Playbook for brand growth in turbulent economic times: key learnings from the IPA's webinar with Les Binet.

Earlier this month, one of the world's most renowned marketing effectiveness expert, Les Binet, has partnered with the IPA and presented his lessons on how brands can thrive in a very turbulent economic times that we are currently experiencing.

The webinar consists of two parts: part I is called "The World Turned Upside Down" and is looking at recent economic trends, while part II is called "Marketing in the post-Covid economy" and provides lots of insights and recommendations for brands on how to navigate through the current turbulent times and continue to grow.

Regardless of whether you are a marketer, sales, finance, data analyst professional, or even an academic, I highly recommend you to watch the both parts of the webinar in full to get the most out of this insights-packed event - https://ipa.co.uk/knowledge/videos-podcasts/the-world-turned-upside-down/. Each part is around 1 hour long, but it's well worth your time. Now, if you don't have that much time on your hands, you can at least read my key learnings below. After watching the webinar, I have eleven hand-written pages in my notebook, and I did my absolute best to compress them into the most important learnings for you here. You are welcome. :)

Important note: most of the data are from the UK market, however, most of the trends from the UK are similar/same in most of the developed countries as well (some trends are slightly exaggerated in the UK due to BREXIT).

Part I: A Brief Guide to Recent Economic Trends

1. With Netflix now adding advertising to its platform, we should start viewing them as yet another form of traditional TV (as well as Disney, Amazon and other video-streaming platforms that are likely to follow the suit). And if we do so, we will quickly realize that these video-streaming platforms share of viewing, compared to other major TV channels, is not nearly as big as we might have thought. For example, in the UK, Netflix has around 8% share of viewing that makes them the 3rd biggest channel. Huge achievement, no doubt, but BBC still firmly holds the first spot with over 24% share, and ITV is second with around 14% share. Key learning - TV is not dead and it needs to be in the mix of your advertising investments if you want to maximise your profit and shareholders value.

2. Consumption of social media in total has fallen, and, in fact, was falling before the pandemic, with this trend continuing ever since (and if you wonder if this data includes Tik Tok - yes, it does). We might have reached the peak of social media consumption a couple of years ago. While using their mobile phones, younger generation are watching more Youtube and Netflix, and listening to more music. In fact, the decline in social media strongly correlates with the rise of Spotify. Key learning - consider the above when allocating your advertising budget next time (don't believe the hype, don't go all-in on social media).

3. Based on the data available today, a global recession in 2023 seems quite possible (but it's not going to be long). Key learning - is your business planning for it? If not, should you?

4. As a general trend, we've seen contraction in most blue-collar jobs, and growth of most white-collar jobs. Notable exception in blue-collar jobs is logistics where we've seen some growth, while exception in white-collar jobs was fin services that experienced decline in jobs. In other words, less affluent people, those with the least disposable income, got hit the most, while middle class and rich got better off post Covid. Key learning - know who your customers are and how they got affected by the recent turbulent times. Don't limit your analysis by looking only at top-line trends, as changes and your response to them will and should vary drastically depending on your sector/category/customers/.

5. Overall, underpinned by government stimulus and working from home, we've seen a surge in household savings. One of the not-so-obvious result of that was, and to certain extent still is, a falling price elasticity of demand. People have more money to spend and slip into a so-called 'revenge shopping' not caring as much as they used to about the price. Key learning - if you are a brand manufacturer, consider scaling back on the depth and frequency of your promotions to maximise your profit (my comment for FMCG manufacturers: but keep your hand on the pulse of the changes in consumer behavior to know when to review and change your price and promo strategy).

6. A mismatch of supply and demand has caused high inflation everywhere across the globe. In most developed countries, inflation is currently sitting below or at around 10%, which is quite high but not critical (my comment: in Australia the latest inflation data I've seen was 7.7%). However, even if you live and work in developed countries, it's important to keep an eye on inflation rates in other countries as well (for example, countries like Turkey and Argentina, where inflation is currently sitting at ~80%) to give you an idea of and be prepared to what can happen in your part of the world. Key learning - similar to key learnings in point 4 above, while analyzing inflation data, look beyond the top-line down to your sector to see the true impact on your industry and brands and plan your response accordingly. For example, in gas industry inflation is approaching 100%, in electricity it crossed 50%, in food&drink it sits below 15%, while in services (6%) and alcohol industries (3%) it is still in low single-digit number.

7. The big threat to the world economy is money markets. To curb the inflation, central banks across the globe keep raising interest rates. Now, in developed countries, it is an issue but not the biggest one. Over the last few decades we had historically-low interest rates and now they are going higher while still staying below the average rates across the longer time period. Yes, we moved from the very 'cheap' money to the cost of capital becoming more expensive (and there are certain implications for the business out of that), but the bigger elephant in the room is the perception of risk. The willingness of lenders to lend the money is determined by both interest rate and perceived risk, and as well as the interest rates shock, we are currently facing an unprecedented uncertainty shock. Professional forecasters have never been in so much disagreement about the prospects of the world economy. Or, to put bluntly, they have no clue what's going to happen next. Key learning - while we can't do anything about the interest rate, we can and should do something about the perceived risk. As a marketer/business leader you can persuade market to give you more money if you can show that investing in marketing is a low risk. To do that, you have to measure the effectiveness of what you do, and be able to demonstrate an incremental profit generated in ROI. But you have to do it reliably (more on that in part II).

8. Investors are pulling their money out of risky stocks. "Boring FMCG companies are better bets these days than tech stocks". Key learning - if you are in the FMCG industry, are you capitalizing on this trend? If not, should you?

Part II: A Planning Framework for Turbulent Times

1. As inflation soars, the primary marketing problem is to optimise prices. Over the last few decades of low inflation, marketers seem to forgotten that of all the 4P's of marketing (product, place, price, promotion), price is the one that they need to get right to make all the others work. Simply put, if you don't get your prices right - you don't make money. To optimise your prices, you need to understand the appropriate price response relative to where your brands sit in the supply & demand quadrant, and measure your brands price elasticity (ratio of change in demand to change in price). Measuring price elasticity of demand is the crucial task for a marketer working on pricing. Because depending on the price elasticity of your brand, increasing or decreasing the price of your brand can be either a profit creating or profit destroying exercise. Key learning - the best way to measure price elasticity of demand is to use econometric modelling as it allows you to disentangle the effects of price where other things are vary. Sales are influenced by many factors (e.g. distribution, product innovation, weather, advertising, etc.), and econometric modelling is arguably the only correct way of separating the effects of all factors on sales.

2. Scrutinise your promotions. Straightforward/superficial evaluation of price promotions makes them look very powerful. If you're a big FMCG brand, it might make you believe that big/er proportion of your sales come from deals (my comment: in fact, many FMCG brands have 50% and more % of sales coming from promotions in their IRI/Nielsen market data read). But when you use econometrics to measure the effects of promotions and the true incremental volume from your price promotions you get a very different picture: a) a high proportion of what appears to be an incremental volume is simply a subsidised volume - sales that you would made anyway, but now you just made them at a lower price (in other words, your money down the drain); b) another proportion of your sales misattributed as incremental is time shifted volume - volume that you would have sold anyway, but next week, next month, or in a few months time, rather than today (i.e. sales brought forward); c) a further proportion of your 'incremental' sales is sales that are relocated - you ran your promotion in, say, Coles, you sold your products, but you would sell them anyway in, say, Woolworths instead, even if you haven't run a promotion (i.e. you shift your sales from one retailer to another); d) finally, only a relatively small proportion of sales is actually incremental. Key learning - these findings have different implications for suppliers than for retailers. if you are a retailer, promotions bring people into the stores. So by running more of them (especially if they are partially or fully subsidised by suppliers) you'll do well. But if you're a supplier, most promotions reduce your profits, and most promo volume is not incremental to your sales. Moreover, repeated promos increase price sensitivity, reduce your pricing power, and erode your margins. "Price promotions are the crack cocaine of marketing". That being said, in real world it's almost mandatory for suppliers to keep running promotions; it's a cost of doing business with retailers (not to mention that in many industries, especially in FMCG, we already 'educated' customers to keep buying on promo). If you are a supplier, understand the above and make sure that you have robust econometric models in place to help you to optimise promo frequency and depth without losing even more profit.

3. Optimise your advertising investment. First, recognise that advertising is an investment and not a cost. And as it is an investment, it should be treated exactly like any other financial investment. When assessing the impact of advertising on your brand, focus on calculating the effect on shareholders value rather than an ROI. The suggested way of calculating the effect of advertising is by using a discounted cash flow model (DCF). Key learning - short & long-term investments into your brand should be dialed up and down depending on these five factors: a) profit margins (measure price elasticity of demand, optimise price & promo strategy); b) growth prospects (become like an economist: monitor the growth and inflation and learn how to predict them using real-time metrics); c) investment costs (exploit media bargains and maintain/increase your share of voice); d) cost of capital (you can't change interest rates, but you can and should reduce perceived risk by measuring true impact on shareholders value); e) investment efficiency (don't slash budgets, tweak them to maximise shareholders value, not ROI).

4. Counterintuitive to many people's belief, brand purpose reduces effectiveness of the business. It doesn't mean that we shouldn't have purposefully built brands, but it means that if you chose to build/work on brands with purpose you can expect to have lower profits. We might have reached or even passed the peak of brand purpose, with consumers becoming less and less concerned about climate change, sustainability, etc., and more concerned about their increased level of debts and rising prices. Key learning - purpose-driven marketing is about ~30% less effective than normal marketing in business terms. If you pursue purpose-driven marketing, you still need to do all the things that normal marketing requires you to do, plus extra. It's like doing your business with one hand tied behind your back. So, especially for well-established brands with history, pursuing brand purpose can do more damage than good to your brand (my comment: although I mostly agree with the premise that it's not the role of brands to focus on purpose (and this realization came to me in a hard way), I would encourage marketers to keep an eye on how certain attributes like 'organic' and 'recycled' influence shopping behavior. For a certain group of shoppers those attributes were and continue to be important when making a purchase decision. The bigger question that you need to ask yourself is if your brand targeting and cater to those shoppers, or not).

5. Use advertising to support price. Brand ads help to build brand equity and reduce price elasticity, which can be highly profitable. Key learning - shifting money from promotions into advertising can be a great way to support price.

6. Share of voice (SOV) is cheap in recession. As a general rule, if your SOV is higher than your share of market (SOM), you tend to gain market share. Many companies cut their advertising budget during recession which is a mistake. Brands that maintain or increase their SOV during recession emerge stronger once recession is over. Key learning - defend and maintain your advertising budget during recession. But if you absolutely have to cut your budget, remember that it's possible to maintain or even grow your SOV even when you cut your budget, provided that you cut it less than your competitors.

7. Reduce perceived risk through research. As previously mentioned, the cost of capital is determined by the interest rate which we can't do anything about, and risk. Risk is something we can and should do something about. We have to reliably measure the effectiveness of all marketing activities we do to demonstrate that our marketing investments are low risk and deliver shareholder value. Standard way of measuring marketing effectiveness is attribution modelling, however, this method is not good enough and usually gives us the wrong answers. Attribution modelling tend to severely over-estimate the short-term effect of any ad, and under-estimate the long-term and indirect effects. This might be one of the reasons why the marketing industry has become so short-term. The metrics businesses are focusing these days have become much more short-term and they are increasingly inaccurate. Digital measurements in particular allow us to measure things really quickly and cheaply, and get the answers really wrong. Key learning - attribution modelling is flawed, econometrics modelling is the best tool to measure marketing effectiveness. It helps you to accurately measure the flow of incremental profits over the short, medium, and long-term.

8. Don't slash your marketing budgets, optimise them. You need to measure both short and long-term effects of your marketing investments, as well as the diminishing returns on your spend in order to identify the optimum budget for your marketing. You also need to understand the difference between ROI and shareholders value and focus on the right metric: maximising ROI tends to reduce profits and tend to lead you in the wrong direction - short-termism; maximising shareholders value is a long-term strategy aimed at finding the optimum level of marketing investments that maximises profit. Maximum ROI is always at $0 budget - the way to maximise ROI is to go out of business. Key learning - while long-term strategies are the right approach to growing the business, it's a hard fact that when the interest rates go up and times get tough, becoming a bit more short-term is often the right thing to do. But don't go too far - tweak, don't slash your marketing budgets. To understand what's the right ratio between the short and the long-term investments, you need to understand the synergies between the short and long-term media, because you need both of them. Combination of short and long-term marketing investments can easily double the efficiency of your marketing spend by converting and capitalising on brand equity. If you doubt it -run the test.

Hope you found these insights useful. Anchor your strategy in data and insights, make informed decisions, and enjoy the fruits of your labor!