By Dr Omar Merlo and Dr Andreas Eisingerich, Academic Directors of the online Masters in Strategic Marketing at Imperial College Business School
COVID-19 has already had a huge impact on businesses. Since it took hold, many businesses have had to assess how to survive in a world where consumers are spending less. Naturally, with a recession looming, many businesses are assessing where to cut costs in order to survive, and for many companies marketing and advertising is the first on the chopping block. However, there could not be a more important time for brand marketing.
Instead of cutting marketing all together, brands need to be smart and adapt their marketing strategy to optimise spending during the pandemic and flourish in a post-COVID-19-world. Here are three things to consider.
Avoid cutting the budget
Cutting marketing budgets is seen as a quick and sure way to save money without experiencing any immediate negative effects on sales or having to let people go.
Already back in March, just as the UK government was considering introducing a lockdown, a study by Marketing Week and Econsultancy of 900 UK brand managers showed that more than half were delaying or reviewing their marketing campaigns, and nearly two thirds were delaying or reviewing their whole budget commitments.
Given the major hit to both top and bottom lines faced by many businesses since the lockdown began, these numbers have no doubt gone up since then. But in most cases, unmitigated cuts for short-term benefit can have dangerous outcomes.
Maintaining marketing spending at pre-COVID-19 levels is not only desirable, but if at all possible, it may be the only way to survive the post-pandemic downturn and even provide an opportunity to gain market share from more cautious competitors.
A business that uses its marketing spending wisely during the crisis can pull ahead of the pack as communication clutter decreases, cost of advertising drops, and share of voice increases. And ultimately it can stay ahead once the crisis is over; in fact, research has shown that advertising aggressively in tough economic times not only increases sales but increases profits as well, and this has been true for all recessions since World War II.
In contrast, brands that go dark when times are tough can experience a long-term drop in brand performance, market share and profitability; even when the budget cuts are relatively small.
Use a “sniper” instead of a “shotgun” approach to cost cutting
Not all businesses can afford to maintain their marketing spending during the current pandemic. So, if spending adjustments are unavoidable, indiscriminate cuts across the board should be avoided, as they can destroy value in the long term.
Coronavirus has affected demand for pretty much all products and services, generally reducing it to different degrees in most industries, and creating two polarised opposites in others: first, industries that have experienced an enormous drop in demand (e.g. travel and leisure), and second, those that have experienced an enormous spike in demand (e.g. online groceries).
In either case, budget cuts can be attractive, whether due to lack of resources or for fear of creating demand above capacity. And in either case, marketing spending to stimulate short-term demand would probably be a waste of money. Therefore, companies should limit tactical short-term marketing spending and protect investment in long-term brand building. The investment view to be adopted is that of post-pandemic recovery, rather than immediate returns.
A 2010 study by Gulati, Nohria and Wohlgezogen shows firms that cut costs faster and deeper than rivals when a downturn hits, do not necessarily flourish after the crisis. In fact, they have the lowest probability of success against the competition when times get better. The trick is to reduce costs selectively by focusing on operational efficiency while investing in the future by boosting areas such as marketing and R&D.
Budget for innovation
After the 2008 recession, Amazon grew by 28 per cent. This was, in part, down to its continuous innovation of new products, such as the Kindle and e-books, which cemented the perception of Amazon in the minds of customers as an innovator that introduced a lower-cost alternative to traditional books at a time when they most needed one.
During this crisis, many businesses have already adapted in order to survive, for example by shifting their activities online. This is probably not the time for radical innovation and risky endeavours, but instead for relatively simple customer-centric differentiation. Now more than ever, brands should try to understand what their customers need most and identify what problems they can solve for them with a view to winning customer loyalty in the long term.
The ability to follow through on the promises made in the past in novel ways can be critical. Deliveroo, for example, introduced contactless delivery very early on, to ensure customers could experience the delivery service they have come to expect without concerns about personal contact with the driver. These simple forms of innovation could be the most useful during a pandemic, creating value for both the customer and the brand. And in the end, the brands that rise to the current challenge by being customer-centric, and by protecting the trust customers have placed on them in the past, are the ones more likely to emerge from the pandemic as winners.