December 08: Brands and advertisers just now settling into a post-COVID marketing rhythm could be facing another major disruption, this time in the form of a global recession. With 60% of economists predicting a Euro-zone recession, and an expected global growth rate of only 2.9%—down from 4.6% at the beginning of the year—an economic slowdown seems inevitable.
And as consumers adjust their spending to adapt to inflation and higher interest rates, many brands and advertisers are following suit. According to data from Nielsen Ad Intel, the U.S. advertising marketplace shrank by 7% in the second quarter of 2022 versus the same time last year, signaling that many marketers expect, or have already experienced, cuts to their budgets.
But while dialing back media spend may seem to make sense for short-term budgetary concerns, marketers focused on mitigating the impact of a recession and maximizing the effectiveness of their marketing budgets need to think of—and spend for—the recovery.
Recessions don’t last forever
The good news for marketers dreading a protracted downturn is that many recessions are short lived—historically, 75% of recessions end within a year, and a full 30% only last two quarters. So, any cut in spending will likely only be short-term and result in nominal savings, while putting brands at a disadvantage heading into the bounce-back period that is likely just around the corner.
Considering most brands are already under-spending—depressing their ROIs by a median of 50%—any additional cutting of media expenses could only serve to reduce ROI further, at a time when brands need to maximize profits most.
The solution isn’t to slash the budget, but to optimize media mix and invest in channels that are performing well. Finding the right balance ensures that spending is properly allocated for reach, efficiency and frequency. For example, an auto manufacturer recently increased its reach by 26% and its impressions by more than 39% by simply optimizing its media allocation without adjusting its budget.
And investing in media during a recession can actually end up saving a brand money, as industry pull-back creates a supply-and-demand dynamic that favors ad buyers and lowers media costs. In fact, some brands actually step up their media investments in recessions. In addition to a favorable media costs environment, brands may also find competitors have scaled back on advertising, which creates an opportunity for campaigns to have greater impact.
Growth is possible, even in an economic downturn
Before assuming a slump in sales due to a recession, brands should assess the landscape and closely follow consumer behavior for changes in spending patterns. A shift in spending habits from large indulgences to small indulgences, for example, creates opportunity for growth in certain categories, like lipstick, while contracting others, like dining and hospitality.
And as consumers become more price-sensitive, brands will need to change their media plans, and messaging, to match. Recession-friendly messaging can help reinforce the value of a brand and help ensure consumer loyalty beyond the recession.
Brands and advertisers that want to make the most of potential category growth during a recession should focus on analyzing consumer behavior to optimize messaging and increase the impact of their ad spend.
Making the (right) cut
Sometimes, budget cuts are inevitable. If you know you have to adjust your spend, make sure you’re cutting the right costs, in the right places, to maximize the effectiveness of your remaining dollars and minimize negative impact to your ROI.
And while pulling back on media spending may seem like the obvious way to cut costs and hit financial targets, the benefit can be relatively low. A Nielsen study of media plans found that only 25% of channel-level investments were too high to maximize ROI, and within this group, the median overspend amount was 32%. And while reducing spend would improve channel ROI by a modest 4%, brands would also see significantly reduced sales volume due to a drop in ad-driven sales.
It can also be tempting to increase promotions when consumers decrease spending, but this approach comes with its own challenges. Promotions done regularly can condition consumers to only buy when there is a promotion, leading to lower sales on regularly-priced items and margin compression. ROI also tends to be lower for promotions—45% lower than that of media, according to Nielsen marketing mix models—as only a small portion of promotional sales are truly incremental, and promo sales need to be much higher to make up for lost margins.
Instead of relying heavily on promotions, consider which channels can be reduced or cut with minimal impact to ROI. If results in one channel are already lackluster, it may be better to cut it out entirely and reallocate your spend to channels with better metrics and higher ROI potential.
No matter what media mix and budget allocation you ultimately decide on, remember that any spend is better than no spend at all. According to Nielsen Marketing Mix Models, brands that go off-air can expect to lose 2% of their long-term revenue each quarter and, when they resume media efforts, it will take 3-5 years to recover equity losses resulting from that downtime. And your bottom line isn’t the only thing that will suffer if you cut your media spend—Nielsen data shows that marketing accounts for 10%-35% of a brand’s equity.
Author: Abhinav Maheshwari, Vice President, Marketing Effectiveness, APAC Nielsen