By Agbo Agbo
A couple of weeks ago, I went to a supermarket to make purchases when two ladies walked in demanding for a popular soap brand. One of the attendants laughed and said the soap brand is more than 50 years old and asked why they would want to buy an “old school” brand. It turned out that what the “old school” brand did was to repackage the product and back it up with aggressive marketing.
All entreaties for them to go for other brands fell on deaf ears and they eventually got what they asked for. This is the power of 360 marketing; the brand continued its marketing even though the times “were hard.”
These great American companies – General Electric (GE), Disney, Hewlett Packard (HP) and Microsoft – have one unique peculiarity. They all rose to prominence during periods of economic depressions. Beyond being great brands that have left indelible marks in the sand of time globally, they were all startups during teep declines in the United States of America’s (USA) economy. GE started during the panic of 1873, Disney started during the recession of 1923-24, HP began during the Great Depression, and Bill Gates and Paul Allen founded Microsoft during the recession of 1975. It is conventional wisdom that tough time most often calls for tougher decision making.
Ordinarily, during periods of downturns, majority tend to see only doom and gloom. But the same wisdom also point to the fact that it is equally a time when those who knew what they were doing made great economic strides, and the very nature of the depression was an economic boon for them.
It was a time when several companies benefited from aggressive marketing while their rivals cut back. A good example of that would be Kellogg which understood that consumers didn’t stop spending during the depression; but most just looked for better deals, and the companies providing those better deals came out stronger after the depression ended. When spending picked up, consumer loyalty to those companies remained.
Generally speaking, those companies that not only survived but also thrived during the Great Depression were those that continued to act as though there were nothing wrong and that the public had money to spend. In other words, they advertised and continued their normal PR activities. These are industries that didn’t wait for public demand for their products to rise; they strategically created that demand even during the most difficult of times.
Today, Nigeria appears to be in an economic crossroad and already most companies have drastically reduced their marketing budgets; even most big time spenders like the telecommunications, alcoholic and non-alcoholic beverage sector have toned down their marketing budgets. Is this the way to go?
In 2008, the Institute of Practitioners in Advertising (IPA) held a seminar to examine the behaviour of companies in recessions. Robust research and detailed analysis from research organisations Millward Brown, Data2Decisions, Malik PIMS, and IPA DataMINE were presented. It was a comprehensive seminar focusing on trends and case studies to prove marketing works.
The four presentations analysed the impact on brands and their profitability of cutting spending on marketing communications during a downturn. The real question then is: what is the impact on those who cut their marketing and on those who maintain or increase it?
The first presentation by Millward Brown demonstrated the damage to both brand image and brand usage of brands that ‘went dark’ i.e. ceased to spend on marketing communications for six months or more. It also highlighted the strong link between share of voice and market share, and showed that brands that cut their marketing relative to competitors are at greater risk of market share loss. The risk is greatest in categories that are more price-driven.
Brands that go quiet and stop communicating are judged by customers, prospects and the market generally to be on their way down and the effect becomes self-fulfilling. A key finding from the second presentation by Data2Decisions focused on the time-lag effect. Cutting your marketing in a downturn will help cash flow only in the very short term, and the brand will emerge from the downturn weaker and much less profitable. Data2 Decisions also showed that price incentives quickly lose their power to attract incremental volume and they weaken profitability. Shifting the focus from marketing to price in order to gain volume has the effect of increasing the need to reduce prices to maintain volume.
The third paper by Profit Impact of Market Strategy (PIMS) analysed data from around 1,000 businesses during market downturns and subsequent recoveries. The PIMS analysis proved that while maintaining or cutting fixed costs was desirable, the opposite was true of marketing communication, New Product Development (NPD) and longer term research and development (R&D).
By improving customer preference while maintaining relative prices, increased marketing spending drives success. Analysis shows that both market share and Return on Capital Employed (ROCE) are considerably improved after a slump by increased marketing spending during the downturn. Return on Capital Employed suffers slightly from increased spending on marketing during a recession, but it’s not significant. And the long term gains greatly exceed the short term downside.
The fourth presentation from IPA DataMINE analysed a total of 880 case studies submitted to the IPA. Brands that spend above average Share of Voice (ie more than the average of the total marketing communications spent by all brands in a category) will grow, while those spending less will shrink. The more marketing you do relative to the average of other brands the more you will gain. And the less you spend relative to other brands, the more market share you are likely to lose. The relationship – it pointed out – holds true in good times and bad.
Because so many companies cut spending during downturns, they actually drop out of public sight because of short-sighted decisions made about spending money to keep a high profile. Apart from the research I cited, others have pointed out that this action often caused many customers to feel abandoned. They associated the brands that cut back on advertising with a lack of staying power. This not only drove customers to more aggressive competitors, but it also caused financial mistrust when it came to making additional investments in the nolonger- visible companies.
Both anecdotal and empirical evidence support the case that marketing was the main factor in the growth or downfall of companies during the Great Depression. To put it bluntly, the companies that demonstrated the most growth and that rang up the most sales were those that advertised heavily. Brand marketers can take a page from history to see which purchases were most affected. The Great Depression offers classic examples of the power of brand marketing and advertising even during times of economic crisis. Procter & Gamble (P&G) maintains a philosophy of not reducing marketing budgets during times of recession, and the company certainly did not make any such reduction during the depression. It’s therefore not coincidental that it has made progress during every one of the major recessions. While competitors cut budgets, it increased its spending.
While the depression caused problems for many, it came out of it unscathed During the 1920s, Fords were outselling Chevrolets by 10 to 1. In spite
of the depression, Chevrolet continued to expand its advertising budget and, by 1931, Chevrolet took the lead in its field. It is believed that Ford’s weaker balance sheet entering the depression rendered it unable to respond to Chevrolet. Also in 1920, Camel was the topselling tobacco product. American Tobacco Co. then struck back with the Lucky Strike brand, and by 1929 Lucky had overtaken Camel as the No. 1 brand. Two years later, in the heart of the depression, Chesterfield also overtook Camel. Not resting on its oars, Camel bounced back with a dramatic increase in ad spend and, by doing so, demonstrated the power of advertising during depressed times. By 1935, it was back on top.
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