Prof. Koen Pauwels wrote a blog post titled Myths on marketing in recession (April 10, 2020).
Q1: « Is it true that cutting marketing spending costs you in the long run on average? »
« It is CORRECT, based on tens of studies… it is typically better to maintain or increase marketing spending in a recession.… Maintaining your Share of Voice (SOV) is crucial, while excess SOV is likely to benefit the brand in the long term. »
« Not included in this review is our study of launching new products for 60 years in the automobile industry, an acid test because vehicles are high-budget, often bought on credit (which runs low in recessions) and whose replacement is easily delayed. »
« The best [new product] launch timing would be a quarter or two before the end of the recession [rather than early in a recession] »
Q2: « Is it true that price promotions are less effective in a recession? »
« This point is made by Byron Sharp and is CORRECT… Beware consumers will be more upset than usual when you return to the regular price. »
« Price promotions are most effective when a promotion focus (‘growth mindset’) dominates in the market, as most consumers enjoy the exploration and increased quality benefits a price promotion provides, while not being very upset by a return to regular prices (which they may well be able to afford in boom times). »
Q3: « Is it always optimal to maintain marketing spending in a recession? »
« That is INCORRECT. As I’ve shared before, your optimal spending on any marketing action is the multiplication of:
- Your product’s contribution margin x
- Your expected (baseline) sales x
- Your marketing effectiveness (how much % sales increase for a 1% spent increase) »
« Many of us don’t know the latter, but we don’t have to in order to decide how to CHANGE our spending in a recession. Because your contribution and expected sales typically decline, the simple rule is that you should REDUCE your marketing spending unless your marketing effectiveness goes up. The several reasons this may happen:
- The same budget gets you higher share-of-voice as your competitors cut back;
- The same budget gets you more impressions as the cost per impression drops;
- Your brand’s offer is especially appealing »
Pauwels includes links to related articles and blog posts by Peter Field, Mark Ritson, Byron Sharp, and others. He is author of the book It’s Not the Size of the Data — It’s How You Use It: Smarter Marketing with Analytics and Dashboards (2014).
Articles of Interest 