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The Little Red Book

Marketing in Recession - 9 Rules of Thumb

Frank Durden (Ogilvy Advertising - London) Haruna McWilliams (Ogilvy Group UK - London)

1. Absolute levels of spend are often less important than share of voice

The IPA DataMINE of more than 200 advertisers backs this up. In particular, the analysis suggests advertisers continually monitor and ensure their share of voice exceeds their share of the market in order to maximise the chances of maintaining and growing market share.
The PIMS (Profit Impact of Marketing Strategy) database also suggests that brands that had SOV higher than their SOM during a recession gain market share. At the same time, those brands that did not cut back on their budget during recession gained market share three times as fast as cutters once economy started to recover.
Advertisers may well find that a less absolute budget is necessary to maintain SOV and/or exposure in a recession as competitive activity falls and media typically becomes cheaper. This also presents an opportunity for cheaper, long-term deals on media

2. Downturns provide a window of opportunity for cheap share gain

PIMS (Profit Impact of Market Strategy) analysis looked at the relative impact in terms of ROCE (return on capital employed) during a recession in three key areas: MarComms, R&D and NPD. It concluded that downturns provide a window of opportunity for cheap market share gain to brands that increase MarComms investment. Increased expenditure on R&D produces similar results, whilst increased NPD is the best strategy for enhancing short-term ROCE during the downturn, but brings little benefit thereafter.

3. Cuts in MarComms can produce tempting short term gains in profitability, but rarely pay off in the long term

PriceWaterhouseCoopers estimates at least 45% of the value of advertising is generated in periods of over one year. Brands which cut MarComms expenditure can expect to still benefit from past activity in the short term, but pay a heavy price later. Econometric modelling by Data2Decisions estimates that a 50% reduction in MarComms expenditure in any particular year will generate a small incremental profit in year one but a loss approximately twice that large over the next three years. When budgets are cut to zero in a particular year the recovery time is five years.

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