#CoronavirusSA: How to grow in a covid-19 recession
by Rita Doherty (@ritadoherty) Right now, many business are shutting down and most marketers are withdrawing their planned activity. But there will come a time when the lockdown ends and we slowly return to ‘business as usual’ — even though the new normal will be different in so many ways.
On the back of the novel coronavirus crisis comes a second crisis: an economic one. It’s vital for businesses to start planning now in order to mitigate their risk as much as possible and emerge from both crises with stronger brand equity than before. Yet the default behaviour in a recession is for brands to cut marketing spend to compensate for lost revenue. This is the worst thing you can do and will weaken your brand in the long term.
Empirical evidence shows that market-share gains and losses are more volatile during recessions, and brands that cut marketing spend lose disproportionate share, while brands that invest during recessions can grow exponentially. This is because brands that maintain advertising exposure when competitors are cutting back can grow market share at lower costs than during good economic times. This enables you to emerge from the recession stronger and more profitable.
- Let’s say category spend was R100m before the recession, and then dropped by 20% during the recession to R80m, and
- Let’s say your brand spent R20m before the recession, which would buy you 20% share of voice (SOV)
- If you can maintain your spend of R20m during the recession, then the same investment will now buy you 25% SOV
A study by McGraw-Hill of 600 US companies during the big 1981/82 recession clearly shows the exponential growth of companies that invest in advertising during a recession. Starting from a Sales Index base of 100, McGraw-Hill found companies that invested showed steady growth throughout the recession, while companies that decreased their adspend underperformed for four years, before mildly recovering after the recession. Yet companies that invested during the recession skyrocketed afterwards, achieving a Sales index of 375 vs 119 for non-investors. In other words, investors grew more than three times more than non-investors.
Another study by PIMS of 183 UK companies during the big 2000/02 recession shows the same clear evidence. Companies that invested in advertising generated an ROI of 4.3 vs -0.8 for non-investors.
In 2008, a study by Peter Field showed that companies that reduced their adspend, to the point that they were off air for long periods of time, had double the risk of losing significant share.
Post vs Kellogg’s
Marketing history is full of great examples of brands using recessions to grow. For example, during the 1920s in America, Post and Kellogg’s were neck-on-neck. When the great depression struck in 1929, Kellogg’s increased advertising while Post cut. By the mid-1930s, Kellogg’s had come out on top and has remained the leader ever since.
Schlitz vs Miller
Another epic example is Schlitz, which was the top-selling beer of the 20th century — until the 1970s recession, when Miller increased its adspend and in four years its market share went from 8,5% to 21%. Meanwhile, Schlitz’s didn’t keep up with Miller’s adspend and its share dropped from 15.5% to 4.6%. The rest is history.
Do the right thing
Marketers come under extreme pressure during recessions, and it’s so tempting to just cut marketing budgets to compensate for the short-term loss of sales revenue. But this is a big mistake. Do the right thing for the long-term health of your business and invest in marketing during a recession, so you can bounce back stronger.
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- Fair Exchange: Rebalancing for branding post #CoronavirusSA — Erna George
- #CoronavirusSA: CMOs, it’s time to roll up our sleeves — Danni Dixon
- #CoronavirusSA: Recession marketing is for the brave — Danni Dixon
- #CoronavirusSA – Special Section
Rita Doherty (@ritadoherty) is the chief strategy officer of Nahana Communications Group. With a BA in philosophy, an honours in English lit, and an MBA with a cum laude dissertation in decision-making, culture and technology, she’s worked across multiple categories, from banks to baked beans. In 2014, the Coca-Cola team in Atlanta handpicked Rita to help refresh the brand globally but, more recently, she’s published “The Big Easy: Scientific Marketing and the Creative Instinct”, based on her explorations of new insights coming out of behavioural economics and scientific marketing.
This MarkLives #CoronavirusSA special section contains coverage of how the novel coronavirus, SARS-CoV-2, and its resultant disease, covid-19, is affecting the advertising, marketing and related industries in South Africa and other parts of Africa, and how we are responding. Updates may be sent to us via our contact form or the email address published on our Contact Us page. Opinion pieces/guest columns must be exclusive.