Marketing as an Investment

By Rebecca Goozee, Deputy Editor

With a recession looming, budgets are being slashed in order to buckle down for the stormy times ahead. But while reducing spend can boost quarterly figures, keeping quiet could be disastrous for business.

“Brands protect price premiums, defend the perception of value for money, encourage and reward choice, ultimately building value for their owners, so anyone who backs off now, does so at great risk.”
-Jez Frampton, CEO of Interbrand

The knee-jerk reaction to recession is to trim budgets. And as executives evaluate expenses, one department always comes under fire: marketing, and in particular, brand building. As the financial climate worsens, a number of blue chip companies have announced plans to cut marketing costs, including Coca-Cola and Visa. But while the blue chip companies hunker down it could be the perfect opportunity to steal a march on the competition and secure a larger market share. 

From observations in previous recessions, we know that consumers rein in their spending, and anticipating reduced sales business leaders cut back on costs too. However, there is much evidence to suggest that reducing marketing spend during recession leaves your brand in a less competitive position when the economy brightens. An analysis of the Profit Impact of Marketing Strategies (PIMS) database, presented at a March 2008 conference, provides the latest evidence that the best strategy in relation to long-term ROI is to increase marketing expenditure during economic slowdown.

The findings can be explained simply, through the relationship between share of market and share of voice: the higher your share of the voice, the more likely your brand is to grow its market share in the following year. So it seems that by increasing marketing investment at a time when competitors are reducing theirs, you could substantially increase the power of your brand. There are several reasons for this. Firstly, bigger brands attract repeat purchase, therefore by increasing market share a brand will benefit as the economy rebounds.  Also, a new product launch may have greater impact during tough times as competitors hold back allowing brands more coverage in a less crowded marketplace. In addition to this, media costs tend to lower and advertisers should be able to get more for their investment.

Risk

Learning from past history, overall ad spending falls as investors look to cut costs and increase short-term revenue, as seen in 1991 and 2001, for example. But it seems that this time around marketers have caught on to buying ads on the cheap and grabbing a larger market share. So, what should companies be doing - upping ad spend or keeping a tight rein on their finances?

Jez Frampton, CEO of Interbrand, maintains that most companies have recognized the proven fact that brands that maintain investment fare better in the long-term. "Brands reduce risk and volatility because they are the basis of trust between companies and all their audiences, from customers to staff, to suppliers to investors," he says. "Brands protect price premiums, defend the perception of value for money, encourage and reward choice, ultimately building value for their owners, so anyone who backs off now, does so at great risk."

Frampton goes on to explain that he expects the FMCG industry to continue spending, particularly companies like P&G, who he says have a deep knowledge of the effects of marketing and brand building and a strong insight into the value of brands in defending market position and share. "We would also point to the fact that Christmas is just around the corner, and for retailers the holiday period is make or break every year, so expect spending, but on the same levels as last year? Who knows," he shrugs.

Brands are about the reduction of risk, explains Frampton. If you track the volatility of brand value prices and share prices of companies who heavily rely on brands, such as Google and Apple, and compare them with other companies they have much lower risk factors attached to them. "In the current climate, you want to reduce risk, so consequently, it's not the time to cut in terms of maintaining or building your brand," says Frampton. "It's actually the time to get on with it."

Opportunity

However, despite many successful ad campaigns launching during times of economic slowdown, such as BMW's 'Ultimate Driving Machine' campaign and slogan in 1974, consumers can become unpredictable as they look to cut back, particularly amid today's tight credit market and falling house prices. It seems many factors will determine whether spending in a downturn will work.

Scott Keogh is one executive who won't be cutting back. As CMO of Audi of America, Keogh explains that the reason behind this decision is that the Audi brand has established momentum over the last few years. "We had record sales last year, and if you look at the indicators about awareness, image, opinion and consideration of the Audi brand, our point of view is when you have this momentum and your brand is on a roll, it's a mistake to lay off, disappear for a few years and then try to build that momentum again," says Keogh.

Keogh also believes that consumers buy confidence, and consumers in America in particular become confident in a brand when they see it, whether it is through cars on the street or the ads on television. "Consumers in the luxury market have confidence in active, visible brands, rather than unknowns," states Keogh. "They don't buy unknowns and that's why marketing is important - because it makes you known."

For Audi in particular, Keogh believes it is important to keep in the public eye. He explains that in the current financial situation, yes consumers are cutting back, looking from the purchase of their morning latte, to the school their children are in, to the house they live in, and reassessing their choices. "The luxury car market is ruled by BMW, Mercedes and Lexus," says Keogh. "While they dominate share, volume and network presence, the best time to break this rule is when there is reassessment out there and customers hit the reset button and look for alternatives. And that's the opportunity that we see right now, and we want to keep that momentum going."

Keogh sees tough times as an opportunity to get ahead of the competition who are cutting back on budgets. From a practical point of view the advertising marketplace has more opportunities available then ever. "Big sponsorships that haven't been historically available for decades are now available, such as the Oscars for example. And there are a number of opportunities we're being given now that are coming in at less cost. If you stay aggressive at these times that you can snap up opportunities that will last your brand for five, six years, maybe even a decade, which we find very opportunistic."

Through the increase in opportunities, companies are getting more bang for their buck, and Keogh is employing two opportunities to make sure that Audi get the most out of their advertising investments. Historically, Audi in the US has been the great unknown, explains Keogh, and what he plans to do is make the brand the great known, so has intentionally purchased big. "We purchased the Super Bowl this year, the Oscars, the Olympics - we don't want to make the brand this quirky, unknown, just-in-the-know brand, we want to make it popular. As such the current market is working well for us as we can actually get some good pricing now on these broader platforms."

Secondly, Keogh is focusing on purchase confirmation. "When someone buys an Audi we want them to have that confirmation factor, that they feel like they made the right decision. We offer them driving experiences, or the ability to go to Le Mans to see the race team, because this tells the owner you belong to a great brand that's on the rise and that they made the right decision," says Keogh.

Strategy

Marcy Shinder is Vice President of Brand Marketing and Strategy at American Express OPEN, a team dedicated to the success of small business owners and their companies. Being committed to small business owners Shinder is required to be there and continue to provide them with the resources and tools they need to survive and thrive in uncertain times. "While today's economy may be challenging, we remain dedicated to supporting small businesses and, in fact, recognize the even greater role they play in fuelling our economy," says Shinder.

Shinder believes that in today's uncertain economic climate, relevance has become the most essential marketing strategy because it builds customer loyalty. American Express OPEN's customer loyalty strategy is rooted in the concept of giving small business owners the resources critical to business growth and helping them become resilient in the face of challenges. "We're hearing, now more than ever, that our customers are seeking advice about what they can do differently to survive and thrive in a challenging economy," says Shinder. "They want quick access to relevant, actionable information that can help solve problems."  

Shinder plans to continue investing in marketing, despite the challenges of a cash-strapped market. Shinder explains that she will continue to invest in projects that are proven successes and provide the opportunity for customer insights and reactions in order to be able to refine and improve them. "OPEN Forum is a great example of a highly successful initiative that is evolving in 2008," says Shinder. "In addition to the OPEN Forum Economy section, the site has been re-launched with a new design and new resources, including video segments. Card members can post advice and insights on the site so that other small business owners can learn from them - one message that has come through loud and clear from them is, 'let's learn from each other so that we can avoid making the same mistakes'."

So it seems that more companies have caught on to increasing market share by upping advertising and marketing spend in tough times but, many factors determine whether spending in a downturn will work, and there are no concrete rules of thumb. Except one - don't gamble. It's imperative to know what you are investing your marketing dollars in and why. Companies who see marketing as an investment rather than an expense will make it through the tough times ahead.

Extra info...

Top brands
Who made it big and who dropped in Interbrand's top 100 brands?

Banking on branding
Robert Passikoff shares his thoughts on customer loyalty in the current financial market.

The Federal Reserve, in an attempt to prevent the Wall Street crisis from eroding the foundations of two, premier financial institutions - Goldman Sachs and Morgan Stanley - have agreed to allow the investment companies to convert to traditional bank holding companies. At a time of tremendous financial upheaval the move places the companies under the supervision of national bank regulators and subjects them to new capital requirements. But over and above government oversight, it creates a new consumer loyalty paradigm under which the new 'banks' will have to operate.

Based on assessments from our Customer Loyalty Engagement Index, banks are generally seen to be undifferentiated. For the bank brands we track, products and services, customer service, even fees, are generally ubiquitous. There are, of course, minor differences between them, and we can rank them on an overall basis. But if you've paid any attention to bank advertising over the past two or three years you will have noted that it has generally dealt with how many ATMs they have or how they've been able to cut 3.8 seconds from the average transaction, not, we think you will agree, massively leverage product differences or extraordinary added-value.

Because of the structure of our assessments, we can not only identify the overall drivers of loyalty and engagement for a category, but can 'drill down' into those drivers to examine the individual attributes, benefits and values, that form the components of each driver. Given the current climate in the financial category, we thought it would be interesting to see how the banks we track rank on consumer 'trust'. The results - different from their overall rankings - were as follows:

   1. Bank of America
   2. JPMorgan Chase
   3. Bank of New York
   4. Wells Fargo
   5. PNC Bank

Shakespeare didn't cover the financial markets, but he did write some excellent advice, "Love all, trust a few. Do wrong to none." We'll see.