There can be little doubt that 2020 is shaping up to be a bumpy economic ride.
When we awoke on 1 January, the Organisation for Economic Co-operation and Development (OECD) was already expecting the slowest global economic growth metrics since the financial crisis of 2008, Asian Development Bank (ADB) data suggested Southeast Asia had grown less than anticipated in the first half of 2019 and Southeast Asia’s GDP growth was expected to remain sluggish at 4.5% amid the risk of re-escalation in trade tensions between the US and China.
Layer on top the stock market correction triggered by COVID-19 fear, the immediacy of the virus’ impact on travel, tourism, business operations and disruption to China supply chains, not to mention the impact of rapidly unfolding global government responses (at the time of writing Italy has just entered lockdown) and it’s reasonable to expect we may be staring down the barrel of a global recession.
Whilst we don’t yet know the impact and longevity of the COVID-19 crisis, we do know with absolute certainty that the short- to medium-term impact on business and consumer confidence, and in turn the economy, is going to be negative.
This means brands will be seeking a new level of thoughtful and informed counsel to navigate their way through the downturn, particularly as it may be the first real bear market that many will have experienced.
As a student of history sometimes the best place to look for a way through the imminent future is the past. I worked in media throughout the dot.com crash and global financial crisis which bookended the 2000s, and a number of insights from previous recessions can inform our current thinking.
Investing in good business
There is an element of “you would say that wouldn’t you” when the head of a media agency says brands should continue to invest during a recession. However, empirical evidence from the last couple of recessions confirm that sustained investment in a bear market delivers greater long-term business value. Trimming budgets only defends profits in the very short term and can impact how well a brand performs in the aftermath.
A 2010 Harvard Business School and Kellogg School of Management study sought to analyse strategy and corporate performance during three global recessions (80s, 90s, 2000s). It found that companies which went on to thrive post-recession were those which made selective cost reductions focused on operational efficiencies, but continued to comprehensively invest in the future by spending on marketing. This 2008 IPA study and ADMAP paper are also worth reviewing for the nuance and evidence-based stats, but it really boils down to what we should already know; brand building is a long-term commitment and more (media), across more (channels) means more (results).
In a recession it can be tempting for brands to hunker down and lean too heavily on short-termism and performance plays that can eat into advertising effectiveness and brand health—particularly if there is a lack of brand-building knowledge at the top. The UK’s Financial Times and IPA’s The Board-Brand Rift study reveals that over half of business leaders rate their knowledge of brand-building as average to very poor. But when share of voice dips below share of market, then it opens up a space for competitors to move in. A dangerous place to be.
Follow the customer
Past recessions show us that consumer behaviours shift as a recession takes hold, so it’s sensible to examine past recession psychology to anticipate how the 2020 consumer will react to a faltering economy. For example, as downturns generally trigger a desire for simplicity and a demand for trusted brands that are able to demonstrate value, we can begin to consider what this will mean for our clients.
Brands which thrived after a recession were those with a deep understanding of their customers redefined value and made buying decisions. This 2009 Harvard Business Review article outlines the four key behavioural patterns observed in a downturn as: 'Slam on the Brakes', 'Pained but Patient'; 'Comfortably Well-Off' and 'Live for Today'.
It is imperative to know how open each of your different customer groups is to spending and what cues will prompt them to purchase. Learn from the past and apply it through today’s lens and today’s funnel.
I was recently described as an eternal optimist in the context of having suggested a potential upside for some brands affected by COVID-19 supply chain issues. I’d like to think that ‘eternal thinker’ would have been closer to the mark.
Because, whilst the past can teach us we need to be flexible and ready to adjust to survive a recession, it can’t tell us precisely how we do this. For that we need accountable, creative and critical thinking to underpin our strategy.
I’ve briefed my teams to get on the front-foot with clients to initiate these types of thoughtful, focused conversations and reminded them that the lessons from Andy Grove’s Only the Paranoid Survive about surviving strategic inflection points hold true here. When change becomes inevitable, the lack of an effective strategy in response will lead to failure, but if managed correctly it can be an opportunity to emerge stronger than before.
The urgency of the unfolding economic situation provides the opportunity to carve new ways of thinking. It will necessitate having a good hard look as to how we can create growth through the
kind of process efficiency required for long term sustainability of people and in turn business margins.
Media agencies have been (or should be) about so much more than just ‘we buy media’ for a long time now. We’ve re-engineered post-digital, post-big data and post the big consultancies inching ever closer and this is an opportunity to demonstrate incremental value and further prove our worth. To navigate, we’ll need to accelerate the ongoing shift from a serving mindset to a solving mindset and draw upon the lessons of the past to create brave and bold new ways of helping clients deliver business growth.
We’ll also need a positive mindset. It may seem antithetical in the face of the current daily headlines, but as Jon Gordon, author of The Power of Positive Leadership wrote, ‘We are not positive because life is easy. We are positive because life can be hard.’
Be urgent. Be brave. Be positive.
Leigh Terry is APAC CEO of IPG Mediabrands.