business Goals: Brands are looking to readjust their growth objectives as economic conditions become more challenging
- Supply Issues: Businesses are experiencing stock shortages and are having to pivot their strategy to support their real-time business inventory
- Stabilization in Digital Growth: the post-Covid boom in ecommerce has begun to stabilize, impacting advertisers who might not have budgeted for the correction and/or rise in physical retail
Looking at previous periods of economic downturn, this shift in budget is to be expected. Advertisers are pulling spend from longer term investments such as brand building and large scale projects, and investing in short term solutions (such as performance led marketing) that show measurable results and ROI. While this reallocation may seem appropriate in the circumstances, it is important to consider that there are additional factors to take into account alongside a performance based approach.
Strategizing Throughout Economic Hardship
With the current situation in mind, we sat down with a number of our senior leaders across the global business to discuss what the digital marketing landscape looks like amid economic unrest and next steps; what advertisers will do, versus what they should do.
What Advertisers Will Do
Initially we’ll see an intermission as brands take the time to reassess the situation and realign their strategy. An increase in financial pressure may cause advertisers to cut back on marketing budgets and turn to lower funnel marketing instead of upper funnel marketing – reducing marketing spend to protect margins.
That being said, brands are recognizing that, even in a recession, consumers will continue to purchase online to fulfill their needs, so rather than switching off activity, we’ll see brands pull back spend from larger scale investments – such as innovation projects and growth strategies – focusing on fundamental areas that drive short term ROI. Accompanying this we can also expect to see significant cut backs on media spending – and a surge in agency onboarding, as brands look to outsourcing to allow for greater flexibility.
What Advertisers Should Do
The marketing industry is starting to share its perspective on what brands ‘should be doing’, and it’s certainly awash with the same opinion – that a significant budget pull back may make the recovery period that much harder. Although a popular stance in the marketing community, it isn’t necessarily an approach that businesses who’re facing financial pressures will find easy to swallow.
Recessions are, understandably so, a breeding ground for uncertainty which can lead to brands making financial based decisions that could ultimately hinder business performance. And while various studies have shown that companies who’ve continued to advertise at high levels during an economic downturn saw a greater volume of sales than that of their competitors post-recession, increased investment into the business isn’t always a viable option.
(Source: The Drum)
A report from the 1989-91 recession showed that cutting ad spend lost fast-food chain McDonalds approximately 28% of their worldwide sales, but Taco Bell, who increased their ad spend throughout the recession saw a respective 40% increase in sales. While this study supports the ‘don’t cut budgets’ narrative currently circulating the industry, there are so many additional factors that could’ve influenced these results aside from ad spend. In short, there are more avenues to explore aside from increased spending.
Advertisers need to recognize that increasing their investments is just part of the success narrative, and there is more value to be found in making their existing investments work harder – improving its efficiency and, ultimately, performance.
The best way to safeguard your organization is to take a deep dive into your advertising investments from the last two years and think about the overall goal – considering your priorities in regards to business objectives, data and smart advertising technology. Be strategic and use this opportunity to invest in your brand, with a focus on the long term outcomes, while making your data more efficient.
Remember that every advertiser, customer and objective is different, so spend time analyzing and thinking outside the box.
Best Practices During A Recession
To quote Erich Joachimsthaler, (Founder and CEO of Vivaldi Group) in a recent report for Econsultancy “…the prime time for marketing is times like right now, because you manage the most critical relationship that a company has, its relationship with the customer.” With that in mind we curated a number of best practices for brands to consider.
- Be more customer centric than ever before to ensure you stay front of mind with your audience. Assess how customers are engaging with your brand and plan accordingly
- Be more strategic, and prioritize high quality, customized, digital experiences that actually assist customers and find solutions for their needs
- Take advantage of the smaller volume non-performance campaigns to negotiate better prices (in programmatic or RTB)
- Leverage agency partnerships; establishing relationships with agencies throughout economic unrest will allow for greater flexibility and expertise within your business
- If budgets for media spend are reduced, ensure that your owned and earned assets are working as hard as possible
As with every economic downturn, the next eighteen months will see an acceleration in innovation within the digital space. Individuals are having to think ‘outside the box’ – and as such we’ll see an increase in innovative and disruptive concepts being born within the digital marketing space.
It’s a good time to be a disruptor.