(Note: This talk is in two parts. First, how to do effective marketing in a recession. And second, how marketers can “speak CFO” to defend their budgets and campaigns. I can deliver a keynote speech on this topic — see my marketing speaker page.)
First part: What companies should do
The dreaded R-word in marketing is making a comeback. No, not retargeting. Recession.
In the US, the partial shutdown of the federal government imperils an economy that may already be slowing. In the UK, businesses are heading into the unknown abyss of Brexit with no ad budget growth last quarter. For the first time since the Great Recession, marketers may see significant budget cuts in 2019.
After the 2008 stock market crash, newspaper advertising spend in the US fell by 27%; radio, 22%; magazine, 18%; outdoor, 11%; TV, 5% and online, 2%. The entire ad market declined by 13%. Moreover, ad agency revenue growth is historically a lagging indicator for GDP – meaning that any change in economic growth hits agencies a few quarters later.
So far, it is not looking good. Last week’s Bellwether Report from the UK’s Institute of Practitioners in Advertising (IPA) found that business confidence is falling. (Predictably, short-term marcom spend is also increasing in response while long-term allocations are decreasing – more on that later.)
For this column, I reviewed a 2008 report from the IPA on marketing during downturns and its 2015 Creativity & Effectiveness Report. An IPA spokesperson told me that the organisation may produce an updated version of the 2008 study. I also obtained a past Millward Brown (now Kantar Millward Brown) white paper on survival tactics during recessions.
I also remembered my own experiences and interviewed marketers who have seen downturns to see how companies can help both short-term survival and long-term growth. Here is what I found.
Resist thinking only in the short-term
Thanks to the work of Les Binet and Peter Field collected at EffWorks, we know that advertising effectiveness has been declining as short-termism has been increasing.
Companies have direct control over money going out but not coming in, so the immediate response is to slash costs and focus on what will generate revenue tomorrow rather than in six months. But expense cutting should be decided strategically – and marketing departments can actually benefit in such a scenario.
“It is better to maintain SOV (share of voice) at or above SOM (share of market) during a downturn: the longer-term improvement in profitability is likely to greatly outweigh the short-term reduction,” the IPA’s 2008 report states. “If other brands are cutting budgets, the longer-term benefit of maintaining SOV at or above SOM will be even greater.”
Yes, people in other departments will complain that marketing gets more money while others receive cuts. But marketing encompasses everything that brings money into a business. Everything else is essentially finance or operations.
“A reduction in brand focus doesn’t work long-term,” Sarah De Martin, UK managing director at digital agency Artefact, said. “Performance marketing doesn’t make returns without consistent brand-building, so continual investment remains key [in recessions].”
Do not cut advertising spend
“Following a budget cut, a brand will continue to benefit from the marketing investment made over the previous few years. This will mitigate any short-term business effects, and will result in a dangerously misleading increase in short-term profitability. The longer-term business harm will be more considerable, but will not be noticed at first.”
“Two key constituent brand relationship metrics – brand usage and brand image – suffered considerably when brands ‘went dark’ (ie, ceased to spend on communications) for a period of six months or more.”
“A brand judged to be on the way down, because it has fallen silent, will very rapidly see this manifested in word-of-mouth, which will accelerate the perception of failure.”
“Brands in categories that are more price-driven and where brands carry less importance to consumer choice (such as motor fuel, mineral water and apparel) are more susceptible to share loss when cutting budgets. Conversely, brands in categories where the reverse is true (such as luxury cars, financial services and fragrances) tend to be more resilient.”
Amanda Lewis, group business development director at AKA, an entertainment and leisure agency, said that “in a time of uncertainty, it’s a common mistake for marketers to cut marcom spend”.
“Marketers should focus their budget on raising the brand’s profile and awareness. While increasing marcom spend might be swimming against the tide, it can allow marketers to reap the rewards of capturing consumers’ attention by keeping them engaged long-term.”
Some of the additional findings:
“Many have been encouraged by a growing, but unfounded, belief that ESOV is no longer important in the digital age; that market forces linking investment to impact no longer apply. [But] lower ESOV results in lower levels of market share growth. Small brands may need around five points of ESOV simply to maintain market share.”
“If ESOV is cut to negative levels, awarded campaigns are likely to achieve less growth than non-awarded ones, meaning that the benefit of investment in creativity will have been wasted.”
Focus on core brands and creativity
Recessions should be the time that unsuccessful brands die or are sold off because stronger brands support price premiums even in tough economic times, according to the Millward Brown report. (Remember Nautica clothes in the 1990s? The brand was sold to VF Corporation after the early-2000s recession.)
“Concentrate on your core brands and products. Now is not the time to spread scarce resources across multiple brands or product variants,” the report states. “Recessions may call for a triage strategy. Concentrate your marketing muscle behind the brands that are most likely to survive, and leave the others to sink or swim.”
“During the Argentinean economic crisis of 2002, Unilever made it possible for people to buy the Skip laundry brand by making small packages available, which carried a low unit price. They also introduced large economy sizes that offered people a better deal.”
Millward Brown also recommends that marketers double down on creativity, noting that: “creative had five times as much impact on profit as did budget allocation. Now more than ever, you need to set the bar high and leverage your media budget as effectively as possible. Test a range of solutions for each channel. Pre-testing is cheap in comparison to wasting millions on ads that fail to evoke the desired response.”
I concur. As I noted in a prior column on how optimisation is the enemy of creativity, creative campaigns deliver a profit multiplier of at least tenfold.
Now, it is one thing for marketers to know that their budgets should not get cut during recessions. But it is another to convince the boardroom, especially finance or chief executives who may know little about marketing.
Second part: How marketers can ‘speak CFO’ to survive the recession
If you want to know how to thrive at work despite the looming economic downturn, learn from the biggest mistake I have made in my marketing career.
When I was the first director of marketing at a high-tech startup company, our growing team was working wonders after a few funding rounds. But we had yet to do any real advertising specifically.
So, I took some time to write myself a brief and then create the outline of a campaign that I then delivered through a creative and humorous company presentation. If I had been working at an ad agency, the idea would probably have been well-received. But at the tech company, I failed.
I had focused so much on the creativity that I had neglected to answer one simple question: “What will be the financial benefit of this campaign?” (The full story is further below.)
And that question will become more important than ever this year as marketers defend their budgets in light of the economic effects of the coronavirus pandemic.
Marketing budgets are plummeting
Under accounting and financial reporting standards, chief executives must consider marketing to be an expense to minimize rather than an asset or an investment for the future. So, the current situation does not bode well for marketing departments because their budgets are often the first to face cuts during economic downturns.
But now marketers might have some help.
2020’s most important marketing research
In 2019, some of the most groundbreaking marketing research came from Les Binet and Peter Field, who used IPA data to show how companies should allocate their marcom spend between long-term brand and short-term activation goals.
In my work as a keynote marketing speaker, I incorporated those ideas into the main speech that I gave throughout Europe last year on media planning in 2020 and beyond. Other presenters in the industry also highlighted Binet and Field’s recommendations.
This year, the most important research may have come from LinkedIn’s B2B Institute in the US together with the IPA and EffWorks in the UK. Marketing to the CFO is a new report that will be critically important as marketers face an economic contraction caused by the coronavirus pandemic and resulting lockdowns.
Most significantly, the report advocates that marketers stop the use of trendy buzzwords and vanity metrics and shows how to frame brand building as an invaluable tool that increases pricing power and future cash flows.
Essentially, the research teaches marketers “how to speak CFO” – and nothing will be more important this year as chief marketing officers face cuts during this year’s likely economic downturn.
“In today’s tough business climate, marketers need to understand how to express the value they provide in financial terms. Marketing should not just be a cost center – it’s a mindset focused on driving growth,” Jann Schwarz, the global director of LinkedIn’s B2B Institute, told me.
“The CFO and his or her team are the most important internal audience to land this message with – using jargon-free language that resonates. Marketers often struggle with this, but Fran Cassidy’s report for the B2B Institute outlines a clear roadmap for success.”
How to “market to the CFO”
The B2B Institute and IPA’s research summarises itself through a VALUE framework. Understand how Value is created. Accept Accountability for the metrics that signify value creation. Use the Language of value creation. Grow the Understanding of value creation throughout the marketing team. Create a mindset based on Evidence. (Byron Sharp will be happy.)
According to the publication, such a framework leads to greater respect for marketing within c-suites, improved relationships throughout companies, and a louder voice for the customer throughout organisations. And all of that will likely lead to increased budgets – or at least less-reduced budgets during the present downturn.
As someone whose career has focused mainly on marcom, my favourite part of the report is the one that focuses on how we should change our language when speaking to the c-suite. One graphic that I will highlight.
Look at it this way: how many people in marketing – or especially in communications – can even understand what balance sheets and income statements are saying? That is Accounting and Finance 101. We all need to learn that language.
I am lucky enough to have taken courses in those areas when I did my MBA studies. But many marketers are not as well-rounded. Such topics need to be a part of the marketing coursework at universities and professional certification programs.
However, changing the language that marketers use when talking to CFOs is easier than finding common ground over metrics.
“This depends entirely on how well versed the CFO is in marketing or how successfully you can show the connection between brand metrics and hard financial numbers,” Jon Evans, the CMO at System1 Group and host of the Uncensored CMO podcast, told me.
For example, increased physical availability will return a short-term increase in sales that can be measured quickly and easily. But higher mental availability grows slowly and is more difficult to measure. Marketers need to balance short- and long-term metrics.
“If you are getting into more specific brand metrics ,you need to be able to clearly demonstrate why they are important to the brand’s overall success,” Evans added. “I always used to ask my team what the most important brand metric is and why. It’s surprising how often you get a vague answer that doesn’t connect back to financial success. If they couldn’t convince me, they wouldn’t convince the CFO!”
Still, the B2B Institute and IPA’s new publication does have some skeptics.
“The trouble is that a large part of the value of most businesses is based on their intangible assets (such as people, brand and intellectual property), not their tangible assets,” Alastair Thomson, a former finance director and CFO who is now with the FD Centre in the UK, told me.
“For short-term marketing initiatives, frameworks like VALUE have a lot to offer marketers in their conversations with CFOs and CEOs. Without a strong rationale for an ROI on marketing spend, of course the temptation is to reduce the cost of the marketing department one way or another.”
“That’s also why it’s exactly the right time to work on the long-term value marketing can offer. With few exceptions, a business makes a vastly greater return from increasing revenues than it does from reducing costs.”
One example is that the coronavirus pandemic right now might be a good time to grow revenue by establishing a new, premium price positioning at a time when many companies are surely cutting prices.
“When nobody else is doing it, your costs of doing so are much lower – and your impact is commensurately greater,” Thomson added.
When I failed to use this advice
Now, the rest of my aforementioned story.
Our marketing team had people doing Google Ads, publicity and PR, analytics research, SEO and content marketing. But no advertising. (Paid search is direct response and physical availability.)
So, I wrote myself the brief and created the outline. We sold a SaaS log analytics platform to IT professionals, so I did a throwback to The IT Crowd. I created a mock episode of the programme to communicate our product’s value. At the time, Marvel’s Cinematic Universe was taking off – so I even included a “post-credits scene” to foreshadow something unknown in the future.
A part from the beginning of the presentation:
At the meeting, I began with a short summary of the importance of brands and how they grow. And then I used a British accent while mimicking the mock IT Crowd characters and acting through the entire script with the accompanying visual aids. I said we would get press coverage as well and that we could add a call to action for the ad placements online.
I gave the performance my all and said it was an initial brainstorm that I could take up the management chain while asking ad agencies for RFPs. But the head of sales cringed during some of the jokes because she did not get the IT Crowd references. The support staffers said they thought it was funny but did not understand the point. (Still, the head of IT thought it was brilliant.)
Later, the chief executive sternly told me that the whole thing had been a waste. He said that based on my salary and the amount of time that it took to come up with the idea, he knew how much money I had cost the company. He said he would never have paid to do such a campaign anyway. Any funds required for the advertisement would have been rather used for many “pieces of content” and Google Ads clicks.
I took a big risk and failed. Of course, I have no idea whether the creative idea would have been successful. But I did realise later why the proposal was “dead on arrival.”
Sure, I had talked about the importance of brand, the use of humour, the incorporation of a relevant pop culture throwback hook, and the necessity of getting noticed and remembered among all potential category buyers for long-term success.
But I had neglected to frame the whole thing in terms of financial value. I wish I would have read the B2B Institute’s new report at the time. For someone whose job at the time consisted partly of communications, I had failed to communicate effectively.
Still, Thomson did offer some solace when I told him the story.
“It isn’t the CEO’s job to produce sales. It’s the CEO’s job to build the long-term value of the business,” he said. “In the absence of any better ideas, pushing sales isn’t the worst thing you can do – but that grows corporate value in a linear fashion (all things being equal, 2x the sales makes the business 2x more valuable).”
“Working with intangible assets, including brands, the relationship is geometric (a brand that’s 2x as better will produce a 10x increase in business value).”
“When you’re in a linear world, such as short-term sales activation, you should make linear decisions. When you’re in a geometric world, such as long-term value creation, you should make geometric decisions. Which broadly means being bold enough to do things that might not work. At the racecourse, odds are short on ‘dead certs’. In business, returns from ‘dead certs’ are small for exactly the same reason.”
But one problem is that high-tech startup companies – in my specific example – are often funded by venture capitalists who also sit on their boards. Those VCs rarely want to “do things that might not work” because they need to guarantee returns for their limited partner investors. (And then we wonder why only 5% of VC funds even beat the market.)
Regardless, financial knowledge is something that marketers turned off – but we need to turn it on again. Especially today. We should always try things that might not work – but we need to explain the potential financial benefits beforehand.
Those who succeed will save their budgets and grow the value of their companies the most during recessions.