Marketing in a Downturn

Economic downturn

Companies closing, staff being made redundant, employees taking pay cuts, this is the Covid-19 landscape. Graham Medcalf takes a look into what an economic downturn means for the marketing industry and what marketers need to do to adjust to the new reality. 

‘Creative destruction’, a term first coined by Austrian economist Joseph Schumpeter in 1942, can be described as the dismantling of long-standing practices, in order to make way for innovation. ‘Covid-19 destruction’ may act in the same way, making way for innovation, opportunity and new ways of thinking.

Economic downturn, recession, depression, global financial crisis (GFC) – no two economic reversals are the same. 2020 is however different; a year where the impositions of government, emanating from the Covid-19 Lockdown and restrictions, as well as bailouts to businesses, are having far-reaching effects that will be with us for a decade or more.

Stories abound of companies closing, and advertising agencies letting swathes of talented employees go, while others are reduced to a four-day working week. Some employers, having raced out of the starting blocks at Alert Level 4, telling everyone their jobs were safe on full pay for three months, have had to retract and let staff know that they would all be taking a permanent 20 percent pay cut, with redundancies likely further down the line.

There are industries that may never return to what they were. Tourism and travel will look back to the years leading up to 2020 as the golden years of their industry. We had already seen pain in the media sector and the closing of Bauer in New Zealand is but the canary in the coalmine for media as a whole.

Looking back at previous downturns is one way of preparing for an uncertain future, but in the current circumstances may deceive. 

Lindsay Mouat is chief executive then Association of New Zealand Advertisers (ANZA). His strongest recollection of the 2008 GFC was one of it being the beginning of the ‘do more with less’ mantra. That covered resource of all kinds: people, ad budgets, use of external agencies and consultants. 

Lindsay Mouat

“But we adapted, and we will again, albeit with casualties along the way,” he says. “There is nothing like a crisis to sweep out any complacency and rethink what you do and why. Those that are willing to change quickly will most likely be those who succeed.”

It is clear when looking at marketing during a recession, “you need to reset quickly,” Sean O’Donnell, DB’s marketing director, told NZ Marketing. “What you originally planned can no longer be the way forward because the circumstances are totally different. You’ll need to look at your budget and decide what your priorities are.” 

Sales come easy in good times. Consumers have disposable income and are eager to spend. Good marketers emerge in bad times. Large organisations have tended to shift focus towards the loyalty of existing customers –  how to retain them, how to be more “customer obsessed”. 

Julia Jack, currently chief marketing officer at Mercury, was working in London for a large multi-national telco in 2008 and remembers a huge focus on re-directing resource into insights, analytics and customer value management. 

“From a brand perspective there was definitely an emphasis on being more purpose led, being more than a commodity but rather something central to people’s lives, connecting them, bringing them together. Internally too, there was a shift towards trying to leverage our global strengths and operate more as one company than a collection of separate operating companies. People did however, find it difficult to let go of projects that just weren’t going to go anywhere in that environment.” 

Although it may not have felt like it at the time, New Zealand was largely shielded from the worst of the 2008/9 GFC. Our Australian-owned banks didn’t fail, and our export economy survived through a focus on China and Australia. It is often forgotten that while both economies slowed, neither went into recession. 

“The path of recovery across the Tasman will be critical for us here in New Zealand,” maintains Carolyn Luey, Vodafone New Zealand’s consumer director.

“A key difference between the GFC and our current Covid-19-created situation is the prevalence of social media and other online channels that a marketer can now use to reach customers in a relatively low-cost way. Back in 2008/9 social media platforms such as Facebook and Twitter were still in their infancy and their advertising platforms weren’t widely used.” 

The difference this time around is that throughout the GFC people were still out and about, and stores were still trading. Outdoor and in-store marketing was still possible.

Mixed messages

It seems New Zealand may have thankfully missed the worst of the health impact of Covid-19. But marketers will once again have to find more creative solutions on smaller budgets to gain cut-through and maintain relevance. 

“For those products and services that are still relevant, keeping the brand salient, meaningful and differentiated will be the focus for marketers,” says Luey.

Of course, such a huge global event will also mean a change in both sentiment and habits – at least in the medium-term. The absence of international travel and desire to help the local economy will bring out a rise in patriotism and a sense of local community stronger than before. People will look to brands seen to be supporting this, encouraging collaboration and providing a sense of belonging. 

“Then there is the acceleration of digitisation,” remarks Luey. “That has happened throughout the Lockdown. Businesses with their entire workforce operating from home, children doing schooling online, friends and whanau catching up via video conference – this renewed appreciation and use of technology won’t cease once the restrictions ease off. People will always appreciate the human touch but technology will continue to be an enabler for greater freedom and flexibility, so the digital journey of customers is one to keep top of mind for marketers, particularly with the increased adoption of e-commerce as social distancing and contactless delivery adoption become the new norm.”

Cassie Roma has always been recognised as a sharp marketer, recently as head of content marketing for The Warehouse Group and now as founder and director of CR&Co, a game-changing consultancy and multi-media business. She imagines the next few years to be a time of re-setting and truly learning how to derive value from long-term engagement with and alongside customers and colleagues alike.

“In our profession the time has come to start working together more genuinely. The more we can share technology, information, insights or integrations that help humanity, then the better our businesses and brands will do over time.”

Roma believes that the age of blind consumerism and short-termism will come to an end. “It’s our job to put heart, emotion, true helpfulness and compassion out into the world. If our products, services, or brands don’t work in these arenas – maybe it’s time to rethink our sport.”

James Mok, managing director of advertising agency VMLY&R, contends that in many ways the 2008/9 GFC ultimately had the same immediate impact on agencies as Covid-19 – clients either stopped spending or seriously cut back on their budgets. The impact of the crisis demanded agency management reset their budgets and review all their costs. Freelancers, entertainment, travel and nice-to-haves are cut back, tough questions are asked of salary increases and new hires. Challenging conversations with clients are conducted.

Mok was at FCB at the time and management got the staff involved in deciding where cuts should be prioritised. “It was powerful for binding the team culture together and taking on the challenge as a collective.”

The biggest immediate issue for Mok and others in the sector, is the viability of major New Zealand media properties. The impact on print, radio, and broadcast television has been well publicised and without a range of thriving, robust media outlets, advertisers lose the ability to reach audiences efficiently and with scale. 

“Hopefully New Zealand’s recovery will be the lifeline they all need and despite some potential musical chairs, these media staples will carry on,” remarks Mok. 

Digital isn’t going anywhere but there is a question over whether the New Zealand Government will put the same pressure on Facebook, Google et al., that Australia has done, to level the playing field. 

“The reality is, marketers and agencies have to plan for all scenarios. In the short-term, we will likely be working with tight budgets due to most businesses being significantly down on their original 2020 forecasts. We need to find the sweet spot between being helpful and sensitive to consumer sensibilities, and the need to sell. We’ll pragmatically look at the most efficient ways to reach our audiences with the budgets we have,” says Mok. “We need to keep communications, messages and the customer journey simple. People won’t have the time or inclination to indulge brands too much.”

Paul Head, chief executive, Commercial Communications Council, has no doubt that some sectors will be devastated and take years to recover, but is more optimistic, and believes there are large segments of the economy that will hit the play button and get back up to speed quickly. 

“There’s a lot of talk about a depression, but interestingly, the data from previous pandemics points to a sharp decline in GDP, followed by a rapid recovery, at least in a macro-economic sense. Those businesses that do well will be those that remain nimble in whatever the new world looks like.”

Head is a ‘glass half full’ kind of guy, and he may be right in thinking it might not be as bad as we all think. “Let’s not forget that the marketing community is a key driver of economic growth,” he says. 

Agency FCB is one of those drivers and CEO Paul Shale writes: “Covid-19 and the Lockdown will be catalysts for behaviour change that will impact most businesses. It’s why every business should review their business model and put customer behaviour at the centre of that review to determine whether their business can carry on as before, tweak or pivot.”

Big Communications’ Ant Salmon passed on a beautiful piece about the current situation which said: “I heard that we are all in the same boat, but it’s not like that. We are sailing in the same storm, but not in the same boat. Your ship could be shipwrecked and mine might not be. Or vice versa.”

Ant Salmon
Ant Salmon

As Salmon told NZ Marketing: “Normally, major events are experienced by some people but only observed by everyone else. We read about a terrorist attack and we sympathise; we even grieve to some degree. But we don’t really know, because we weren’t there. What’s unique about this event is that we are all in the same storm.”

Salmon is not as optimistic as Head and sees short term carnage, particularly in the agency sector. “We will see fewer agencies, and the larger ones will get smaller. There will be redundancies and wage cuts, and some really good people will be lost.” 

Mid- to long-term Salmon suspects that the ‘new normal’ that people are busy trying to define, will look quite a lot like the old normal. Some companies will cut their marketing spend and will have every reason to do so. Others will see opportunities to rebound or grow and will spend as much on marketing and advertising as they did before, or more. Some will make the cardinal error of cutting their marketing or advertising budget simply as a cost-cutting exercise and will then wonder why business is slow to pick up (or worse). 

Prediction is a fool’s errand and so much of what we hear is the confirmation bias of people predicting a future that suits their professional needs. 

Mike Hutcheson is an ad industry icon who has moved to the world of academia – adjunct professor at AUT, and his predictions are as valid as others: “I expect it will be even worse in the long run,” he says. Although banks may be a little more forgiving in the short-term. They won’t let the whole world go down together. Against that the traditional media market is shrinking. Ad revenue is steadily decreasing for traditional media. Facebook, Google and other social media channels will continue to hoover-up what revenue there is. Retail will continue to struggle. Concept stores will grow and allow online sales, but there’ll be fewer of them.” 

Where to from here?  

In April, TBWA released an 85-page report set to help Kiwi businesses plan and decide where next and what next following the uncertainty that Covid-19 has created. The report titled Navigating Uncertainty looks into the eight emerging Kiwi values TBWA has identified. The New Zealand report was based on a report from Oceania head of planning Matt Springate and re-created by TBWA/NZ head of planning, Matt Kingston.

In the same month, Steve Ballantyne, narrative strategist at Story IQ, released Breakthrough a free guide to marketing your product in difficult times, which prophetically advised “Covid-19 will be the cause of the biggest economic disruption since the second World War”. The guide compiled some of the most successful recession marketing strategies from marketing thought leaders around the world and work on over 200 brands throughout Australasia.

As Steve writes: “In times of chaos our natural inclination is often to freeze and wait it out.” But, some of the most relevant strategies Breakthrough talks about, include: a focus on message clarity; empathetic communication; a shift from selling to helping; tuning up your online presence; and tracking and measuring everything.

It’s all very well for academics to give this sort of advice but where the rubber hits the road, quite literally for companies like Air New Zealand, saving the business becomes the priority.

“Air New Zealand has rushed into poorly made plans to cut nearly 1500 people’s jobs,” said the E tu- union head on RNZ. But who can blame them when borders are closed, and air travel is decimated?

Whatever sympathy you may have for Air New Zealand and other airlines, the long-term efficacy of New Zealand’s once loved brand depends in the long-term on how the crisis situation is handled. Consumers rarely forget and complaints are already flooding into New Zealand’s consumer watchdog, the Commerce Commission, about cancellations, refunds etc.

Likewise, media companies are divesting – leaving the market in the case of Bauer, and others like NZME and Mediaworks have offered voluntary redundancies, made certain positions redundant, or asked employees to take a pay cut. This is really “catastrophe marketing” otherwise known as hanging on by your fingernails or by the skin of your teeth. In this particular crisis, survival is the best strategy of all. As Duncan Shand says, “keep it tight and keep it real”.

Every recession proves there are many examples of brands succeeding because they doubled down on investment in marcomms and innovation.

In the 1920s, Post was the category leader and significantly cut ad spend during the Great Depression. Kellogg’s instead doubled ad spend (marketing), introduced Rice Krispies (R&D) and profits grew by 30 percent. Kellogg’s went on to own the category for the next few decades.

During the 1973 recession, Toyota increased its ad spend at a time when everyone had dropped theirs. Toyota went on to become the top imported car maker in the US by 1976. 

During the 1991 recession, McDonald’s dropped its advertising budget, which Pizza Hut and Taco Bell took advantage of. Pizza Hut sales grew by 61 percent. Taco Bell sales grew by 40 percent. McDonald’s sales declined by 28 percent

During the 2009 recession, Amazon grew sales by 28 percent. They continued to innovate with new products, like the Kindle, which contributed to more e-book sales than printed books on Christmas Day 2009.

Brands such as Netflix, Groupon and Airbnb did well throughout the GFC by recognising the lower spending power of its customers and offering economical solutions to entertainment, dining out and accommodation. The latter is now having to respond to the current situation by pivoting to focus on long-term accommodation solutions over a short-term solution for tourists.

In another example, Hyundai responded well to the GFC in the US. They kicked off a programme where any car financed or leased by someone who subsequently lost their job could be returned. The great thing about that response was that is showed an understanding for the situation their customers were in, delivered a real solution to that customer issue (not just words) and showed that they had confidence in the continuation of their own business.

Businesses will survive by recognising and rewarding those who are loyal to them. Proctor & Gamble traditionally see economic downturns as cyclical and take the opportunity to invest for market share gain. Consumers will shop around, especially looking for value. So be sure you are taking care of those who have been loyal to you in the good times, so they are less likely to stray.

As Mok told NZ Marketing: “The big lesson is the danger of going ‘dark’. This is a time when consumers are looking for guidance and leadership. Brands need to protect their base as much as attempt to grow during a challenging time. And at the same time, agencies need to demonstrate their commitment and ability to bring tangible value to their clients. Recessions are where marketing can really prove its worth.” 

This article was originally published in the June/July 2020 issue of NZ MarketingClick here to subscribe.

Graham Medcalf

About Graham Medcalf

Graham Medcalf is former Editor of NZ Marketing and regular contributor.

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