Time to revisit the marketing in recession playbook

by Nigel Hollis | November 05, 2018

On a recent visit to Turkey I was asked to revisit the topic of marketing in recession. With exchange rates against the dollar at a low it is not surprising that this topic might be of interest to Turkish clients but given a few warning signs elsewhere in the world maybe we should all review our marketing in recession playbook.

The essential learning from past recessions is hold your nerve. A recession is not a time to slow down it is a time to speed up. And it is a time to invest. The PIMS database tracks the financial performance of companies relative to their investment in various activities. Analysis of company performance during past recessions identified that companies which increase their spend on marketing, innovation and boosting customer preference are the long-term winners, generating a 20 percent greater return during the two-year recovery period.

Apart from the recommendation to increase marketing support, perhaps the most surprising recommendation is to maintain price relative to the competition. But there is good reason for this. By cutting prices, companies encourage customers to regard the depressed price as normal, making it very difficult to return prices to previous levels when the economy recovers. The result is an almost permanent loss of profit margin, sometimes not just for one company but for an entire industry.

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Further, consumers often look to price as a signal of quality. By cutting prices, a brand may undermine perceptions of quality or draw attention to the fact that quality is similar to competitors. And speaking of quality, whatever you do, don't cut quality. Consumers are reconsidering everything and checking to see if they are getting value for money. If they believe they are being short-changed, they won't think twice about changing brands.

An example of a brand that took a contrarian view and invested more during recession was Panera Bread in the USA. In an interview with Guy Raz on How I Built This Ron Schaich, CEO of Panera for 36 years, states,

“Our concept was still strong. People were still visiting us. We decided to invest our resources in growing even more quickly during the recession. Real estate costs were down 20 percent. Construction costs were down 20 percent. Simultaneously, most of our competitors were ripping costs out of their PNL, trying to chase their costs down as their sales were descending. It was a vicious cycle. We said this is a time to build competitive advantage. And ultimately, we tripled the stock through the recession.”

Looking at the BrandZ data it was clear that in 2010 Panera was a meaningfully different brand and that boosting the brand’s physical and mental availability would pay off. The company’s revenues increased by 80 percent from 2010 to 2016.

Of course, the other cost that is likely to fall during a recession is media. What better time for a brand to invest in excess share of voice? But what do you think? Please share your thoughts.

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