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Championing Marketing Investments in Times of Financial Uncertainty

In May, US inflation hit a 40-year high and has remained close to that level in the months that have followed. And whether or not anyone can agree on if the US has officially entered a recession (it has by the general definition of the word)1, CMOs and their marketing budgets are feeling the crunch.

Organizations often view marketing as the expendable line item on the P&L that can be reduced to save costs. CMOs then have the difficult task of justifying the role of marketing to other C-Suite executives who see it as an expense that can be slashed, rather than an investment. So how can marketers defend their budgets when organizations experience financial pressure?

Data from previous recessions has fortunately highlighted the importance of marketing during these tough economic times. As many organizations finalize budgets for 2023, it’s a good time to reflect on what we’ve learned.

Marketing spend is the key driver of effectiveness and growth.

Over the past two decades, Analytic Partners have collected marketing intelligence data in their ROI Genome project, which includes more than 1,000 brands in 50+ countries, with billions of marketing spend and millions of marketing metrics analyzed.

One of their Intelligence Reports stemming from this data highlighted that investment is the number 1 driver of marketing performance, followed by creative quality, the size of the advertising’s halo effect, media mix and channel optimizations.2 No other variable carried the same weight as investment, so if CMOs are looking to affect performance and drive growth, spend has the largest impact both during recessions and in times of economic stability.

Brands that maintain or increase marketing investments during tough financial times see a positive return on investment.

In a study reviewing brands during the last recession, many brands that were consistent with their marketing investments or increased their investments produced stronger ROIs and saw business growth.3

60% of the brands that increased their investment saw ROI improve in the last recession. For media spend specifically, brands that increased their investment achieved a 17% increase in incremental sales.4

Reduction in spend will cause negative effects that are hard to reverse.

Significantly decreasing media spend or going dark during times of economic downturn have long-term impacts on sales and ultimately growth.5 When marketing spend dramatically decreases for long periods of time, it becomes increasingly hard to resurrect the brand.

A 2008 Milward Brown study found that 60% of brands that went dark during the last recession experienced a 24% decrease in brand use and a 28% decrease in brand image.6

This can be further impacted if the brands’ competition increases their spend during this same time period. “An average brand could lose almost 15% of its business if a similar sized competitor doubles its marketing investments.”7

What should CMOs do when there’s no other option but to reduce marketing investments and media spend?

First, don’t panic. Short-term (i.e., less than 6 months) reductions in spend do not have consequences as big as long-term reductions.8 However, not everyone may have the luxury of only reducing investments or going dark for short periods of time. If this scenario is on the table, CMOs can leverage the information above to help explain the consequences of long-term reductions so that everyone is aware upfront of what’s truly at stake.

Second, where possible, leverage distinctive brand assets in owned channels. Creative quality was second only to investment in terms of marketing effectiveness.9 If brands have existing, high quality, distinct brand assets, they should use them to their advantage. They should highlight them in organization-owned channels like social media and websites to keep customers already familiar with their brands aware and engaged.

As we begin to close out the year, it’s hard to know exactly what impact the US economy will continue to have on consumer spending habits and brand budgets. One thing is for certain: Organizations that view marketing as an investment, rather than a cost, and continue to hold steady during uncertain times reap the rewards of their consistency and fortitude.

 

References

1 https://www.forbes.com/advisor/investing/are-we-in-a-recession/

2 Analytic Partners, ROI Genome Intelligence Report, “The Rules of Recession Proofing: How to Maintain

Advertising Effectiveness in Challenging Times.”

3 Analytic Partners, ROI Genome Intelligence Report, “The Rules of Recession Proofing: How to Maintain Advertising Effectiveness in Challenging Times.”

4 Analytic Partners, ROI Genome Intelligence Report, “The Rules of Recession Proofing: How to Maintain Advertising Effectiveness in Challenging Times.”

5 https://www.createwithnova.com/blog/the-history-of-advertising-in-a-recession

6 https://www.createwithnova.com/blog/the-history-of-advertising-in-a-recession

7 Analytic Partners, ROI Genome Intelligence Report, “The Rules of Recession Proofing: How to Maintain Advertising Effectiveness in Challenging Times.”

8 https://www.kantar.com/north-america/inspiration/coronavirus/media-effectiveness-during-covid-19