Estimates of the economic impact of the current crisis continue to vary. The IMF outlook published April 15th projects 2020 GDP declines of -6.8% for Sweden, -6.0% for Finland, -7.0% for Germany, with Finland expected to recover somewhat more slowly in 2021. Our previous analysis indicates that this would translate into overall cuts of close to 15% in marketing budgets. This correlates with the recent findings in our survey, where 60% of marketers expected significantly smaller budgets for the 2nd half of 2020.
The headline spending cuts are an unfortunate circumstance, but we expect attention to revert rapidly to the question of how best to deliver on objectives given the resources available. We will see three high-level patterns of behaviour, which all are extensions of the findings in the survey.
- Investments in corporate social responsibility (CSR) initiatives and communications will increase, most probably in a future post-crisis world too.
- Budgets will further shift towards digital direct channels and eCommerce with traditional channels of TV, print, DM, events and out-of-home, the losers.
- Customer data and data management will see more investment.
We believe and will argue that marketers need to make strategic choices, some of which should not follow established wisdom from past downturns.
The current recession and the ensuing recovery will provide opportunities for repositioning, market share capture, and competitive gains for strong companies. Budget cuts that are offset by increased agility and tactical clout, as we have argued in our previous blogs, do not need to result in lost capacity.
Medium and Long term Recommendations for the World after Lockdown 2021 and beyond
Capture Market Share without Outspending Everyone
Traditional agency wisdom for these circumstances is to outspend your competition. The proposition is that excessive share of voice (ESOV) drives market share, with historical data suggesting that a 10 point excess in media spend (Share of Voice) over Share of Market (SOM) leads to an increase of 0.5% in market share. Brands with a market share of 20.5% who grow their media spend to 30% of the market would grow market share to 21% over a year.
In previous downturns, brands with substantial market share and sustained spending power have typically been able to strengthen their position in relation to smaller players. Higher media spend, supported by strong balance sheets, and combined with spending cuts by competitors, resulted in ESOV and growing market share. Given the channel mix that prevailed in past downturns, the incensed share of voice was typically achieved through TV as the predominant channel. In practice, strong brands seeking ESOV outspent the competition on better creative and more TV time, drowning out the smaller voices in the process. But, the world has changed….
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Defend pricing position when weaker performers are forced into price competition
The crisis is already reflected in declining prices in non-discretionary retail, such as fashion and sporting goods in the US. During the next stages of the Covid-19 crisis, cash-flow pressures will mark the beginning of a prolonged all-out sale, where steep discounting is becoming the norm, especially in the worst-hit verticals with the largest inventory issues. At zero or very low demand during the lockdown, discount campaigns make little sense. Still, they will be the default when demand starts to recover in non-discretionary retail, travel and hospitality. Innovative, dynamic pricing schemes could help companies reach healthy top-line levels faster but also enable CMOs to defend incremental increases in marketing budgets.
Companies with well functioning loyalty programs should adjust program structure and incentivisation to match the changing consumer demands when coming out of the crisis. Ancillary services, such as extended free trial periods and subscriptions, and product and service bundlings should be included in the toolset to defend your pricing position in the new environment when competition on price increases significantly.
Agility and aggressive experimentation for steady improvements
Due to COVID-19, most companies have re-organised and set up contingency task forces during the crisis. Many marketers will have broken down silos to comms, sales, operations and other parts of their organisation. Marketing departments have learned to address a new set of customer needs and priorities while mastering communication action lead times of hours, not days or weeks. Many of Avaus’ customers have dramatically shortened chains of commands, contingency teams are innovating new value propositions and responding to the crisis with a wide range of contributions to help customers and personnel in the crisis.
Growth hacking methods will make lasting inroads in large organisations. Many of the COVID-19 response models should provide blueprints for future marketing organisation. The result will be a more agile, independent but collaborative centre of excellence that applies Growth Hacking methodologies at scale in marketing, sales and analytics in a market that will remain both uncertain and volatile for years to come.
Benefit from the talent market shake-up
Channel proliferation, in conjunction with increased data and tech adaptation has resulted in an increase of overall complexity bigger head-counts with associated fixed-cost increases in marketing departments and agencies alike. The investments have been justified as the overall market has grown, and marketing has been able to provide reasonable proof of topline contribution with data-driven digital marketing initiatives.
Savings targets will primarily be set for media and services within the marketing budget. But demands for lowering fixed costs will follow. In our survey, 30% of Swedish and 15% of Finnish respondents believe that the marketing department headcount will be lower at the end of 2020 than at present. This will create a shake-up of the talent market, and proactive recruiters will have a unique opportunity to attract sought-after talent in the near future. This will strongly benefit the 19% of Swedish companies and the 9% of Finnish companies that will hire during or immediately after the crisis.
Employer branding and share of voice in the talent market should be a key consideration while the crisis turns into normalisation. Future employees listen carefully to what companies are saying and signalling throughout the different stages of the outbreak.