eBook: How marketing can help your business thrive in tough times
“Firms which cut costs faster and deeper in tough times than rivals don’t flourish and have the lowest probability at 21% of pulling ahead of the competition when times get better.” - Harvard Business Review.
Marketing is your direct line to your consumers. It manages vital business aspects such as customer loyalty and communication, and importantly, it fills the sales funnel. Without it, a business will struggle.
In lean times, it’s second nature to look for cost cutting measures in order to stay afloat. Traditionally, this type of knee-jerk cost cutting to bolster the bottom line has come from ‘soft’ areas, such as marketing.
However, this is an outdated and shortsighted way to save money in a recession. The fact is, companies which slash marketing in lean times suffer both short and long term consequences from this kind of approach.
In the short term, slashing marketing leads to a company becoming invisible to its loyal and potential customers. Consumers are savvy and want to be armed with the latest information before they make a decision on a purchase. By drying up this stream of communication, you may as well hang a closed sign on your door. Similarly, loyal customers want to hear from you, they want to know it is ‘business as usual’ to give them a sense of normalcy in tough times.
In the long term, having to ramp up marketing after a recession, even to the point of having to refill marketing positions, means a brand will be at least six months behind the competition which marketed through. Starting from scratch means a brand may well never recover its previous momentum.
Here, AZK Media unpacks why smart companies need to market through a recession, and why those with a cost-cutting approach may find themselves out of business...for good.
Part 1: Marketing is a core function, not a ‘nice to have’
COVID has disrupted many businesses, and led to significant global recession. While the knee jerk reaction in a recession may be to cut marketing spend, ceasing all marketing activity during this leaner time is a big mistake and can kill your business ... fast.
Why? Marketing is now a core function of business operations, and holds under its purview such vital things as customer experience, user experience, and customer trust and loyalty. It is also the right hand to sales and feeds lead gen to sales to retarget. Marketing cannot be swept aside without adversely impacting the bottom line of a business.
As we know, consumers are savvy, and they now hold the power in the retail relationship. At any given time they are arming themselves with information in order to make the best decision for them. They are not interested in being told what to do or think by brands. Instead, they want authentic, trusted information supplied to them in order to make their decision. A company that stops talking to their customers may as well be invisible in the era of the empowered consumer.
Therefore, cutting marketing tells your customers and potential customers you are closed for business - this is the opposite of what you want to be saying during hard economic times.
Smart companies are doubling down on marketing to ride out this time - however not all companies are smart. According to Forbes (2019), marketing budgets have become a key target for cost-cutting ever since the last recession. In 2018, budgets had decreased from 12.1% of average revenues to 11.3%. And this was pre-COVID.
As a result of marketing being slashed, companies are in decline. According to an analysis of the 2017 Fortune 500, 53% of corporates had experienced an after-tax profit decline, while only 47% saw profit growth. By slashing marketing you stop talking to your customers.
Case study: Kraft Heinz and the ‘cut cut cut’ debacle
In 2015, 3G Capital bought Kraft, and merged it with Heinz, taking the combined business public as Kraft Heinz. The 3G Capital approach to business is ‘cut cut cut’. In less than two years after merging Kraft with Heinz, its workforce was cut by 20% and overhead by 40%. What followed is a sales decline for six quarters in a row, and in 2019, Kraft Heinz stock dropped 30% at the open and the company lost US$16 billion of its market value.
Upon its debut, shares were US$78.46. In March 2020, they were US$22.28. It received a small bump as panicked shoppers started hoarding canned goods at the beginning of COVID, however it is still nowhere near its debut share price.
As Forbes points out, it stopped investing in its brands at a time when consumer tastes and behaviours are shifting, and the competitive environment is intensifying.
Part 2: Putting off marketing means you'll be months behind the competition
Cutting marketing during uncertain times has both long and short term consequences.
B&T (2020) cited multiple studies on companies which demonstrated increasing ad/marketing spend by up to 20% in a recession saw an average market share gain of 0.5%, and those that increased beyond the 20% threshold recorded average gains of 0.9%. The fact is, marketing through a recession, even with decreased activity, will hold a brand in firmer stead after the crisis than ceasing marketing altogether.
As Tim Beveridge, founder and CEO of the Modern Marketing Group, says marketing has two primary roles: securing future sales and improving the gross margin of those sales.
“Cutting marketing spend in lean times threatens those long term sales and commits the business to achieving a reduced long-term margin,” he says.
“During lean times, marketing may not lead to the immediate sales it once did. But people are still out there, consuming media, building and maintaining their memory structures of brands and products. You can either go out there and keep your brand fresh and relevant, or you can stay quiet and let your competitors build their brand.
"Who do you think will win the day when consumers start spending again? The brand people have forgotten about? Or the brands that are newly and freshly relevant?”
The companies which increased ad spend during a recession had to wait it out to see results, so hang in there. In fact, on average they saw decreases in the short-term ROI from their increased ad budgets. But these companies did enjoy significant increases in market share from their increased budgets in the longer term.
Case study: Kellogg’s and Post in the Great Depression
A great example of marketing done well in leaner times is Kellogg’s compared to Post in the Great Depression. Never heard of Post? This is why: The cereal makers used completely different approaches to advertising spend in the 1930s.
Post reduced its spending, while Kellogg’s doubled its spending, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies - the first instance of Snap, Crackle, and Pop!
The result? By 1933, Kellogg’s profits had risen almost 30% and became the industry’s dominant player, which it remains today, and Post folded.
When the economy does ramp up, businesses who have to start marketing from scratch again (even to the point of having to hire new staff) will be behind the competition. Starting your marketing campaign again from scratch could put you six months or even a year behind the competition that marketed through tough times. Few businesses can survive this length of time without funnel activity.
Part 3: It’s human nature to panic - but that doesn’t make it right
It’s understandable. The natural reaction in tough economic times is to reduce spend to keep what you have. In lean times we go into a siege mentality - as recent hoarding only proved. So brands cut budgets, and marketing and advertising is often the first to go, closely followed by R&D.
However, as the New Yorker reported in 2009, there’s a trade-off to these cuts. No cuts come without consequences. Numerous studies have shown companies that keep spending on marketing, advertising, and R&D during recessions do significantly better than those which make big cuts.
It says, in 1927 the economist Roland Vaile found firms that kept ad spending stable or increased it during the recession of 1921-22 saw their sales hold up significantly better than those which didn’t.
A study of advertising during the 1981-82 recession found sales at firms which increased advertising or held steady grew precipitously in the next three years, compared with only slight increases at firms which had slashed their budgets.
And a McKinsey study of the 1990-91 recession found companies that remained market leaders or became serious challengers during the downturn had increased R&D, and ad budgets, while companies at the bottom of the pile had cut them (New Yorker, 2009).
Part 4: The risk of putting off existing customers
As marketers, we need to move away from the old idea that a new customer is always better. Your existing customers will still expect you to market to them, and a loyal customer is more valuable than seeking a new customer from scratch. What your existing customers think of you is everything. It takes years to build loyalty and only seconds to lose it.
We know brand loyalty and trust is harder to get - but it pays dividends. As McKinsey demonstrated in almost 90% of categories they measured recently, consumers are not loyal to their chosen brands, and almost 60% will switch when considering a new purchase.
Now, more than ever, brands should be undertaking a program of listening to their customers. What do they want? What do they need? Are you even providing it?
We know it is scary to find out what your customers really think. But it’s worth it.
Gartner US reports:
80% of growth organisations use customer surveys to collect CX data, compared with just 58% of non-growth organisations.
43% of product managers at growth companies are using analytics to collect and analyse customer perception and sentiment data. This is compared with just 22% of product managers at non-growth companies.
A strong brand is vital to obtain and keep, customer loyalty. Perception is everything. If marketing is cut, there's a chance you're jeopardising your existing customers from enjoying their customer journey with you.
Lucy Dundon, Director and Chief Psychologist from Direct Health Solutions, says rather than scaling back when COVID struck, the first thing DHS did was put brand-building on the front foot.
“For DHS the crisis was an opportunity not to be missed, and without hesitation we engaged AZK Media to help optimise our brand and market position," she says. "AZK Media has successfully pitched and placed multiple press releases in top tier digital business magazines. It was important for DHS to be seen as ‘helpful’ and ‘supportive’ and avoid any ‘promotional’ or ‘advertorial’ feel.
“Prior to engaging AZK we were asset poor. Now we have a rich library of practical resources that truly are ‘the gifts that keep on giving.’ There is absolutely no doubt marketing is central to driving our business forward - our results speak for themselves.”
By pulling the plug on marketing, you drain the information train to your existing customers and they'll notice all the newsletters, product updates, videos, webinars or content they had once enjoyed are now suddenly gone. If they think you are in danger, they will abandon you and give their loyalty to a competitor.
Ceasing communication is a huge turn off to customers - and no business can afford this.
Part 5: Struggling to keep the sales funnel alive? Here’s why
The need to stay in operation by gaining new customers and keeping existing ones demands a level of marketing spend. The ever-hungry 'marketing funnel' still needs to be fed, awareness still has to be raised, the journey from leads to conversions still needs to happen.
A common mistake businesses make is seeing marketing as being ‘lesser’ to sales. This is an outdated way of thinking. Much like Vegemite and toast, or Ben & Jerry's, marketing and sales coexist and one can’t exist without the other. Even the best product in the world won’t sell if no one knows about it.
Forrester actually estimates up to 75% of the purchase process is completed before the sales department even gets involved. No company can scale and grow successfully with only sales or only marketing. So tempting as it may be, don’t stop marketing, because marketing through this coming recession could mean you actually survive it.
Part 6: Marketing can’t stop just because business gets hard
Marketing can no longer be seen as the ‘nice to have’ of a business - and the first head on the chopping block when a recession hits.
Marketing has under its purview the most vital business functions needed to operate in a consumer-centric world - namely customer connection and loyalty. As we’ve seen, sales can’t effectively operate in a vacuum - marketing is the Jerry to sale’s Ben. It is the lifeblood that keeps organisations and the pipeline thriving, and once it goes, the business is often not far behind.
Now, with the pandemic and life unlikely to return to normal for quite some time, if ever, businesses are competing for a shrinking share of purse and need to stand out more than ever before.
You can’t capture, and keep, the minds and wallets of thrifty consumers, by contracting marketing and therefore customer experience. Some level of marketing activity must be maintained to keep existing business, and to also be ready to ramp up when times are once again good.
Case study: Sony and why brands can’t cost-cut their way to growth
Sony made massive cuts during the 2000 downturn, when over a two-year period it cut its workforce by 11%, its R&D expenditures by 12%, and its capital expenditures by 23%. The cuts helped Sony increase its profit margin from 8% in 1999 to 12% in 2002, but growth in its sales fell from an average of 11% in the three years before the recession, to 1% thereafter. It never fully recovered momentum after this and it is still trying to reach its previous 2000 share price.
Few cost-cutting corporations do well after a recession. They trail the other groups, with growth, on average, of 6% in sales and 4% in profits, compared with 13% and 12% for progressive companies.
Sales for the 200 largest companies grew by an average of $12 billion over pre-recession levels, however the cost-cutting enterprises among them saw sales grow by an average of just $5 billion and profits typically rose by only $600 million, whereas for progressive companies they increased by an average of $6.6 billion (All figures in USD).
Why? Because cut cutting has several ramifications:
Executives and employees start approaching every decision through a loss-minimising lens. It leads to aiming low, limits innovation, and an ongoing mentality of cost cutting to find margins.
The organisation tries to do more of the same with less, affecting quality and most importantly, customer satisfaction.
The finance department makes across-the-board cuts, paying little attention to initiatives that may be vital for post-recession growth, such as R&D. A company that stops innovating is dead in the water.
Then, pessimism in the organisation sets in, leading to disempowerment. The focus becomes survival, and your best staff leave.
Case study: Target US and the 2000 recession
During the 2000 recession, Target (US) increased its marketing and sales expenditures by 20% and its capital expenditures by 50% over pre-recession levels. It increased the number of stores it operated from 947 to 1,107 and added 88 SuperTarget stores. It expanded into new merchandise segments, ramped up investment in credit-card programs, and grew its internet business.
Meanwhile, it reduced costs by improving productivity, and enhanced the efficiency of its supply chain. For instance, in 2000 it was one of the 12 retailers that founded the WorldWide Retail Exchange, a global business-to-business electronic marketplace, to facilitate trading between retailers and vendors. In January 2001, Target consolidated its Dayton’s and Hudson’s stores under Marshall Field’s to take advantage of the well-known brand name. These moves helped the company grow sales by 40% and profits by 50% over the course of the recession. Its profit margin increased from 9% in the three years before the recession, to 10% after it.
Target strengthened its position in a key “needs” segment: Food. It launched a new store format to double the amount of floor space devoted to food; extended the range of its food brands, Market Pantry and Archer Farms; and overhauled its operations to support the emphasis on food.
The retailer also increased media spending and reaffirmed its positioning with the slogan “Expect more, pay less”—with an emphasis on the second half. By 2008 Market Pantry’s sales had increased by 30% and Archer Farms’ by 13%. And food has become a US$1.8 billion business for Target.
As you can see, there are no ‘easy’ cost cutting solutions to be found in marketing. Slashing marketing as a quick solution leads to dire short and long-term consequences to a business, and depending on those cuts, the business may never actually recover.
Part 7: Unlocking the human side of marketing
There is a lot of talk about data and AI and tech platforms. They are all important, and can give marketing a seat at the c-suite table thanks to the ability to prove ROI. However, none of this will be effective if we lose sight of the marketing fundamentals…
Marketers are here to create real, authentic human connections with people.
This drives everything we do and must always be the most important consideration when undertaking anything - particularly in a recession. Customers are scared and they want to know brands are there, offering some normality and connection in an uncertain world. Communicate with them - they will be happier for it.
Marketing is the humanity of your business, it opens lines of communication and inspires loyalty.
The human connection with your customers is born, managed and maintained by marketing. Cutting marketing is cutting that connection.
Hints and tips for strengthening your marketing in tough times
Remember your humanity. You are there to make real connections and this is even more important in downturns.
Be more visible. You are competing for a smaller share of wallet - be louder to get it.
Your budget will stretch further! Now is the time to negotiate and experiment. Do some A/B testing, explore some new channels - you may discover a pot of gold.
Get a seat at the C table. If you are not visible you are easier to chop. Marketing needs a seat at the table - you have to fight to get it and keep it.
Invest in a marketing partner. This is a great way to start if you can’t afford a marketing department in-house. An experienced marketing consultant can advise you on what you need when you’re in ‘survival mode’ and what you need to prioritise when you’re ready to scale.
Marketing informs innovation. It flows naturally from listening to customers - what do they need and want? What purpose do you serve? The greatest organisations invest in listening to customers to make improvements on their products and services to best serve their needs.
Special thanks to all our expert contributors
Tim Beveridge, Founder and CEO of Modern Marketing Group
Lucy Dundon, Director and Chief Psychologist from Direct Health Solutions
Produced by the AZK Media team
Director of Communications & Content, AZK Media
Founder, Managing Partner, AZK Media
Creative Strategist, Senior Partner, AZK Media
Senior Communications & Content Specialist, AZK Media