Thinkbox
Marketing feels like a tough gig at the moment. Last month, we finally witnessed the Trump administration’s ‘Liberation Day’ of massive tariffs across the board, and regardless of the fact the UK got off lighter with a special dispensation of ‘just’ 10% and the majority of tariffs have been delayed, it will add to the sense of chaos.
This comes as UK consumer confidence dropped further in April as consumers feel stranded in perma-crisis, with any benefit of falling inflation wiped out by increases to council tax or energy bills. Consumer confidence has often been an indicator of advertiser confidence and as businesses of all types are coming under pressure to make ‘savings’ we saw the news from the IPA Bellwether report that UK companies have dropped total marketing budgets for the first time in four years.
Marketing’s on the block
While no business wants to make marketing cuts, it is sadly one of the most liquid areas of a business, and at times of immense commercial pressure, it might be necessary.
This is not a rallying cry to defend budgets at all costs; the excellent ‘Advertising in a recession’ has been widely read, and we collated a short library of the best papers and articles about how brands can navigate and weather the economic storms.
The potential risks of lost profit from cuts to advertising investment are well understood. Marketers know how powerful that investment is and how dangerous budget cuts can be. But…
We also need to live in the reality of a commercially chaotic landscape. Budget cuts are bad, but blunt budget cuts are worse. If they need to be made, they should be made strategically, informed by available data and rooted in minimising the impact on business outcomes.
We believe that there are two additional questions to ask of your plan when you make the decision to reduce budgets.
Will my cuts defend against price sensitivity?
Often, we think of marketing spend as being a growth engine – spend that creates demand in a market.
But this misses the extraordinary ability of marketing to defend against price sensitivity, with strong brands commanding a price premium on average of 13%, according to a 2018 article by Tom Roach.
Marketing investment that allows a business to pass through some of the impact of National Insurance or increased supply chain costs could be a better decision at a time of uncertainty than marketing that grabs short-term share.
The channels that do this best have been well documented over time with remarkably consistent results.
At a headline level, broadcast channels are proven drivers of price premium. This has been demonstrated most clearly in the Signalling Success work from EssenceMediacom, where AV channels are unrivalled at driving social acceptance and therefore justifying a price premium, but also in the Pricing Power work from ITV. Even more helpfully, those findings are consistent across age cohorts. Younger audiences find channels like podcasts and social media more powerful than older audiences, but broadcast channels are consistently most powerful for all age groups.
So, ask yourself: am I retaining budget in channels and behaviours that will help me to defend against price sensitivity?
What’s my appetite for risk?
We tend to think of ROI as being in a steady state – an average return that moves up or down based on investment.
But ROI is more guide than guarantee, and different media channels have different levels of variance. So, in turbulent times, relying solely on average ROI for media mix decisions is a gamble. Understanding and incorporating risk profiles is crucial for smart marketing.
Profit Ability 2 (a meta analysis of £1.8bn of media spend across 10 channels) identified the variability of returns for each channel, allowing advertisers to identify lower-risk options offering more predictable outcomes, or higher-risk channels which have the potential for significant gains but also have a much greater chance of underperformance.
The channels with the lowest risk profile are Linear TV, Print, BVOD, Online video and Audio – all of which have a standard deviation of less than 50%. At the other end of the scale sit channels like Paid Social and Online Display, which have a variance of +/- nearly 90%.
A real-life example
Probably the most obvious poster child for these behaviours is the most recent IPA Grand Prix winner, McCain. It recognised that, coming out of the 2008 financial crisis, people’s shopping behaviours changed to become more price sensitive to the extent that own label took over as the category leader.
A focus on branding and AV allowed them to increase profits by £26m over an eight-year period by improving both consideration (+37%) and price elasticity (-47%). McCain doubled down on channels that offered predictable returns and that could improve their resilience to crises.
So, the question is: am I making budget decisions that reflect my appetite for risk? In a world of chaos is adding more unpredictability into the mix a smart move? That was two questions, but you get the idea.
Pricing effects and predictability pay
It’s important to think about how your business wants to navigate uncertainty, protect investment, and make informed decisions that balance potential reward with acceptable levels of volatility.
The landscape for marketers is characterised by chaos right now and this is unlikely to change any time soon, so making decisions that lead to more resilient and effective campaigns feels smart.
No business wants to make marketing cuts, but making them based on predictability and price effect rather than blunt budget reduction is a way to at least partially control the chaos. In a world of increasing risk, it might be wisest to choose predictability.
This article was first published in Marketing Week.