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There’s a recession coming, strap yourself in… for growth?
13 October 2022
The likelihood of an economic recession on both sides of the Atlantic has increased substantially in 2022, with most economists agreeing that it’s probably the base case, rather than a potential scenario now. But, if an interesting piece of work by Sapio Research is accurate, this could mean your business should actually be preparing for growth.
It’s pretty likely that Europe and the United States are going to enter a recession in the next twelve months. Mark Zandi, Chief Economist of Moody’s Analytics, told the FT recently, “To avoid recession, the global economy needs a bit of luck and for the economic fallout from the coronavirus pandemic and Russian aggression to wind down quickly, along with some deft policymaking by the Fed and other central banks.”
Unfortunately, this is a conference of events with long odds against them.
Furthermore, Sapio Research asked 2004 decision makers in businesses across the UK, US, Germany and Japan if they were concerned about the forthcoming recession, and 95 percent said they were.
“Whilst we are not currently officially in recession, businesses are experiencing the first few tremors, particularly so in the UK, US and Japan. German businesses are more optimistic for their outlook, with 56 per ent not expecting to feel the effects until 2023,” explains the report.
So why am I suggesting that you should be preparing for growth? Well, in their 2009 paper, A Critical Review and Synthesis of Research on Advertising in a Recession, Gerard and Kethan Tellis make this argument:
“There’s a wealth of research that suggests increased spend during a recession reaps proportionally bigger rewards than in times of expansion. McGraw-Hill (1985) is one example, where companies that maintained or increased their ad spend during the 1981-1982 recession averaged significantly higher sales growth, both during the recession and for the following three years, than those that cut spending. By 1985, sales of companies that had maintained or increase their advertising spend during the recession had risen 256 percent compared to their counterparts.”
In other words, never waste a good recession.
Hold on, you’ve sung this song before
Lon- time readers of this blog might observe that I’ve made this argument before, and they would be correct. I made it in 2001-ish, post dot.com bubble (although we didn’t actually hit a recession in the UK that time), I made it in 2007 as people in the UK queued up outside Northern Rock before the Great Recession and I made it in early 2020 as we braced for COVID-19.
You know what? On all those occasions the argument that Tellis and Tellis put forward turned out to be entirely true. The businesses that marketed themselves most heavily during the recession came out of it strongest. There is a long list of companies that invested heavily during the 2008/09 recession and, as a result, grew substantially.
Sapio Research dutifully points out that in the Tellis & Tellis research, which references McGraw-Hill, most of the companies that grew started out with quite large market shares.
However, this could be something of a red herring. The Institute for Practitioners in Advertising would argue that the metric for determining spend is enough to keep your share of voice ahead of your share of the market. In other words, the companies with the largest market shares had the money to invest in keeping themselves ahead of the game.
As an example, in 2009 Samsung maintained its marketing investment and focused extra spending on rebranding itself as an innovative company. At the beginning of the downturn, Samsung ranked at position 21 in brand value among Interbrand’s global list, and in May 2019 the company ranked at position six. That’s not bad going.
Hyundai also made significant investments during the same period, not least its famous Superbowl ads, and the company’s market share increased from 3.1 percent to 4.3 percent. Its competitors experienced a 22 percent sales drop while Hyundai increased vehicle sales by five percent.
Groupon famously launched during this period and invested nearly everything in marketing, making a $500M profit as a result.
All three of these examples are B2C of course, and none are truly speaking what we would call engineering PR, despite all being tech companies in their own way, and all being staffed by some brilliant engineers. However, don’t get too distracted by that – it’s only because B2B case studies are much harder to come by a decade on.
You will also notice that all of these are or were second-rank or challenger brands in some way; neither Samsung nor Hyundai was anywhere near the top of the market at the time and Groupon was a start-up. This further proves the argument that you should keep your share of voice ahead of your share of the market.
But what will happen this time around?
I remember once being told by a client that they had decided not to participate in the 2009 recession. I was very excited, anticipating that this would naturally mean a marketing offensive that would be fun to run, generate awesome results and create some significant benefits for the client.
It didn’t; the company reduced marketing expenditure as part of a raft of sweeping cuts in all areas that were intended to insulate it financially from the oncoming storm. It shut in 2010.
The news from Sapio Research is much brighter than this. When asked what they were planning to do to mitigate the recession, 32 percent of companies said they were planning to ramp up sales and marketing activities. This number rose to 42 percent in Japan and, overall, 79 percent of businesses planned to at least stick with their current marketing spending.
Why is this good news?
The core good news in this piece of research is that 21 percent of businesses plan to reduce their marketing spending.
“What? Eh? Sorry? Aren’t you a PR company? Don’t you want everyone to increase their marketing spend?”
No, I don’t. I want our clients to increase their marketing spending to keep their share of the market ahead of their share of voice, and as a result, increase their returns. I want my clients’ competitors to decrease investment!
This isn’t improbable. Typically, if a client proves to be a good match for Stone Junction, they are forward-thinking and innovative marketers, more likely to be in the 32 percent of businesses planning to increase spending than in the 21 percent planning to decrease it.
My advice is to strap yourself in and get ready to grow, because the recession is coming, and those that don’t waste it will come out much stronger on the other side.
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