Spending your way through scary times

A selection of data which may help you protect your budget

Preface: whilst I have shared some of this data in the past I thought it would be useful to collate it all in one place.

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INTRODUCTION
To say times are tough right now would be an understatement. We are facing a cost of living crisis, inflation is on the rise and in Britain we had the genius idea of choosing Brexit. Ugh. And what is the first thing to get cut when times are tough? Marketing. We all know the drill. Too often the quarterly-driven CFO gets their fiscal knife out and slashes our budgets. So how do we combat this? How do we get them to “show me the money” rather than show me the door? In truth, it is never an easy task. However, here is a collection of useful data to hopefully help you in these scary times.

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#1 SMALL BRANDS ARE THE WORSE HIT
In times of crisis, smaller brands are often the first to cut their budgets. In many startups & scaleups, marketing is still viewed with a sceptical eye. Too many founders view marketing as a cost centre (when in reality it’s a value add) and are quick to cut their budgets before looking elsewhere for savings. Yet the unfortunate irony of this belief is that when these smaller brands cut their budgets, they are often hit the hardest. The Ehberng Bass Institute has in fact shown that smaller brands experience the biggest negative effects on sales, when advertising spending is reduced.

Ref #1 Smaller brands are worse hit when budgets are cut (source: Ehrenberg Bass Institue)

What makes these effects even more devasting is that those that do invest in brand, throughout a crisis, will bounce back even stronger. It has been shown by Kantar’s BrandZ that those that continue to invest during a crisis develop more powerful & stronger brands. So if you are working for a scale-up or challenger brand, avoid the temptation to think short-term. Avoid the temptation to cut costs and think about the long-term implications of the actions you are about to take.

Ref #2: Those that invest in brand bounce during a crisis bounce back stronger(source: BrandZ)

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#2 DIMINISHING BRANDS DIMINISH SALES
The temptation (and mistake) made by many in marketing is to view brand building as purely a long-term activity. Too many view it as this magical, ethereal thing that only pays back over many years. Whilst it is true that brand building takes years, not months, it’s important to not forget that it also has an important effect on short-term sales. As the godfathers of effectiveness, Binet & Field point out:

“Whilst long term effects always help short term sales, the reverse is not always true” Binet & Field, The Long & Short of it

In Binet & Field’s seminal work, the Long & Short, they go on to show how brand building helps to boost both long-term and short-term sales. In reality, brand building helps to keep your company top of mind and in turn, helps makes short-term sales conversion easier. When reading Binet & Field’s ‘Long & Short of it’ many forget the most important word in the title of the paper. It is the ‘Long AND short of it’ rather than the ‘Long OR short of it. What this reveals is that brand and sales work best together. They work together to create a benefit greater than their indivdual parts.

Ref #3: Les Binet via Tom Roach’s ‘The Wrong & Short of it’

Why is all of this important during scary times? Well, it reveals that if you cut your long-term brand marketing budget it will likely damage both your long-term AND short-term sales. Surely a dangerous game to play.

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#3 CUTTING AD SPEND DAMAGES REVENUE & PROFITABILITY
Cutting your ad spend during a recession, can be equally damaging to your revenue and profitability. As many of you know there is a direct correlation between share of voice & share of market. In short, the more you spend on ads (the louder your voice) the more you will likely grow (share of market). The issue is when you cut your ad spend/voice whilst others continue to invest, you are more likely to decline.

“Those that kept ad spend stable or increased it during the 1921-22 recession saw their sales hold up signifcantly better than those who didn’t” Roland Vale, Economist.

Beyond this broad quote, there are many specific case studies that illustrate this point too. During the Great Depression Post & Kellogs were fierce rivals. However, by 1933 the latter had pushed out far in front. Why? Well, Post had aggressively cut its advertising budget while Kellogg doubled down.

Ref #3: Post fell far behind because it cut its adspend (source: The New Yorker ‘Hanging Tough’)

In 2019 we saw history repeat itself as Coca-Cola cut its ad spend, whilst Pepsi kept there’s the same. The effect of this? Pepsi grew its net revenue whilst Coca-Cola’s declined.

Ref #4: Coca-Cola’s net revenue reduced as it cut its ad spend (source: System 1)

So whilst it can be tempting for CFOs of big brands, or founders of scale-ups to slash adspend… don’t let them do it. Never let them forget that cutting your ad spend and reducing your share of voice has devasting effects.

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#4 A GREAT OPPORTUNITY
Up until now, we have covered the negative effects of cutting marketing spend, but what about the benefits of investing? Well, the good news is investing in marketing can help you not only survive, but thrive, during times of uncertainty.

We know from the previous point that cutting your share of voice is dangerous. Yet at the same time increasing your SOV, during a downturn, can be incredibly powerful. Why? Well if everyone else is cutting their spend, your brand voice will stand out more. Simply, your share of voice will be louder and easier to be heard, if everyone else is going quiet.

“Recession are great for challenger brands, because as others cut back on adspend, those that continue to spend tend to stand out more” The New Yorker ‘Hanging Tough’

In fact, as Mark Ritson points out in Marketing Week ‘during the 2008 financial crisis, those who spent more on ads & aimed for an eSOV of over 8% saw an annualised share growth of 4.5%’. Beyond this Binet & Field also showed that investing in eSOV during a downturn leads to growth.

Ref #4: Increasing your eSOV in a downturn, leads to growth (source: IPA)

Finally we know that people are in fact willing to pay more for meaningful different brands during a downturn, as shown by Millward Brown.

Ref #5: Even in a downturn people will pay up to 14% more for a meaningfully different brand (source: Millward Brown)

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CONCLUSION
Most people who read this newsletter work in marketing or as agency strategists. There are even fair few Chief Strategy Officers (CSOs) here from big agencies now. To all of you, I know times are tough but I hope this data helps in some small ways. To the CSOs please don’t steal our thinking from other articles, we are a tiny agency and I know who you are…😂. To those on the brand side, why not work with us at Defiant instead of paying a big agency with a potentially lazy CSO 😉.

Have a lovely weekend.

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Please excuse the typ0s i’m proudly dyslexic

Will Poskett

Co-Founder | Strategy Partner
Website: hellodefiant.com
Email: hello@hellodefiant.com