Most companies reduce spending in recessions, especially marketing may be easier to cut. Companies that have recovered from recessions did not cut back on marketing spends and in many cases increasing it. They did reallocate the budget. What are marketing expenses?
R&D and new product launches
New product launches are dangerous even in good times and are most likely to be axed in the wake of recessions. but research among UK and USA FMCG companies show that products launched during recessions have higher sales and a better chance of survival. One reason could be lesser competition products and a higher focus by R&D on their best prospects and hence of better quality.
Timing is important. Best time to launch a product is during the midpoint of recession. This is the time when consumers start looking at non-essential goods but do not start buying. A new product, backed by quality generates hope that the economy is recovering and the consumer may soon be able to buy.
Even if there are no new products to introduce, smart firms continue to invest in R&D, which has a strong impact on long-term performance. The main reason is that the companies emerge from the recession with a stronger pipeline.
Prices and promotions
Faced with declining sales volume, managers may be tempted to increase the prices. But that is essentially a bad idea, as consumers who are hard hit due to recession make them more sensitive. This normally backfires. Firms that engage in these tactics lose more market share than those who don't.
Communication
Most companies cut down on brand advertising and companies that maintain or increase the budget stand to increase their share of voice. Companies which consider advertising spend as an investment rather than an expense tend to maintain the budget if not raise it during the recession.
During a recession, consumers want the brand to show solidarity and reflect the challenges encountered. It should also try and help the consumer in mitigating the situation.
Tailoring response to the context
A company's existing branding and size are major factors in how well it can benefit from the recession. Strong brands maintain prices during the recession and big companies get discounts from suppliers. Companies operating in multiple markets need to choose different strategies for different parts of its business.
MArketing in recessions is never easy as it involves going against standard operating norms. Customers behaviours undergo major changes reflecting changes in their needs. Companies should support the consumers in this transition, shifting your message and value proposition. This is the time to reallocate the budget and not to reduce it. It is also an opportunity as the companies that stand by the customer giving them what they need cement the loyalty of their customers.
Don’t Cut Your Marketing Budget in a Recession
by Nirmalya Kumar and Koen Pauwels HBR August 14, 2020
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