History shows marketers who keep spending during downturns fare much better
Consumer panic buying seems to have peaked, but the brand panic may have just begun. While many brands have slashed spending in the wake of the current crisis, the temptation for more to follow suit will be hard to resist.
But research shows that brands cutting spending now will have a harder time when recovery comes. And despite an unprecedented disruption in people’s lives amid a pandemic that could kill hundreds of thousands of people, the current crisis is also creating new opportunities for brands old and new—as uncomfortable as that may be to think about.
First, things will get much worse
As bad as things have been in recent weeks, they’re about to get much worse for consumers.
The downturn fueled by coronavirus will make the onset of the Great Recession in 2008 look mild–at least in the early going. The latest second-quarter U.S. gross domestic product forecast from Goldman Sachs is for a 34 percent decline, more than three times worse than he previous quarterly record of 10 percent set in 1958 (amid a flu pandemic).
A tracking survey of more than 2,700 people conducted March 23-25 by CivicScience found that 14 percent of respondents had lost their jobs and weren't getting paid, while another 10 percent were working fewer hours for less pay. Another 6 percent were not working but still getting paid, though it’s unclear for how long.
Increased unemployment compensation and one-time payments from the Internal Revenue Service of up to $1,200 per person under the CARES act will help offset that effect. But those payments also will take a few weeks to kick in and may not stimulate much spending.
CivicScience found 59 percent of respondents–which would be the vast majority of people who haven’t already lost their jobs or seen hours cut–will use that extra money to pay down credit card debt or save more. Only 5 percent said they’ll use it to splurge. That’s because 39 percent of people overall said they’re very concerned about their job security, up 25 percentage points in only two weeks.
Cutting now has long-term effect
Amid all that, it’s tempting for marketers to stop spending on one thing they can control, which is advertising. A survey by agency lead generation firm RSW/US conducted last week found 9 percent of marketers have cut all spending, another 29 percent have “greatly reduced it” and another 31 percent have “somewhat reduced it.”
TV spending data from iSpot.tv show a mixed bag. Ford and General Motors have changed messaging but continued spending, albeit at levels lower than a month or a year ago. Fiat Chrysler has ceased advertising on its individual brands—which include Jeep, Dodge and Ram—in favor of a single campaign touting online buying and zero-interest loans for new car purchases. Fast-feeders McDonald’s, Burger King, KFC and Sonic remain on the air, but Buffalo Wild Wings, a staple of March Madness advertising, isn’t. Most consumer staple brands, many of them helped temporarily by stock-up buying, have maintained spending.
Travel advertisers such as United, Delta, Hilton and Marriott largely have disappeared along with most travel. But not every marketer in the space is silent. Accor’s Red Roof Inns launched a promotion April 1 (no kidding) offering its rooms as “remote working spaces” from 8 a.m. to 6 p.m. for $29.
“At Kantar, we have a lot of evidence to suggest that cutting marketing budgets at this time can cause problems for brands both in the short-term and longer-term,” Rosie Hawkins, chief offer and innovation officer at Kantar, said during a recent briefing on COVID-19 effects.
One reason to avoid drastic action is that the impact could be relatively short, as it appears to be in China, said Jane Ostler, global head of media, insights at Kantar. “Hold your nerve,” she said. “This will pass, and we’ll be in a situation like China where things will recover.”
A simulation Kantar ran for a beer brand, Ostler said, showed cutting marketing spending in half would have a relatively muted impact on ad awareness over the balance of the year, essentially in line with the low end of the brand's long-term range. But cutting spending entirely would have a far more dramatic effect.
Research by Ebiquity shows brands that increase spending during a recession achieve market share gains averaging 1.6 percentage points during the first two years of a recovery, said Christian Polman, chief strategy officer, speaking at an Advertising Research Foundation webinar on recession impacts late last month. Brands that maintain their spending average a one-point share gain, while brands that cut spending during a recession average a 0.7-point share gain during the subsequent recovery, he said.
A Kantar survey found large percentages of people now want companies to focus on employee health, remote working, making sure they can still provide needed goods and increasing donations to help ease the crisis. But only 5 percent of people said companies should stop advertising.
Changing the message
But for brands that continue to spend, messaging may have to change.
Marketing Evolution CEO Rex Briggs gives automakers Ford and General Motors high marks for continuing to advertise, but quickly adapting their messages. Ford pointed to its willingness to provide credit support for people affected by COVID-19. GM launched offers for no money down, 0-percent financing for 84 months and no payments for 120 days on some cars and trucks.
A “Chevy Cares” ad featuring that offer plus OnStar crisis assistance and help for people having trouble with their current loans did best among a recent crop of car ads, according to Ace Metrix, scoring 16 percent better than other ads over the past 90 days. Overall, ads with COVID-19 messaging scored 18 percent above average for relevance and 11 percent higher for likeability.
But specifics help. A Sam’s Club ad from Mono thanking workers for their role during the crisis scored highest among recent COVID-19 ads on likeability but below average on information, because it lacked specifics on how the retailer was rewarding workers, according to Ace Metrix.
Serta Simmons Bedding Chief Marketing Officer Melanie Huet says the mattress brand is preparing a discount package and favorable financing terms with retailers to advertise as it looks to rebound from the crisis.
“So many people have been put out of work,” Huet says. “Yet the latest research I’ve seen is that one-third of households can’t afford to miss even one paycheck and still afford necessities. We’re trying to sell products to people who have the means, and then we’re trying to put meaningful discounts in place in case somebody else does need a bed.”
Changing the channel
One of the biggest long-term impacts for many marketers is a shift to e-commerce. A huge number of people buying groceries online for the first time means at least some are likely to continue.
Of CivicScience respondents, 47 percent said they were shopping for groceries more during the week starting March 22. A separate survey by Field Agent found 14 percent of U.S. respondents said they either started using online grocery pickup for the first time or are using it more often as a result of the crisis.
Spirits marketers in particular have stepped up e-commerce marketing to compensate for bars and restaurants shutting down, says Rachel Tipograph, CEO of MikMak, which has an Instagram ad format that allows brands to fulfill sales through multiple online retailers.
“E-commerce for many liquor brands has now become their only sales channel,” Tipograph says. “Pre-coronavirus, e-commerce was growing 60 percent year-over-year organically for liquor brands, accounting for somewhere between 1 and 3 percent of total revenue. Now e-commerce is becoming somewhere between 50 and 100 percent of a brand’s total revenue.”
Much of the growth MikMak is seeing for liquor brands online comes from an entirely new demographic for them in the channel–people over 65, she says.
“Shopping for liquor online is still a new consumer behavior, and MikMak has found there currently is no retailer preference as to where they choose to shop for liquor online,” she says. This is very different than other categories such as grocery and beauty. That makes it important for brands to launch a “multi-retailer storefront that allows them to own as much of the customer journey as possible,” she says, and direct people where their items are in stock.
New opportunities for brands
While Evercore ISI projects the crisis will steer people toward established brands and make it harder for startups and direct-to-consumer players to get funding, rampant out-of-stocks amid panic buying at stores and the shift to remote working and buying have created opportunities for old and new brands alike.
As many as 44 percent of consumers in recent weeks have bought something new because they couldn’t find what they wanted in the store, according to surveys by AcuPOLL. The firm cites verbatim responses from consumers who tried pita bread rather than tortillas, veggie spaghetti, Dawn spray dish liquid and Gold Medal over store-brand flour, all of them liking what they tried. Another bought Frosted Flakes, describing it as “an old childhood favorite that I have long forgotten due to eating more ‘adult like’ cereal.”
Eco-friendly direct-to-consumer laundry and dish detergent marketer Dropps had its best sales month ever in March, says founder and CEO Jonathan Propper.
“We’ve had 14 straight quarters of growth, but March was ahead of plan,” Propper says. “Loyal customers want to stock up, in part because they’re at home more, not going out to eat, doing more dishes and want to make as few trips to the store as possible.”
Dropps temporarily cut back on customer-acquisition ad spending to make sure it could serve current customers, Propper says. Also, Facebook’s increase in usage driven by the crisis initially meant a larger audience that drove up ad costs, he says, though costs have since abated because many other advertisers cut back.
For Varsity Tutors, an online marketplace that vets tutors to work with K-12 students, coronavirus shutdowns that have almost all U.S. school children working remotely created a new opportunity. Previously, the firm also offered a limited number of interactive classes, mainly for test prep. Late last month, it rolled out a host of new free online interactive classes ranging from basics like algebra to topical enrichment classes, like “Science of Pandemics,” which opens up a possible new market down the road, says Chief Marketing Officer Adam Weber.
“I feel like this is a massive tipping point for education,” he says, one that could lead to a lot more remote learning permanently.