Navigating Marketing During Economic Turbulence.

?In May 2024, Malawi's inflation rate hit 32.7% according to reports in the local Newspapers. But what does this mean for Marketers and consumers? In simple terms, you might notice rising prices on specific things you frequently buy, leaving less money in your budget to save and buy things you want. This chain reaction impacts companies' profitability, leading them to cut back on R&D, hiring, and salary increases. If everyone's tightening their belts, economic growth slows, potentially increasing unemployment rates because companies are unable to pay their whole workforce. This could play a part in a recession. Simple enough right?

Not really. Generally speaking, when we hear of inflation, we automatically think ‘bad,' says Collin Crownover, a research analyst at Fidelity Asset Allocation Research. But a little inflation is healthy. The price of goods and services is directly proportional to their demand, therefore an increase in demand equates to an increase in price. Companies that are making more money, may choose to hire more workers and pay them more in that scenario!

Now that we are all beautifully confused, let’s get back to the topic of recession. A recession is a period of continued negative economic growth. It can happen because of bad Governance, wars, ?pandemics or an industry collapse (say hello to our little friend, 2008 housing market), even an overheated economy (or when the economy is growing too quickly), I am sure you have heard of the economic situation in Dubai, rumours or not.

The Recession Impact on Marketing.

A recession is not merely a single bad month for the economy or a Newspaper heading announcing ‘a recession is here’; it is a significant, widespread, and prolonged contraction in economic activity, commonly defined by two successive quarters of declining GDP. During such times, customers generally reduce their spending, leading to a drop in sales, creating a ripple effect that prompts companies to take stock of their budgets and cut costs, often starting with marketing budgets, seen as non-essential, compared to payroll and other immediate expenses.

In a recession, nothing hurts a business quite so much as when the punters stop walking through the door, or when orders slow to a trickle. During an economic contraction, aggregate demand declines, translating into a drop in sales for most businesses. Cyclical industries like manufacturing and mining tend to experience particularly sharp declines. Companies with high fixed costs like retailers and technology suppliers face a disproportionate hit to the bottom line as revenue declines.

The decline of consumer demand lowers the expected returns on investment for advertising and marketing spending, prompting cuts in those budgets.

During these times, it is common for business owners to go into survival mode and slash their marketing activity because it is viewed as a discretionary or non-essential cost when compared to other expenditure, such as salaries. When pitched against other outgoings, marketing may not be perceived to deliver the same ROI as other activities. Most companies reduce spending on marketing items that may be easier to cut (certainly relative to payroll)

As much as cutting a marketing budget is a common reaction during economic downturns, it is widely acknowledged to be far from effective in the long-run, with companies having to play catch-up for a considerable amount of time when the good times roll back in- they almost always do ( did someone just scream Zimbabwe?).

The Consequences of Cutting Marketing Budgets.

To further put this into perspective, research by Nielsen found that brands that go down this route stand to lose 2% of their long-term revenue each quarter. With marketing making roughly 10% to 35% of a brand’s equity, trying to bounce back after making those cuts can take between three and five years. One study conducted by McGraw-Hill Research analysed 600 companies in America during the recession of the early 1980’s and found that businesses that maintained or increased their advertising expenditures during the downturn saw an average sales growth of 275% over the next five years, compared to just 19% for those that cut back.

Why You Should Not Cut Your Marketing Budget.

A marketing budget can get cut during economic downturns – fact. But as I have just explained, they should not take a back seat for multiple reasons, including the following:

1.????? You will stand out even more from your competition.

If you go dark, others will be more visible! Cutting your marketing budget reduces your share of voice within the market. Maintaining or increasing your marketing spend to get Extra Share of Voice (ESOV) will fill the void left by your competitors and help keep you at the forefront of people’s minds- because let’s be honest, some companies will slash/ stop their marketing activities in these times.

This was the case for Reckitt Benckiser, who in 2009, following the financial crisis (say hello to our little friend again, 2008 housing market crisis) launched a marketing campaign to persuade customers to continue to buy its more expensive products. It also hiked up its marketing budget by 25%. As a result, the company’s revenue grew by 8% and its profits rose by 14% at a time when its competitors were experiencing a 10% dip in their profits. Proving that while a country might be facing an economical squeeze, there are still customers out there!

Granted, customers’ buying habits may change during times of uncertainty, but there will always still be people out there who are in the market to buy your product/service.

But if you have little-to-zero market presence, how will they a) ever find you? and b) be compelled to choose you over other companies?

2.????? An opportunity to nurture more valuable relationships.

During a recession, you might find yourself focusing more on building relationships than driving sales.

Maintaining your marketing spend is an opportunity to share stories and messages that reinforce how much you value your prospects, customers and loyal brand ambassadors. In doing so, you will strengthen people’s trust within your brand and help forge relationships that last for a lot longer than the recession itself- the recession cause by COVID 19 only lasted 2 months!

3.????? It reinforces your brand stability and presence.

Brands that remain present during economic downturns remain relevant to customers. While they may have less disposable income or have prioritised their spend in different places, customers will still be aware of the brands that are still out there doing what they do. Ongoing marketing efforts signal to consumers that your brand is stable and gives them confidence in your services and products.

Furthermore, it is not uncommon for customers to choose the only option that seems to be available (i.e. the one that is still being marketed) because of the perception that it may be the only viable choice. Having a consistent marketing presence during a recession will also help make sure your customers don’t feel abandoned by you.

4.????? You will not have to worry about coming back with a bang.

Because you never went away, even if you had to scale back on marketing and realign your activity in response to current customer demand, you remained a constant presence and remained front of mind even if people are not able to buy from you right now (they can recommend you to others in the meantime). In comparison, companies that choose to turn the dial right down on their marketing activity, must initially work harder to get back in the picture again. Interestingly, according to the IFA’s report, businesses that increased marketing spend in a recession recovered faster.

Why Your Marketing Budget Is Important during a Recession

Marketing generates sales, customers and repeat business. Cutting marketing budgets during a recession may initially deliver an immediate upfront saving, but over time, it’s a cut that will become apparent company wide.

As the Institute of Practitioners in Advertising (IPA) said in its ‘keep marketing campaign’ in 2022, ‘A short-term reaction is never as effective as long-term investment. Increasing marketing spend in recession helps to grow profits faster in recovery.’

And I could not agree more.

Recommendations on how to market your business during a recession.

Tough economic times can be challenging, but they also present an opportunity for businesses to innovate and adapt. As a General Manager with extensive work experience , I have seen the benefits of continuing to market your products and services during a recession. By focusing on your target audience, emphasising your value proposition, being flexible with your marketing budget, leveraging social media, keeping your messaging positive, and not shutting down advertising completely, you can come out on top and position your business for success in the long term.

1. Focus on your target audience: Identify and prioritise your most loyal and profitable customers and tailor your messaging to address their specific needs and pain points. This approach will help you maximise your marketing ROI and minimise waste.

2. Emphasise the value proposition: Consumers are more cautious with their spending during a recession, so it is crucial to emphasise the value proposition of your products or services. Highlight how your offerings can solve their problems or improve their lives and showcase how you are the best choice in terms of quality and affordability.

3. Be flexible with your marketing budget: Understandably, you may need to adjust your budget during a recession. However, don't completely eliminate your marketing budget. Instead, be flexible with your budget and allocate your resources where they will have the most significant impact. You may want to consider shifting your focus to digital marketing channels, which can often be more cost effective than traditional advertising methods.

4. Keep your messaging positive: People are looking for hope and positivity during a recession. Avoid using negative language or making dire predictions about the economy. Instead, maintain a hopeful and positive tone in your marketing communications to resonate with consumers seeking optimism during tough times. All this while maintaining your brand voice and company values, of course.

5. Diversify Advertising Methods To reach your target audience: Consider using a mix of advertising methods such as targeted email campaigns, social media ads, and SEO for effectiveness and efficiency.

6. Nurture Valuable Relationships: Recession periods offer a chance to strengthen customer relationships through consistent communication and engagement to reinforce brand loyalty. Maintaining visibility during downturns ensures your brand remains relevant. Consumers may perceive a consistently present brand as more dependable, fostering trust and preference.

7. Sustained Sales and Growth: Marketing drives sales and customer acquisition. Cutting budgets might provide short-term savings but leads to long-term revenue losses and hinders overall company growth.

Conclusion

Economic downturns pose challenges but also offer opportunities for innovation and adaptation. By focusing on your target audience, emphasizing your value proposition, maintaining flexibility in your marketing budget, and keeping a positive messaging approach, you can position your business for long-term success and resilience.