Marketing spend during coronavirus

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The pandemic has already taken its toll on business, but as recession looms, brand marketing is more important than ever

Since coronavirus (COVID-19) took hold, many businesses have had to assess how to survive in a world where consumers are spending less.

One of the first questions business leaders tend to ask themselves during the early stages of an economic slump is where to make cuts. Inevitably, though misguidedly, marketing is often first on the chopping block.

Here are three ways managers can optimise their spending during the pandemic and flourish in a post-COVID-19 world.

1. Avoid cutting the marketing 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.

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.

A business that uses its marketing spending wisely during the crisis can pull ahead of the pack

Maintaining marketing spending at pre-COVID-19 levels is not only desirable, but 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 post-World War II recessions.

During the 2008 financial crisis, Audi’s decision to increase its marketing spending while other car makers were being more cautious was responsible for elevating the car maker from a niche brand to a global leader. Its brand awareness and customer consideration grew dramatically relative to brands such as Mercedes and BMW.

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.

2. Use a “sniper” instead of a “shotgun” approach to cost cutting

Not all businesses can afford to maintain, let alone increase, 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).

If spending adjustments are unavoidable, indiscriminate cuts across the board should be avoided

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 focus on limiting tactical short-term marketing spending and protecting long-term brand spending. 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.

3. 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.

As the old proverb goes, “necessity is the mother of invention”, and, as Rockefeller once said, there’s nothing wrong with trying to turn a disaster into an opportunity, especially if it is a matter of survival. Many businesses have already adapted, for example by shifting their activities online.

The ability to follow through on the promises made in the past in novel ways can be critical

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.

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Omar Merlo

About Omar Merlo

Assistant Professor of Marketing
Dr Omar Merlo is Academic Director of the MSc Strategic Marketing programme and Assistant Professor in Marketing at Imperial College Business School. His main teaching, research and consulting interests are in the areas of strategic marketing, services and relationship management, and customer engagement.
Andreas Eisingerich

About Andreas Eisingerich

Head of Department of Analytics, Marketing & Operations, Professor of Marketing
Dr Andreas B. Eisingerich is Professor of Marketing at Imperial College Business School and Programme Director of the Full-Time MBA.

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