Brands and advertisers adjusting to the pace of post-COVID-19 marketing could face another major disruption, this time in the form of a global recession. With 60% of economists predicting a recession in the eurozone and an expected global growth rate of just 2.9% (vs. 4.6% at the start of the year), an economic slowdown seems inevitable.
And as consumers adjust their spending to keep up with inflation and rising interest rates, so do many brands and advertisers. According to data from Nielsen Ad Intel, the U.S. advertising market was down 7% in the second quarter of 2022 compared to the same period last year, indicating that many marketers are expecting or have already suffered cuts. budgets.
While cutting media spend may seem reasonable for short-term budget concerns, marketers are focused on mitigating the effects of the recession and maximizing the efficiency of marketing budget to be accounted for and spent. on the market.
The recession does not last forever
The good news for traders who fear a prolonged recession is that many recessions are short-lived: historically, 75% of recessions end within a year and 30% last only two quarters. So any cost reductions are likely to be short-term and provide nominal savings, while putting the brand at a disadvantage as a recovery period approaches which is likely imminent.
Given that most brands are already spending less (reducing their return on investment by 50% on average), any further reduction in media costs could further reduce return on investment, at a time when brands need to maximize their profits as much as possible. .
The solution is not to cut your budget, but to optimize your media mix and invest in high-performing channels. Finding the right balance ensures that expenses are properly allocated to reach, efficiency, and frequency. For example, a car manufacturer recently increased its reach by 26% and its impressions by over 39% simply by optimizing its media delivery without adjusting its budget.
And investing in media during a recession can save brands money, as industry downturns create supply-demand dynamics that benefit ad buyers and lower media costs. In fact, some brands have increased their media spend during a recession. In addition to a favorable media cost environment, brands may also find that competitors have reduced advertising, creating opportunities for campaigns to have greater impact.
Growth is possible even in times of economic downturn
Before accepting a drop in sales due to a recession, brands need to assess the landscape and closely monitor consumer behavior for changing spending habits. For example, the shift in consumption habits from large indulgences to smaller indulgences creates opportunities for growth in some categories, such as lipstick, while contraction in others, such as food and hospitality. .
And as consumers become more price-conscious, brands must alter their media plans and messaging to adapt. Recession-friendly messaging can help build brand equity and retain consumers after a recession.
Brands and advertisers looking to maximize the category's growth potential during a downturn should focus on analyzing consumer behavior to optimize messaging and increase the impact of their ad spend.
Make a cut (right)
Sometimes budget cuts are unavoidable. If you know you need to adjust your spending, be sure to cut the right costs in the right places to maximize the effectiveness of your remaining dollars and minimize the negative impact on your return on investment.
And while reducing media spend might seem like an obvious way to cut costs and meet financial goals, the benefits can be relatively small. 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 average amount spent was 32%. And while the spending cuts will increase channel ROI by 4%, brands will also experience significant reductions in sales volume due to lower advertising-driven sales.
It can also be tempting to increase promotions when consumers reduce their spending, but this approach has its challenges. Frequent promotions can condition consumers to only buy when a promotion is open, resulting in reduced sales of regularly priced, limited-margin products. ROI also tends to be lower for promotions (45% lower than media, according to Nielsen's marketing mix model) because only a small percentage of promotional sales are truly incremental, and promotional sales need to be significantly higher to compensate for lost margins.
Instead of relying heavily on promotions, consider which channels can be reduced or eliminated with minimal impact on ROI. If a channel is no longer performing well, it may be best to shut it down completely and reallocate your spend to the channel with better metrics and higher potential ROI.
Whatever media mix and budget allocation you ultimately decide on, remember that any expense is better than none. According to Nielsen Marketing Mix Models, outdoor brands can expect to lose 2% of their long-term revenue every quarter, and when they relaunch their media efforts, it will take them 3-5 years to recoup capital losses. long-term. passivity. . And your profits aren't the only thing that will suffer if you cut media spend: Nielsen data shows that marketing accounts for 10-35% of brand value.
