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Deep Dive

Volvo sales boom, swings to short-term; IBM weans off live events but digital crowded as it says 'marketing changed forever'

By Paul McIntyre - Executive Editor

28 June 2020 6min read

L-R: Volvo's Head of Marketing Julie Hutchinson; Comms Council report author Rob Brittain; IBM CMO Jodie Sangster and Deloitte partner John O'Mahoney

By Paul McIntyre - Executive Editor

28 June 2020 6min read

Volvo and IBM marketers outline their strategic shifts and hurdles in moving to brand investment over short-term tactics as Deloitte partner John O’Mahony says advertising and marketing “definitely has a perception issue” amongst executive leadership despite the data showing marketing drives growth and shouldn’t be a cost centre. Rob Brittain, co-author with Peter Field on the Communications Council's landmark Australian advertising study, sheds light on Australia and New Zealand's behavioural challenges.
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“Brand profitability recedes much more quickly during a recession than in normal times. So the playing field is really disrupted. Things are fluid. They're changing in a way that they haven't done before and it's a time for opportunity and a time to exploit weakness. But it needs to be done now.”

- Rob Brittain, Principal, Rob Brittain Consulting

 “Just to set the scene, in 2020 we are facing the greatest downturn since the Great Depression, a 10 per cent fall in gross domestic product,” says Deloitte Partner and Economist, John O’Mahoney. “Already, there are some one million fewer jobs in the Australian economy, thanks to Covid-19.”

A grim picture, and the shakeout is starting to show which firms view marketing as a driver of revenue, and which view it as a cost.

But advertising effectiveness guru, Rob Brittain, argues the brands that can balance reducing costs while maintaining investment in R&D, innovation - and yes, advertising - will emerge faster and stronger from recession.

Brittain, principal of Rob Brittain Consulting and co-author of the recent report, AUNZ Advertising Effectiveness Rules - Winning or Losing in a Recession, says what businesses do over the next few weeks and months will determine their medium to long-term future.

The view amongst the marketing and media community is that the recession will be a long and deep one. That's causing a siege mentality and businesses are very much in survival mode, focused on today, and they're not thinking about how they spur growth. This is coupled with a lack of confidence in advertising,” says Brittain. “In many businesses, it isn't regarded as being an effective use of capital in a situation like this.”

Meanwhile, many marketers are suffering a crisis of confidence, unsure whether the campaigns they had planned pre-Covid are now suitable. All of which is contributing to the 35 per cent adspend cuts seen in April.

“If you switch off brand, it takes a lot more investment to reignite it and get back to where you started.”

- Jodie Sangster, CMO, IBM

Unjustified panic

Despite the economic damage inflicted by the virus, Brittain thinks hacking spend to that extent is out of step with reality.

“Firstly, Australia is in a much better place than most to emerge more quickly from Covid-19, its containments of the coronavirus being world leading. Couple that with the magnitude of government and central bank support, and that [35 per cent] cut speaks to a level of panic that probably isn't justified.”

A continued overreaction will have broader ramifications, warns Brittain, given Australia and New Zealand, unlike the US and UK markets, have historically failed to increase spending coming out of downturns at the same rate at which they cut going in.

“So the investment cut during the recession is lost forever and it affects Australian businesses, because it leaves our brands in a permanently weaker state,” says Brittain. “That has implications for the economy as a whole, because advertising creates demand, demand stirs up competition, and competition spurs firms to invest and innovate, to compete more effectively. Those are key ingredients … in driving economic growth.”

The current situation, he says, does not augur well for the future. Brands and businesses “must remember that the primary role of marketing is to deliver future revenue, and that it underwrites future cash flow and profit growth. Much of what you do now will determine whether your business is a post-recession winner or loser”.

THE PULSE

Quick question: Marketers: How is your spend currently weighted?

Choices
Cut costs, but cut elsewhere

While businesses need to cut their cloth accordingly, there is “clear proof that marketing is a highly effective use of capital during a recession,” says Brittain.

“We know it has a minor drag on profitability during the recession, which is symptomatic of the fact that demand does drop. But it positions businesses to recover profits significantly faster during the ensuing recovery and expansion,” he adds.

“And it does that to an extent where when you look forward five or six years, the gap in performance between those who invested during the recession and those who did not is really significant. So the winners are those businesses that manage the balance between reducing their cost base to survive today, but while continuing to invest in R&D innovation and advertising.”

Ditching campaigns is also a waste of sunk cost, Brittain argues.

“At a general level, advertising still connects with people just as effectively now as it did before Covid. So in the majority of cases, the campaigns planned or already in market prior to Covid can and should continue. Most marketers don't need to stop and recreate everything. They should continue unless what they were doing is clearly unsympathetic to the current situation.”

Brittain urges marketers to review how much they are allocating budgets, given brand building is a cumulative process.

“That means that the most powerful effects of brand building, if you do them now, will be experienced during the recovery phase. That helps play a key role in driving the return of the business to pre-Covid profitability levels,” says Brittain.

Moreover, competitors are likely to be spending less, “so the level of advertising investment required to grow share of market is now lower,” says Brittain. “You have the chance to take advantage of weakness amongst your competitors.”

“I think part of [our marketing strategy] will go back to how we were previously. But certainly at least 50 per cent of it will change moving forward - and probably forever.”

- Jodie Sangster, CMO, IBM

IBM: Maintaining spend, but making big changes

IBM is maintaining pre-Covid investment levels, says CMO Jodie Sangster. “If you switch off brand, it takes a lot more investment to reignite it and get back to where you started,” she suggests. But the marketing department has had a major shake-up of how its money is spent.

The first “pivot” was around messaging, says Sangster. “Keeping our core brand messaging, but changing how the brand goes to market, because we had to be both sensitive and empathetic with how businesses were dealing with [Covid fallout].”

The second aspect was looking at long versus short-term marketing mix, as well as channels. “If nobody was going to be out of their home, us doing out of home advertising would be challenging,” says Sangster.

As such, there has been “much more emphasis on digital”, including events, a mainstay of the b2b tech marketer’s calendar.

“Events literally went overnight. So all of our plans for Q2, you take out events and start to think, ‘what are we going to do?’ That includes things like c-suite engagement. There's a lot of face-to-face engagement that we're involved with, account-based marketing. All of sudden all of those elements have gone. So we had to relook and think how are we going to do this, how are we going to invest that money to drive the same results?”

The answer was to shift to digital events – but everyone else has done the same thing. “You’ve got a lot more competition in a much more confined set of channels,” says Sangster, with weaker outcomes as a result.

However, she says being forced to pivot so quickly will benefit the business – and that many resulting changes will be permanent, despite mixed results.

“Some things work and some things don't. And that's the beauty of learning as you as you go along. Do digital events perform as well as physical? No, they don't. The engagement level … we all know that sitting on a webinar is hard.

So it's been an interesting quarter, but the learning out of this will probably change the way that we do marketing forever. You have to sometimes be forced into change and it has forced us, and many other marketers, into change. So moving forward there will be investments in a broader set of areas that maybe we didn't see before,” says Sangster.

“I think there are some real benefits the digital approach. For large scale, big, big conferences, there's nothing better than getting everyone into a room and feeling amazing about what's up on the stage. But it’s a real struggle to get ten c-suite round a table to have a discussion. Trying to do that physically is hard, but has actually proved easier in the digital environment.”

As such, Sangster reiterates that Covid will permanently change the marketing landscape.

“I think part of it will go back to how we were previously. But certainly at least 50 per cent of it will change moving forward - and probably forever.”

“Very quickly we've gone into that short-term mentality. It is about selling cars today, achieving targets today and less so about long-term future revenue, the recovery phase. So it is a different dialogue.”

- Julie Hutchinson, CMO, Volvo

Volvo: Cutting brand spend, but picking up bargains

Volvo CMO Julie Hutchinson is one of those having to cut investment – despite previously winning over the regional investment committee and securing additional budget by presenting data around excess share of voice, or ESOV.

While Hutchinson has spent the last two years re-weighting spend in favour of brand over performance, she says that has also been reversed since Covid hit.

“Very quickly we've gone into that short-term mentality. It is about selling cars today, achieving targets today and less so about long-term future revenue, the recovery phase. So it is a different dialogue.”

Hutchinson says she understands first hand how marketing can be viewed as a cost, rather than business driver.

But even so, she says there are opportunities to be had.

“I've been surprised at how flexible partners have been in terms of rates, in terms of, lock down periods or how long that period might be. Traditionally, you would lock it down for maybe 12 month period, but there's a lot more flexibility in terms of securing good inventory with more flexible terms.

 

June sales bonanza

The car market crashed 48.5 per cent in April and while May’s figures were slightly better, new sales were down 35 per cent across the board.

For June however, Volvo looks set to beat June 2019, says Hutchinson, with dealers now having to call back staff stood down during lockdowns.

“The demand has come back really quickly. It has caught everybody by surprise. So I am optimistic about a V-shaped recovery based on what I am witnessing.

While the sales spike could be attributed to Volvo’s increased retail activation, Hutchinson believes it is also a result of increased brand investment in recent years.

Based on June’s figures, she says the brand has 0.7 per cent share of market, but share of voice stands at 3 per cent.

“That is a really good sign and we are up versus last year. So we are in good shape, but we want to extend that further to support that future growth.”

 

Cut spend, get disproportionately punished

Despite intense pressure to cut adspend, Rob Brittain says it is imperative for brand marketers to fight their corner with finance departments.

“Be very clear around the fact that marketing is a future revenue driver, that it underwrites cashflow and de-risks the business. It helps deliver the long-term plan, and that is the power of marketing. It is not in terms of delivering today but actually more about delivering tomorrow - and there's a significant body of empirical evidence that shows the impact of things such as brand building on brand profitability, on long term share growth, on customer acquisition,” says Brittain.

To hit home with boards, marketers must be “relentless” in banging the drum, says Brittain, because “marketing really needs to be reframed in their mind”.

It’s also for their own good, says Brittain: While brands that spend in a downturn emerge with “disproportionate growth”, there is an equal and opposite reaction. 

“Peter Field did a new analysis for the [Winning or Losing in a Recession] paper and he showed that actually, whilst there's a disproportionate upside to marketing during the recession, there's also disproportionate downside, so those who cut investments get disproportionately punished during a recession,” says Brittain.

“Brand profitability recedes much more quickly during a recession than in normal times. So the playing field is really disrupted. Things are fluid. They're changing in a way that they haven't done before and it's a time for opportunity and a time to exploit weakness. But it needs to be done now.”

“The top 10 brands alone in Australia are worth some $80 billion. That is a huge asset. To think of that as being something secondary during an economic crisis is obviously a very misplaced way to try to do business.”

- John O’Mahoney, partner and economist, Deloitte

Deloitte: Businesses risking tens of billions in brand value

Much is made of the need for marketers to better articulate the value of brand to business. Deloitte’s John O’Mahoney says that is never more true than now – given its contribution to overall business value, something that is poorly understood even by those governing the biggest businesses in Australia.

If you look at the balance sheets of companies compared with their total value for ASX listed companies, the biggest companies in Australia, only some 37 per cent of their value is in tangible assets. Another 15 per cent is in some intangibles that get taken onboard and incorporated into their books. But that leaves about half of the intangible value of businesses, including things like their data, including things like their brand and goodwill, which is not accounted for,” says O’Mahoney.

“Because it's not measured well, it's not something that is always seen as important or invested in. I think that if brand was better understood and better managed, that could lead to a change in marketing behaviour during these sorts of times as well. Just one estimate from one of the leading brand finance agencies in Australia is that the top 10 brands alone in Australia are worth some $80 billion,” he continues.

“That is a huge asset and to think of that as being something secondary during an economic crisis is obviously a very misplaced way to try to do business. Of course, they are some of the businesses that are doing really well. But I do believe that in other parts of the business community, brand wouldn't always have the status financially that it deserves.”

 

Rebadge required?

IBM’s Jodie Sangster says it is “incumbent” on marketers to bolster brand’s financial status by changing their own language, rather than expect businesses to somehow learn marketing.

“I think it's that next step for marketers and I think that's why we're seeing marketers often changing their job title - whether it's to chief growth officer or chief customer officer - to get that broader piece of the role in there,” says Sangster. “That is about [stating clearly] 'I understand the business, I'm contributing to the business, and I'm part of that that business conversation'. So I actually think that the role of CMO needs to change and evolve into that.”

 

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By Paul McIntyre - Executive Editor

28 June 2020 6min read