When asked, “What do you think about a recession?” Sam Walton, the founder of Walmart, responded, “I thought about it and decided not to participate.”
Cost-cutting, discount pricing, and widespread uncertainty — that is how many companies have approached the challenges caused by the social and economic effects of COVID-19. CEOs and senior marketers face a wide variety of urgent questions for which the answers are not easy — but they are there nonetheless, with the right mentality and tools.
During times of great uncertainty, it would be foolhardy for brands to believe that the customers they had last month are their customers today, let alone tomorrow! It is crucial to understand new customer segments that emerge in a recession.
Failing to research customers’ changing needs during a recession can jeopardize performance over the long term. Devoting a portion of the research budget to getting a handle on future changes in consumer behavior can pay big dividends.
Smart brands recognize that it is vitally important to continue to listen (research) and talk to customers (marketing) in times of crisis, especially when other brands are panicking, and therefore slashing spending on marketing and research. The Wall Street Journal states, “We have a philosophy and a strategy. When times are tough, you build share.”
By staying connected, relevant, and visible to customers, brands can command a significant advantage over competitors when some form of normality returns.
The connection between share of market (SOM) and share of voice (SOV) has been proven. The higher your share of voice compared to your actual market share, the more likely your brand is to grow its market share in the next year.
So, if you increase your marketing investment during challenging times when competitors are reducing theirs, projecting to customers an image of corporate stability, you can substantially increase the saliency of your brand — an advantage that can be maintained for many years.
Companies that wait until the economy is in full recovery to ramp up marketing risk being at the mercy of competitors that remained connected.
Empirical evidence exists to support this view. Research studies confirm that the best strategy, in terms of long-term ROI, is actually to increase research and marketing expenditure during an economic slowdown.
According to Nigel Hollis of Millward Brown, irrefutable evidence for this is provided by an analysis of the Profit Impact of Marketing Strategies (PIMS) database after the last financial crisis comparing the results achieved by companies that increased, maintained, and reduced marketing spend during the recession. Metrics used were Return on Capital Employed (ROCA) during the recession, ROCA during the first two years of recovery, and market share change during the same period of recovery.
While companies that cut their research and marketing budgets enjoyed superior ROCA during the recession, they achieved inferior results after the recession ended. During the recovery, the “spenders” achieved significantly higher return on capital employed and gained an additional 1.3 percentage points of market share.
A good analogy is smart investment. When the herd is losing its head and bailing on the situation, smart investors make tactical investment decisions, spotting assets that have been hammered unnecessarily in the melee, where value is there for the taking.
Changing customer needs also create opportunities for innovation in product, supply, and sales channels. Companies that put customer needs under the microscope, take a scalpel rather than a cleaver to the marketing budget, and nimbly adjust strategies, tactics, and product and channel offerings in response to shifting demand are more likely to flourish both during and after a recession.
My advice to brands is to think outside the box! Be more creative and selective in how you conduct research to capture changing customer needs. As budgets come under pressure, identify and utilize agile and cost-effective research alternatives that can deliver valuable insights in as close to real time as possible.
EPIC Conjoint is here to support you in finding answers to your questions!
Seasoned commercial marketing professional with over 20 years of Pricing, Product, and Segmentation experience. A firm believer in the power of Conjoint Analysis, Matt had grown frustrated with the time and effort it took to conduct studies and how prohibitively expensive they can be. Borne out of this frustration, he founded EPIC Conjoint in 2016.