Do More with Less, Part 2

Part 1 was posted last week and can be found here.

International advertising agency Oglivy offers 7 points of advice based on their experience in guiding brands through previous recessions, mixed with some of the latest academic thinking.

Here are the last 4:

4. Cut Strategically within a Brand Portfolio

If you have to cut spending, some cuts are better than others. Generally, you should cut the budget for smaller brands rather than for bigger brands. Small brands often take a disproportionate share of marketing spend because they are trying to grow, but bigger brands are likely to deliver bigger returns in the short term.

You should also exploit seasonality to make cuts in off-peak sales periods. The sales losses will be lower. This is also the time to take a hard look at the contribution of different brands to profit as well as at their growth potential. Prune your product lines. Drop support for stagnant brands.

5. Use Price Promotions Sparingly

In a recession, marketers are under tremendous pressure to offer price promotions (such as temporary price cuts, premiums, couponing, BOGOFs, etc.). These are the easiest part of a marketing program to measure, and therefore the easiest to justify when budgets are tight, but they can truly damage long-term profitability. You need to work out the right balance between promotion and stimulating primary demand in your particular case.

6. Consider Reassurance or Value Messages

Your brand may be so sensitive to recession that a different, short-term message is called for. Many brands are already following this course. Stuart Elliott noted in The New York Times that: In advertising, many financial institutions are racing to reassure consumers with soothing messages – that focus on important “S” words: strength, safety, stability, security.4

Reassurance messages don’t need to be purely rational, of course. Indeed, there is growing evidence that emotionally based messages are more persuasive than rational ones. Kraft has enjoyed success with tactical value messages for several of its brands this year. For Kool-Aid, TV, radio and in-store messages that point out that “for the price of one bottle of soda, you can mix up five big pitchers of Kool-Aid, and for pennies a glass, keep the whole family refreshed and smiling.”

7. If Feasible, Consider an Increase in Spending

A recession can, of course, be an opportunity. Those fortunate companies that are able to increase marketing spend in recessions increase their market share in both consumer and B2B markets.

This result is seen in analyses of all recession winners dating back to the 1920s.
Higher relative share of voice also creates faster growth. On average, every 10 percentage points of “surplus” share of voice (“surplus” means share of voice minus share of market) generate around 2.2 points of market share. The lesson is that when you have an effective campaign, you should spend every last cent you can scrape up on it.

Companies that increase marketing spend in recessions recover three times faster in “normal” times. Similarly, B2B companies that maintain/increase spend in a recession achieve higher growth both during the recession and for three years thereafter.

A recession can also be seen as an opportunity to put weaker competitors out of the market. If they can’t match your level of marketing spend, their market share will decline and, with it, their capacity to compete when growth returns.

Advertising usually continues to have an effect on sales for about three years, so there may not be an immediate sales decline when competitive brands cut spend. However, a decline in the strength of consumers’ relationships with the brand can be seen in research after six months.

Crucially, further data demonstrates that two key constituent brand relationship metrics – brand usage and brand image – suffered considerably (13% and 6% declines, respectively) when brands “went dark” (i.e., ceased to spend on communications) for a period of six months or more. More broadly, 60% of brands “going dark” see decline in at least one key relationship metric after just six months.

In the 1974–1975 recession, Ford cut spending by 14%. Chevrolet, however, dropped its traditional method of setting the budget as a percentage of last year’s sales and increased its spending, particularly for its fuel-saving economy models. Chevrolet’s market share rose by two percentage points, while Ford lost share and took years to regain its previous position. However, Ford had learned. In the next downturn, Ford increased spending every year and saw considerable share gains.

Originally posted on ogilvyonrecession.com