Brands and advertisers adjusting to the pace of post-COVID-19 marketing could face another major setback, this time in the form of a global recession. With 60% of economists predicting a recession in the eurozone and global growth expected to be just 2.9% from 4.6% at the beginning of the year, a slowdown in economic growth seems inevitable.
As consumers adjust their spending to keep up with inflation and rising interest rates, many brands and advertisers are following suit. In the second quarter of 2022, the U.S. advertising market shrank 7% year-over-year, according to Nielsen Ad Intel data, indicating that many marketers are anticipating or are already facing cuts to their budgets.
But while cutting media spending may make sense for short-term budgetary concerns, marketers focused on mitigating the effects of the recession and maximizing the effectiveness of their marketing budgets should consider restoring and spending them.
Recessions don't last forever
The good news for marketers who fear a protracted recession is that many recessions are short-lived. Historically, 75% of recessions end within a year, while 30% last only two quarters. As such, any spending cuts are likely to be short-lived and result in token savings, putting brands at a disadvantage during a quick recovery.
With most brands already spending less, lowering their ROI by an average of 50%, any further cuts in advertising spend can only lead to lower ROI at a time when brands are desperate for profit maximization.
The solution is not to break the budget, but to improve the media mix and invest in high-performing channels. The right balance ensures the right distribution of costs in terms of scale, efficiency and frequency. For example, one automaker recently increased reach by 26% and impressions by more than 39% simply by improving media distribution without changing the budget.
Investing in media during a recession can actually save a brand money, as the industrial downturn creates supply and demand dynamics that favor ad buyers and drive down media costs. In fact, some brands increase their media investments during recessions. In addition to a cost-effective media environment, brands may also find that competitors have cut ads, creating an opportunity to increase campaign reach.
Growth is possible even during the economic crisis
Before assuming a decline in sales due to a recession, brands should assess the situation and closely monitor consumer behavior for changes in spending habits. For example, a shift in spending patterns from large to small creates room for growth in some categories, such as lipstick, while others, such as restaurants and hospitality, are shrinking.
As consumers become more aware of prices, brands will need to adjust their media plans and messages accordingly. Recession-friendly messaging can help boost brand value and consumer loyalty after a recession.
Brands and advertisers looking to make the most of potential category growth during a recession should focus on consumer behavior analysis to improve messaging and maximize the impact of ad spending.
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Sometimes budget cuts are inevitable. When you know you need to adjust your spending, make sure you're cutting the right spending in the right places to maximize the value of your remaining dollars and reduce the negative impact on your return on investment.
And while cutting media spending may seem like the most obvious way to cut costs and meet financial goals, the returns can be relatively small. A study of media plans by Nielsen found that only 25% of channel-level spending was too high to maximize ROI, with an average cost overrun among this group of 32%. And while the cost cuts will improve the channel's ROI by a modest 4%, brands will also face a significant drop in sales due to lower advertising sales.
It can also be tempting to increase the number of promotions because consumers spend less, but this approach comes with its own problems. Regular promotions can only entice consumers to buy when they occur, resulting in reduced sales of items at regular prices and lower profit margins. ROI also tends to be lower for promotions—45% below average, according to Nielsen marketing mix models—because only a small fraction of ad sales actually increase, and ad sales need to be much higher to make up for lost margins. .
Instead of relying too much on promotion, think about channels that can be scaled down or downsized with minimal impact on your ROI. If a channel is already performing poorly, it may be better to remove it entirely and reallocate your spending to channels with better performance and higher ROI.
Whatever combination of media and budget allocation you choose, remember that no spending is better than no spending. According to the Nielsen Marketing Mix models, non-streaming brands can expect to lose 2% of long-term revenue every quarter, and if they get their media efforts back, it will take 3-5 years to make up for the resulting capital loss. idleness. . And your bottom line isn't the only thing that will suffer if you cut media spending: Nielsen data shows that marketing accounts for 10-35% of brand equity.