Panic, evolutionarily speaking, serves a vital purpose. It is part of the flight-or-fight response. If you are in imminent danger, your stress-response hormones kick into action and your higher-level thinking is put on pause while your body produces a rush of adrenaline to either face the danger or run away from it. This instinct was invaluable when our ancestors were running from saber-toothed tigers, but in our modern world it may hinder more than help.
COVID-19 is driving panic throughout our societies and economic systems. Just two words illustrate the depth and breadth of this panic: toilet paper. The virus is insidious, invisible and deadly, and that extends the period of panic, making people act impulsively and sometimes even illogically. Toilet paper is not going to save you if you are exposed to the virus. Even if you envision a virus-induced “Mad Max” world developing, logic will tell you to stock up on canned goods, Spam, energy bars and beans—not toilet paper.
While panic has its place as a human stress response, extended panic prevents you from seeing the big picture. This is especially true for marketing and advertising, which are strategies and tactics that you execute today in order to achieve positive results in the short and longer term.
COVID-19 is unprecedented in contemporary history. However, even in the absence of a global pandemic, businesses tend to focus too much on the short term. This can be seen when businesses chase quarterly numbers to the detriment of the long-term health of their brands and businesses. Analytic Partners’ ROI Genome intelligence shows that too many sales promotions will hurt long-term profitability and brand equity. As a result, we support a balanced approach and advocate for building brand equity, maintaining the perceived value of offerings and driving both short- and longer-term results.
We are seeing a lot of short-term, reactionary behaviors in response to the virus. We see businesses furloughing marketing teams. We see some brands going dark on advertising. We see some corporations pulling back across whole business lines to take a wait-and-see stance.
Many budgets were cut during past financial crises, and some companies are doing that now. But is cutting back on spending the smart thing to do? Studies show that companies that protect marketing budgets during recessions tend to do much better in the ensuing recovery period. Examples of companies innovating and leaning in during downturns are easy to find, including brands such as Toyota, Staples and Target. But what wider learnings can we take from past experiences?
Analytic Partners’ ROI Genome intelligence, which spans hundreds of billions of dollars in marketing spend across more than 700 brands in over 45 countries, offers some insights:
- Recessions or downturns do not mean lower ROIs. In over 100 cases, more than half of brands saw improvements in ROI during the last recession.
- Media spending contributes to short-term growth and longer-term brand building, even during a recession. On average, brands that increased media investment realized roughly a 17 percent growth in incremental sales, and more than half saw subsequent improvements in year-over-year ROIs over a two-year period during the recession.
- Removing media guarantees losses during a recession. On average, brands that removed media investment suffered an 18 percent loss in incremental sales.
- Removing media investment exacerbates losses for struggling brands. Two-thirds of losses in incremental sales during the last recession were driven by lower investments while one-third was driven by lower consumer demand.
When brands allow short-term thinking to dominate, they do so at the expense of brand equity, which drives long-term success for the business. In one stark example, a major household brand went dark on all advertising for nine months during the last recession. In that period, the brand’s equity severely eroded, with losses in brand attribute ownership areas, decreases in attribute associations and declines in key overall equity measures. In fact, the brand did not retain ownership of any key attributes—a position that had taken years of investment to build. The brand saw significant declines in usage and customer loyalty.
Smart businesses apply a data-driven approach to address strategic and tactical needs that balance short- and longer-term goals. Yes, we need to respond to short-term stimuli, and we need to work on meeting short-term goals. But we must balance the short-term needs with the long-term health of the brand and the business. This is why it is critical to continuously monitor these activities as customer behaviors may change. Brands that leverage an always-on data and measurement framework are able to adapt and make better decisions more efficiently.
In uncertain times, it is natural to react to short-term stimuli with short-term thinking. That’s the panic response at work. One way to counteract that instinctive response is to rely on data. During crisis periods, making data-driven decisions is all the more important. For example, Analytic Partners keeps decisions focused on data by anchoring them to our Commercial Mix Modeling. This is delivered through our GPS Enterprise platform, which enables forward-looking decision-making through scenario planning, optimization, and risk and opportunity assessments. Tactics and investments should change in the face of massive disruption, and data and analytics will help you make the right tactical and strategic changes. By looking with a short- and long-term lens across a range of outcomes, brands can find those key opportunities.
The best advice for troubled times? Do not panic—and do not hoard toilet paper—but keep the longer-term outlook in perspective. After all, as a quote often attributed to Darwin points out, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”