2022 cemented the impact of the cost-of-living crisis, with businesses and consumers feeling the pinch. Despite this, the latest Advertising Association (AA) and WARC Expenditure Report found that the UK’s ad market grew by 8.8% to reach £34.8 billion last year. However, with the UK continuing to experience turbulent times, the output for 2023 isn’t looking as good. Data from the start of the year suggests six in ten marketers are planning on cutting their budgets. With interest rates set to continue rising for the foreseeable future, this percentage will likely increase as everyone continues to feel the pinch.
As a CMO, I understand this rationale. But, my time in the industry has made me understand that whilst short-term savings are important, businesses that continue to invest in building a share of voice will ultimately see improvement in longer-term profitability. Why? It gives brands the opportunity to be the only voice in the room. Therefore, if a brand is bold enough to make those leapfrog moves, they will come out of a recession bigger and stronger than before.
History tells us consumers are still willing to spend when it comes to brands they trust, especially when it comes to high ticket items. Botify’s own recent data highlights that currently, a fifth of British consumers are prioritising trust when purchasing a luxury item. This proves brands must take their advertising by the horns as the year continues in order to build trust with their target consumer.
It’s a recession, not a regression
The latest ONS spending stats show that people are reducing their spending during these tough times, with retail sales falling by 0.9% in March 2023. When this happens, history shows that business leaders often mirror this behaviour. Whilst anticipating reduced sales and profits, a business’s first decision is often to cut back on costs, and marketing usually takes a hit.
A great deal of evidence suggests, however, that this isn’t the right idea, as doing so will leave the brand in a less competitive position when the economy recovers. Many research studies have confirmed that the best strategy is to continue marketing during a slowdown to capitalise on long-term ROI.
Research by Kantar Millward Brown during the US 2008 financial crisis, found that 60% of the brands that “turned off the lights” to marketing by stopping all TV ad spend for six months saw brand use decrease 24%, and brand image decrease 28%.
Our research demonstrates that once trust is built by a brand, 28% of UK and US shoppers say they will stay loyal forever – through both good and bad times. Being able to build brand trust during economic uncertainty not only cements customer retention but builds loyalty, ensuring a steady stream of audience, exactly what brands need during this time.
Capitalising on the most bang for the buck
While customers may not be as inclined to spend on masse during times of economic uncertainty, they’re still consuming media every day and are aware that the brands are advertising to them. Subconsciously, through consuming adverts they know where to purchase from as times improve, as they’ve been constantly exposed to the brand during the recession period. And as for the consumers that are still purchasing, they’ll go for the only solution being advertised, as it will likely be seen as the only option on the market.
Many marketers will have heard of the 60:40 rule, but what does it mean? Les Binet and Peter Field analysed the IPA’s Databank of 996 campaigns entered in the IPA Effectiveness Awards between 1980 and 2010. The IPA data suggests that the optimum balance between brand building and sales activation is around 60:40. Brands should spend around 60% of their budget on brand-building activity and 40% on sales activation. From a business standpoint, when the cost of advertising goes down as the demand does, it allows businesses to advertise more for less with decreased competition.
An example of this strategy working successfully comes from Expedia-owned vacation rental marketplace VRBO. Prior to the pandemic, Airbnb took the holiday rental market by storm, grabbing nearly 20% of the lodging market. However, once COVID-19 hit and people stopped traveling, Airbnb’s ad spend took a back seat. VRBO stepped up to increase its market share by outspending Airbnb 10-fold in advertising during this period. In fact, VRBO spent $90.8 million in advertising from January to February 2021 while Airbnb spent only $8.9 million. As a result, VRBO saw its bookings recover by 61%, which stacks up well against Airbnb, whose bookings dipped by 15% over the same period.
How to navigate marketing when feeling the pinch
When continuing to advertise during an economic downturn, it’s vital brands are authentic and use empathetic messaging – it should continue to be considerate of the current economic climate and accurately describe how the product will benefit consumers. For example, some brands may be tempted to highlight their low pricing to pull in consumers, but that generally only works for companies whose value proposition has affordability already built into their messaging. Take Amazon for example, they strive for customer affordability, whereas the same technique implemented on a high-end retail outlet, such as Mulberry, wouldn’t have the same impact.
Botify’s research highlights that specific marketing tactics help brands build trust with their consumer. Our consumer research shows the activities that build brand authority are:
- Positive online reviews (53%)
- Positive media coverage (47%)
- TV adverts (41%)
- Radio adverts (33%)
- High organic search (32%)
And the activities that can be pulled back on:
- Target email communications (22%)
- Social media advertising (20%)
- Sponsored search adverts (21%)
- Social media influencer (20%)
When brands are faced with less demand, it’s important to streamline product portfolios to reduce noise and focus on marketing the strongest assets — especially those that may benefit the consumer now versus later. Product lines that are too broad unnecessarily soak up marketing costs and tie up resources that can be better allocated elsewhere during this period. Brands need to focus on the now.
Leapfrog the competition
Whilst customers are more likely to return to a brand they trust, our data shows that almost two-thirds (62%) of consumers hold more trust in a brand based on their experience on the website. Much like traditional web-based search, AI-empowered search rewards quality and relevant content by organic findability, meaning sifting, selecting, and serving the most helpful responses to customer queries, putting a brands website directly in front of the consumers they are targeting.
Organic search is already capable of generating three times more return than traditional advertising campaigns, advancing a brand’s chance of not only building trust with customers but increasing revenue as well. With the integration of generative AI and the change it brings to the search industry, brands need to focus on updating their content and raising their game to ensure they serve all organic search interfaces–be it generative or web-based search results.
Businesses that utilise AI capabilities for search not only increase their chances for more brand exposure, but create the opportunity to build long-term brand awareness and authority amongst their target audiences, something that many brands are missing the mark on.