How brands can survive, and then thrive, during a COVID-19 triggered recession

Undoubtedly, COVID-19 has instigated a global recession. Which recession marketing lessons should brands look to in order to survive, and even thrive, in the difficult times ahead?
15 April 2020
direction compass
Nigel Hollis

Chief Global Analyst, Kantar

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We all know the theory: brands that spend more on advertising during a recession recover faster when the recession ends. It is a well proven fact. Except this time around we are dealing with a health crisis, the repercussions of which have impacted both demand and supply. And whatever happens, advertising alone is unlikely to do the trick.

Looking beyond survival tactics

Right now, we are all grappling with the immediate implications of the pandemic, and its social and economic ramifications. Companies have had to respond to a rapidly changing situation, with government-imposed restrictions on social and economic activity causing a major disruption to business. Companies must do what they can to cope with the business impacts, protect staff and customers and help make a societal difference if possible. However, there will come a time when things start to stabilize and then, eventually recover. And while it might be difficult to think about it right now, the companies that do not just respond to circumstances but also plan for recovery are the ones most likely to not just survive, but thrive, when a new normal is achieved.

Seek operational efficiencies and invest for the future

As Mark Ritson details, there is a wealth of empirical proof to suggest that increasing ad spend during a recession improves a company’s longer-term growth prospects. But, as Ritson notes, you need three things to pull this off:

  1. Your company must be financially able to fund an increase in spend
  2. Your management team must believe that marketing is a long-term investment, not a short-term cost
  3. You need the right strategy, content and media deployment (I assume this is what Ritson means by “you need to not be shit”).

Never mind that hospitality, airlines and non-essential retailers are desperately trying to conserve cash and service or renegotiate debt, the combination of all three factors is going to be rare.

In 2010, an extensive analysis by Ranjay Gulati, Nitin Nohria and Franz Wohlgezogen found that only 9% companies flourished after a recession. While it is true that companies that cut spend faster and deeper than their competition had the lowest probability of coming out ahead, they also found that companies that invested more than their rivals did not do that well either. They concluded that the companies most likely to gain ground both implemented operational efficiencies and invested in the future by spending more on marketing, R&D, and new supply capabilities. This combination results in the dual benefits of a lower cost base and stronger demand once the economy recovers.

Let us take the need to improve operational efficiency as a given. If your company can redeploy funds, where should you invest? As the following examples demonstrate, in part that will depend on the strength of demand for your product or service before recession hit.

Delta acted to increase future demand

It might seem strange to hold Delta up as an example of a successful business given the desperate state of the airline industry right now, but the sad truth is that 2019 represented the company’s best ever financial performance, the culmination of 12 years of business and brand building. In 2007 Delta emerged from bankruptcy into the highly competitive and low margin US airline market. Restructuring and a focus on lowering the company’s cost base positioned the business well, although the Great Recession caused USA domestic passenger traffic to drop by 9%. The company then pursued a three-pronged strategy of expanding its network, improving customer experience and selling premium seats to business travelers.

Airline traffic is highly dependent on the routes flown but as Ed Bastian, Delta’s chief executive officer, noted in 2014, the three major U.S. carriers, “have very similar structures and networks. It’s really the quality of the service that matters (because) customers choose which airline they’re going to fly.”

In this case, demand for Delta as a brand was boosted primarily by improved customer experience. While advertising will have played a role in highlighting the improvements made, flyers probably understood the messaging as claims and reserved judgement on their validity. I remember being totally unconvinced by Delta’s claims of improved service, largely based on dissatisfaction stemming from a recent trip on a very old plane. Subsequently, forced to fly with Delta, my experience proved that the claims were not all smoke and mirrors. I was probably not alone. In 2007 less than 1 in 5 flyers claimed to be totally satisfied with the airline choices available to them. This finding indicates there was plenty of room to gain competitive advantage, and although many flyers are price sensitive, Delta targeted the least price sensitive business travellers.

Surf and Fairy rekindled demand

Delta’s success lay in improving both demand and availability, but there are plenty of consumer goods categories for which demand still exists but where an individual brand could still gain ground. In this regard, it is worth looking at a couple of examples from the UK, one from Unilever and one from P&G. Both reinforce the point that even in a recession, building value is the key to success, not lower prices.

In 2006, Surf detergent was trading on low price and little more and had been losing market share. A Kantar brand strategy study helped identify an unmet need and the potential for a new proposition based on sensory delight. The ‘Gorgeous laundry for less’ campaign was launched in 2007, positioning Surf as a product that could bring fragrance delight to a customer's everyday laundry. Different campaigns focused on different fragrances like Lavender and Oriental Blossom and Lemon and Bergamot, and new format Surf Small & Mighty was rolled out in 2007. As a result, the brand was well positioned when the Great Recession hit. Predisposition to choose Surf improved, while that of store brands and value-competitor Daz remained steady. Surf became the UK's fastest-growing CPG brand, generating a payback of £3.82 for each £1 spent on advertising.

While Surf was positioned at the value end of the price spectrum, Fairy dishwashing liquid was at the opposite end. Fairy had a 52% value market share, a price premium of 66% compared to store brands, and was already bought by 60% of UK households. With recession looming, the brand team set out to identify what made the brand meaningfully different to its consumers. The brand’s heritage led them to the concept of “enduring care”, which became the platform for new content that reframed the brand’s longstanding association with value. Media spend did increase, to double its previous levels. Over time, perceptions of value improved, and market share and price paid per pack increased dramatically.

Panera took advantage of strong demand

While this might apply to a minority of brands today, there are industries that are expanding, not shrinking – think Amazon, Walmart, Zoom, CVS and more. During the Great Recession, Panera Bread took advantage of strong demand and lower costs to build its footprint and reach out to new customers. In an interview with Guy Raz on How I Built This, Ron Shaich, CEO of Panera for 36 years, states, “Our concept was still strong. People were still visiting us. We decided to invest our resources in growing even more quickly during the recession. Real estate costs were down 20 percent. Construction costs were down 20 percent. Simultaneously, most of our competitors were ripping costs out of their P&L, trying to chase their costs down as their sales were descending. It was a vicious cycle. We said this is a time to build competitive advantage. And ultimately, we tripled the stock through the recession.”

As well as building stores the company invested more in advertising, introducing its first widespread TV campaign in 2011. Revenues increased and net income tripled from 2007 to 2012.

If these case studies teach us one thing it is that there is no ‘one size fits all’ solution to riding out a recession and positioning a brand for future growth. Particularly during an unprecedented crisis like the one we face today, brands cannot simply choose to spend more on advertising and assume that they will survive better than the competition, nor is success simply a matter of cutting costs. The solution is going to depend on your industry, the strength of your brand – people’s desire to choose your brand over the competition – and how well you invest the funds that are available to you.

Success in branding is relative

Success in business and marketing is all about relativities. If demand for your industry recovers, so too will your sales – the question is whether your sales rise faster or slower than the competition. Every brand in the same industry is going to suffer (or benefit) in a similar way during this crisis. It is how well you identify and implement the right strategy for your brand that will determine the speed of its ultimate recovery. The relative nature of brand success is why Ritson points to Excess Share of Voice (ESOV) as being important in advertising, particularly during a recession. If you spend more on share of voice than share of market, then the probability is that your market share will grow in future. However, it is a probability, not a given.

Planning for recovery starts now

Let me be the first to admit, I worry that learning from past recessions may not be directly applicable in the context of a global pandemic and associated recession. For a start, no one knows how long a recovery might take, and the combination of social and economic restrictions will undoubtedly have long-term ramifications – if only to increase the number of people buying goods online and streaming content. If people have been forced to change behavior and brands and found the experience better or more convenient, then that change is likely to stick.

However, my suspicion is that the impact will not be as great as people believe right now. Ingrained behaviors are slow to change, and we are social animals after all. I suspect people are already dreaming of throwing a big celebration party, eating out with friends and taking a beach vacation with the kids. The more I have researched examples from the Great Recession, the more I am convinced that relative status, i.e. market share, only changes when a brand actively does something that changes the dynamics of the category. Even if a new normal takes three years to arrive, it will come, and if your brand is to gain share during that recovery you need to start planning now.

So, facing an unparalleled, pandemic instigated recession, what do companies do? Here are three basic actions to take if your brand is going to survive and then thrive.

1. Remember, a disruption creates opportunity as well as threats

If you are to increase the probability that your brand recovers better than the competition, you must assess what the best combination of efficiency and investment will be. Do not make assumptions. What situation does your brand face now, how might it change in future? More than ever, you need to be in touch with your customer and understand how their needs – functional and emotional – might be changing. But beyond that, you need to assess what is most likely to build competitive advantage for your brand in future. Does your strategy need to change in a post-pandemic world? What new distribution opportunities exist? What innovation will be most meaningful? How can you best build brand desire? It is not simply a matter of advertising more, it is about identifying the best opportunity for future growth.

2. Prove your worth

During times of uncertainty and financial stress, people turn to the comfort of familiar brands and place value ahead of getting the lowest possible price. Whether it is by innovation, action or advertising brands need to reassure their customers that they have made the right choice, and make it as easy as possible for them to stick with the brand rather than reconsider their options.

3. If you can, invest more in advertising. If you cannot, invest more wisely.

Spending more relative to the competition only pays off when you invest in the right strategy and content. Media choices are obviously changing and every brand that can still advertise is shifting its investment to in-home media, though COVID-19 related news has become an “no go” area for many brands. As recovery takes hold advertisers must be ready to shift their media choices again, but the biggest challenge is not how or where to reach people but what to say. It is all about tone of voice and making the right emotional connection. Before the crisis, our analysis found that quality of content accounted for 50% of campaign effectiveness: it will be far more important today.

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