Articles

In the face of recession: Be like Kellogg’s

MEDIUM READ

It’s proven that a reduction in brand focus (and investment) doesn’t benefit anyone in the long run. Especially in a downturn. Maintain, respond, drive and succeed. Could now be the time to accelerate your brand?

It’s no surprise that more customers turned to online services during the Coronavirus crisis. Despite the increase in eCommerce and other online activities, looming threats of recession and an uncertain outlook mean many businesses may put digital transformation, marketing and brand-building projects on ice.

Consider this first. The earth continues to spin on its axis, it hasn’t stopped. This will pass. There will come an endpoint in which the world and its economy will show recovery. Will you be ready, better prepared and wiser? Will you use this time to plan and prepare, readying yourself to face the future? Or will you stagnate, allowing competitors to steal your thunder?

Of course, business survival is a priority and everyone must do what’s right for them at this moment in time. It’s often a natural human response to close the shutters and ride out the storm. Easier to think short-term over long-term when times are tough. But I urge you to pause and reconsider budget cuts to R&D, Digital Transformation and brand-building activities.

Companies that master the delicate balance between cost-cutting to survive today and investment to grow tomorrow do well after a downturn. Don’t believe me? Here’s some evidence.

Let’s look at the 1980s recession. In this pre-internet, pre-digital age, McGraw-Hill’s oft-cited research analysed 600 B2B companies in 16 different sectors that withheld, increased or maintained marketing spend. Those with increased or maintained spend saw higher sales growth throughout the recession and afterwards. By the end of the research in 1985, companies that maintained marketing investment had a sales increase of 256% over companies that cut marketing spend.

Credit: McGraw-Hill Research. Laboratory of Advertising Performance Report 5262, 1986

In 2008, the Institute of Practitioners in Advertising and Marketing (IPA) also conducted this analysis of how advertising and marketing were handled by different companies during a recession. They invited independent experts from different companies to provide insight and analysis. One of these, Data2Decisions, detailed the long-term impact of cutting or halving marketing and innovation spend. After a cut, a brand will continue to benefit from the marketing investment made over the previous few years. This will mitigate any short-term business effects, and can result in a dangerously misleading increase in short-term profitability. The longer-term business harm will be more considerable, but will not be noticed at first.

Profit Impact of Market Strategies (PIMS) provides more data-based evidence. This comprehensive, long-term study was set up in the 1960s and continues to collect data on the performance of strategic business units in all major industries. PIMS has analysed data collected from around 1,000 business units in developed economies during periods of market downturn and subsequent market recovery. Their data is extremely robust, highly respected, and enables a comparison of downturns over time. Analysis of the winning business strategies deployed during earlier downturns concluded with the advice to increase marketing, R&D and new product spend.

Covid-19 has presented a unique global challenge. Although we can look back and reflect on the learnings of the past, we must also consider what we need to do now. Early on in the pandemic, this survey of more than 2,200 marketers, conducted by Econsultancy and Marketing Week, revealed that the majority believe that the outbreak heavily impacted responses to R&D, transformation and brand-building marketing. Despite most agreeing that there is a sharp increase in demand for online and digital services, many are pulling digital transformation investments.

Still unconvinced? Let’s rewind a hundred years to the 1920s, when Post led the ready-to-eat cereal category. Post cut its marketing budget significantly, but rival Kellogg’s doubled its marketing spend, investing heavily in radio and introducing a new cereal sub-brand called Rice Krispies, with its “Snap, Crackle and Pop.” Kellogg’s profits grew by 30% and the company became the category leader, a position it’s maintained for almost a century.

The reality is that when times get tough, transformation should be the default reaction to future-proof your business. It improves the customer experience, strengthens digital offerings, grows brand equity and provides the opportunity to grab market share. Now’s the time to be brave. Be more like Kellogg’s.