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Deep Dive

Peter Field new report: AUNZ marketers 'showing signs of panic' as recession looms but there is a path to safety

By Paul McIntyre - Executive Editor

8 June 2020 6min read

Peter Field (centre) with LinkedIn's Prue Cox and Comms Council's Tony Hale: "It is clearly crazy to imagine we can make brands successful in the long term simply through comms but..."

By Paul McIntyre - Executive Editor

8 June 2020 6min read

Most marketers weren't operating during Australia's last recession in 1991. Lacking the experience of overseas counterparts, they are slashing spend faster and deeper than markets much worse affected by Covid-19. That's a big mistake, says advertising effectiveness guru Peter Field in a new Australian and New Zealand study with the Communications Council. Field, plus Comms Council CEO Tony Hale and LinkedIn's Prue Cox discuss the implications of the key findings - and how B2B marketers might have edged ahead of their consumer marketing peers through COVID.
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You need to know this

  • Marketers in Australia and New Zealand are showing clear signs of panic as an inevitable and possibly deep recession looms in the wake of the Covid-19 pandemic.
  • The launch of a new study comparing marketer behaviour in Australia and New Zealand to the UK and US from Peter Field and The Communications Council, will be unveiled on Thursday June 18, called Advertising Effectiveness Rules, Winning or Losing in a Recession. Details here
  • Recessions have always been times when the smart take advantage. There is plenty of learning about best practice we can draw on, but little evidence that we are doing so.
  • Marketing behaviour in both countries is showing inexperience in how marketing should respond; already we see widespread evidence of deep budget cutting intentions. History says when the going gets tough, marketers get cutting.
  • B2B marketers, as key channels like events and face-to-face sales have all but shut down, are shifting quickly - and permanently - to longer-term investment in brand. This is a marked shift, says LinkedIn's Prue Cox.  
  • Advertising investment in Australia has not tracked GDP and the step changes down at each crisis have never been rebuilt afterwards.
  • There is clear evidence that when a recession hits overseas, advertising expenditure in Australia and NZ suffers a downturn, even if the two countries are themselves largely spared from recession.
  • This can partially be explained by many ad budgets in our two countries being dictated by, and relying on, overseas parent companies.
  • However, when GDP growth resumes overseas, Australian and NZ investment in advertising does not recover to the level it should.
  • By contrast, in the UK and US, ad spend comes back strongly over time following recession.
  • In fact, adspend growth has outpaced GDP growth in the UK & US since the GFC
  • It took eight years for US adspend to reattain pre-GFC levels (after a huge dip) and the UK took five years.
  • Ad spend growth has lagged GDP growth in Australia & NZ since the GFC
  • Previous downturns, or even just threats of downturns, have all been signals for Australian and NZ marketers to withdraw brand investment permanently.
  • This is a flawed approach by marketers in both countries.

 

“If you have a situation where we're dropping 35 per cent and the UK, where it's far more severe, is back 15 to 20 per cent, you've got to question whether the Australian marketing community is losing confidence in the ability of advertising to perform not only their functions, but stimulating an economic recovery.”

- Tony Hale, CMO, The Communications Council

Don’t panic

Marketers that ditch brand advertising to focus on performance during the current crisis and incoming recession are wasting their money. Doing so is “insane”, according to advertising effectiveness luminary Peter Field.

Field speaks from a position of authority. He and Les Binet literally wrote the book – several, in fact – on marketing effectiveness, diving deep into the IPA’s archives to study decades’ worth of campaigns to understand what drives growth.

The Long and Short of It is perhaps their best known work. Its key finding is that brands that spend above their market share achieve higher growth than those that do not. Meanwhile, brands that overweight performance achieve weaker long-term growth than those that maintain brand investment. It recommends an average optimal marketing mix of 60:40 brand to performance.

Last year, Binet & Field updated their work for B2B marketers in a study funded by LinkedIn’s B2B Institute.

Now, Field has co-authored a report for the ANZ market via the Communications Council. AUNZ Advertising Effectiveness Rules - Winning or Losing in a Recession launches 18 June, with a free webinar.

Given it’s almost 30 years since Australia’s last recession, marketers might want to tune in - because the early evidence suggests they are panicking.

 

“The evidence is really clear that, if you hold your nerve, you at least maintain your share of voice in market. Or if you can find the resources to boost share, you'll be able to do so for less money. It's a great time to invest and these should be seen as times of opportunity.”

- Peter Field

Recession lessons

Australia simply doesn’t have the experience when it comes to handling recessions, says Comms Council chief executive, Tony Hale. CMOs also “lack the data and proof-points to talk to the CFO or CEO on how to manage it, and how they might actually grow during a recession.”

Meanwhile many CMOs have “lost the reins on strategic thinking to a certain extent, it's been taken over by finance operatives or strategy people in their own right,” says Hale.

The upshot is that marketers lack both the tools and the influence to manage their way out of a recession – and hence the current panic.

SMI data for April shows paid media down 35 per cent. That compares to UK forecasts of around -15 per cent. Even at the depth of the GFC, UK ad spend dropped off only 20 per cent. Hale suggests that’s a strong indicator that AUNZ marketing is not only panicking, but questioning its own validity.

“If you have a situation where we're dropping 35 per cent and the UK, where it's far more severe, is back 15 to 20 per cent, you've got to question whether the Australian marketing community is losing confidence in the ability of advertising to perform not only their functions, but stimulating an economic recovery,” says Hale.

Fortune, he says, favours those that hold their nerve. Peter field agrees. Marketers must resist both the pressure to cut – and the temptation to go short.

 

“What is the point of scrapping it out [with performance advertising] when there's declining demand out there? Putting all that money into performance marketing on the basis that, ‘it's now that matters and we can't afford to worry about next year’... is really, really insane.”

- Peter Field

Marketers must win two big battles

Although Field jokes the UK is a “world leader in recessions”, he says UK marketers are also having to relearn the lessons of the GFC - and that there are signs some brands that should know better are already getting it wrong.

He thinks how brands react in terms of ad budgets comes down to whether firms view marketing as a growth engine or the “colouring in” department.

“I think the dividing line between businesses that see recessions as a time to hold their nerve and indeed to be opportunistic, and those who cut and run, is very strongly focused on the extent to which the CMO has influence with the CEO and CFO,” says Field. “Because you've really got to put that argument at board level that say ‘there is a fantastic opportunity sitting staring us in the face’.”

Field admits that is a “big, big ask” for marketers that have been “cut out of the boardroom and lost their influence”. However, he says now is the time to find that voice – and crucially, an evidence-based argument.

“The evidence is really clear that, if you hold your nerve, you at least maintain your share of voice in market. Or if you can find the resources to boost share, you'll be able to do so for less money. It's a great time to invest and these should be seen as times of opportunity.”

As such, Field says it is essential that marketers in a recession win two big battles.

“One is to defend budgets enough just to keep share of voice so they can keep the brand hanging on in there. The second one is to fight the temptation to go short, to put all that money into performance marketing on the basis that, ‘it's now that matters and we can't afford to worry about next year’.”

Taking that approach is “really, really insane,” says Field, not least because it means brands are likely pumping money into markets where demand has collapsed.

“What is the point of scrapping it out when there's declining demand out there? Or frankly, you can't meet demand, which is the situation in some categories,” says Field.

“The whole benefit of investing in recession comes through brand marketing - because the benefits of brand marketing play out six to twelve months later when we're in the recovery phase. All of the cheap media you bought in the recession then really starts to pay back.

“So, you've really got to fight both those battles, fight for the dollars invested in advertising and fight for the long dollars invested in advertising - because they're the ones that make sure you have a great recovery.”

 

THE PULSE

Quick question: Marketers, what is your advertising strategy over the next 3-6 months:

Choices
Win over the CFO with evidence

Field says CEOs and CFOs will back marketers who show them compelling evidence.

“I've talked to a lot of CEOs and CFOs. That's often why I get brought in to companies to make the argument at board level.

“These are smart people, but very few of them have any kind of marketing background. So we simply can't expect them to intuitively understand the difference between long and short term, or brand versus activation,” says Field.

“But if you give them an evidence-based argument that shows them how these two different ways of driving growth work over different time scales - and you can give them the evidence of the importance of balance - they buy it, they get it. And you can create an opportunity to put together a much more productive marketing plan,” he adds.

“But it's all down to getting an evidence-based argument together. They're not going to buy a lot of swagger and a lot of promise. They need to see the numbers. If you do that, you'll get there.”

 

“We're definitely seeing a shift away from short term activity. It feels like B2B marketers are definitely more in tune with their customers at the moment.”

- Prue Cox, director of marketing solutions, LinkedIn

B2B: Ditching the hard sell, thinking ahead

The principles around skewing long over short apply to B2B markets – even more so in a recession, says Prue Cox, director of marketing solutions, LinkedIn.

“We're definitely seeing a shift away from short term activity,” she says. “It feels like B2B marketers are definitely more in tune with their customers at the moment.”

Tech, services, and financial services in particular are skewing towards brand building and upper funnel activity over activation, says Cox.

“They're really taking a longer-term view with their marketing, making sure that they're positioning for long term growth and a return to business continuity when their customers are ready. And I think that's really important. I think they're really in tune with where their customers are at the moment and understand the shifts that need to be made.”

Cox thinks that dynamic will drive a greater appreciation of marketing from both sales and the c-suite – and that the change will be permanent.

“Because a lot of sales people can't do the role that they were doing previously … that is actually shifting and elevating the importance of marketing and giving marketing more of a voice,” says Cox.

“I don't think it's going to be a short shift [and then] back to where we were. From the marketers that I am speaking to, they are going to take the silver lining pieces to actually help build their strategies forward. That means that we're going to see more efficiencies. We're going to see a closer relationship between sales and marketing. And I think we're going to start to see CMOs having more of a voice at the executive table.”

 

Fewer events for B2B marketers?

Events have been a mainstay of B2B sales and marketing activity. But the disruption caused by Covid-19 might be permanent, suggests Cox.

“Events have been a very big part of B2B marketing programs. They had to pivot very quickly their large marketing budgets from high impact, face to face events to more virtual experiences,” she says. “Most of the customers that I've been talking to are not thinking ‘when do we return to the old strategy’, but more how do we create this new hybrid strategy?’”

LinkedIn, she says, is no different.

“We've had to pivot really quickly as well - and I think we're learning as much from our clients as we are from our own marketing activities. We focused a lot on events, which now have had to go into the virtual space, and then just trying to understand and learn how to actually customise that type of experience to the right segments online,” says Cox.

“But definitely we're in the same boat where we now think we'll continue to have a hybrid model. It won't be just a return to what we had. It will be actually creating and forging a new playbook for how we market to our clients.”

 

“It is clearly crazy to imagine we can make brands successful in the long term simply through comms. But if you really want to get the return on investment in customer experience, you need to tell people what you have been up to. They are not going to find it for themselves and they are not going to share it otherwise.”

- Peter Field

Cut and run or just reallocating budgets to owned and CX?

Field’s report for the Comms Council highlights a significant divergence between ad spend and GDP in Australia and New Zealand. The gap is far greater than in the UK and US markets – and is widening.

There is clear evidence that when a recession hits overseas, advertising expenditure in Australia and New Zealand suffers a downturn – even if they avoid their own recessions.

That can be partially explained by overseas parent companies dictating ad budgets. However, when GDP growth resumes overseas, Australian and New Zealand investment has not historically recovered to the level it should.

By contrast, in the UK and US, ad spend comes back strongly, though it took eight years to reach pre-GFC levels in the US, and five years in the UK. But since 2008, ad spend growth has outpaced GDP in both countries, whereas it has lagged in AUNZ.

Field thinks some of the discrepancy may be partially attributable to aspects such as the direct-to-consumer boom in the US and UK, which has yet to take off in Australia.

The DTC firms, he says, drive ad spend both through their own activity and by prompting a response from competitors in traditional retail channels.

However, there is an argument that while overall ad spend has diverged from GDP growth in AUNZ, brands are simply spending their marketing budgets in other areas – such as customer experience, where the tech and consulting groups are making gains, and agencies are scrambling to catch up.

Field says he is a “huge supporter” of CX investment.

“It is clearly crazy to imagine we can make brands successful in the long term simply through comms. But if you really want to get the return on investment in customer experience, you need to tell people what you have been up to. They are not going to find it for themselves and they are not going to share it otherwise, so the two go hand in hand.”

Meanwhile, the growth of social media and owned channels since the GFC has also led brands to invest significant resource into their own channels over paid media.

LinkedIn’s Cox says the platform naturally encourages customers “to have a very healthy and dedicated approach to organic content.”

However, she underlines that organic content is unlikely to drive growth.

“The majority is going to reach your existing customers or your employees. So your opportunity to increase market share and overall share of voice against competitors is very low,” says Cox. “So we talk about organic and paid together. It should not be either or. They work very strongly together.”

 

“I think the crunch time in Australia is likely to come at the end of September and early October when the government relief packages are wound back. If I was a marketer, I'd be looking at what opportunities can I take to increase my market share between now and the next three months?”

- Tony Hale, CEO, The Communications Council

The short and long of it

Comms Council CEO Tony Hale urges marketers to rethink their strategies and ensure they have the right blend in their spend. He says there are opportunities for the short and medium term - and the next few months could critical for those aiming to unlock them.

I think the crunch time in Australia is likely to come at the end of September and early October when the government relief packages are wound back, says Hale.  We might see quite a considerable amount of unemployment. If I was a marketer, I'd be working towards that and really looking at my opportunities to say, how can I engage with my consumers? How can I increase my share of voice? What opportunities can I take to increase my market share between now and the next three months? Because that likely is when it's going to hit.

Want to understand how to win in a recession? Tune into the report launch and free webinar on 18 June here.

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By Paul McIntyre - Executive Editor

8 June 2020 6min read