The news from our biggest retail customers is that their sales have rocketed over the last two months. If you had a choice of places to work during the next six months, anything online would be the priority. Online marketing would be even better. And online marketing tech that directly drives e-commerce would be perfect. 

In a downturn, some organisations’ first responses are to trim their marketing budgets. However, data from Quantum Metric – the leading retail analysts who analysed 5.5 billion transactions for this survey – showed a huge growth in online sales in the US (and there’s no reason to think the trend anywhere else would be any different).

Since lockdown began, there has been a 52% increase in online revenue and a huge 8.8% increase in conversion rates. Sales are moving from offline to online at a rapid rate, and anyone selling online needs to make sure they get the biggest possible share of this dramatic spending transition.

In China, cosmetics company Lin Qingxuan had to close 40% of its physical stores and move its business online. It has now reported 200% year-on-year sales growth.

The importance of ratings and reviews

People will no doubt say that their marketing budgets have to support many different types of spend. Why should ratings and reviews be protected above others?

Simply put, it’s because of trust. All studies concerning the positive impact of marketing spend on business survival during a recession, emphasise the priority of trust and relationship-building with buyers and prospects. These are outcomes not normally delivered by advertising, PR or design, but are always delivered by ratings and reviews.

In the case of Lin Qingxuan above, they didn’t get that sales growth by investing in marketing campaigns. They got it by moving their in-store consultants onto their website to talk directly to customers. Similarly, ratings and reviews provide direct customer-to-customer engagement, giving the extra insight required to help consumers reach their purchase point.

During recessions, it’s important to remember that loyal customers are the primary, enduring source of cash flow and organic growth. Marketing isn’t optional – it’s a “good cost,” essential to bringing in revenues from these key customers and others (Harvard Business Review).

Evidence from previous downturns

There have been many studies looking into what’s happened to real companies making real marketing budget decisions during previous downturns. Here’s a summary:

1927 recession

Harvard Business Review survey found that the biggest increases in marketing spend resulted in the biggest increases to sales.

1949, 1954, 1958 and 1961 recessions

Buchen Advertising established that during all these downturns, companies who decreased marketing spend saw consequential decreases in sales and profits. Those that managed to survive, continued to lag behind those that had spent on marketing.

1970 recession

The American Business and Strategic Planning Institute found that companies who increased marketing spend during the recession had increased sales. Those that didn’t, didn’t. I’m sensing a recurring theme here.

1974–75 recession

The findings from McGraw Hill’s Research Lab showed that companies who maintained or increased their marketing spend had higher growth. Over a five-year period, those companies grew by an average of 132%, compared to 79% for those that cut spend.

1981–82 recession

More research from McGraw Hill showed the same trend, but this time the numbers are much starker. Companies who maintained/increased spend had a five-year growth of 275% while those who cut costs achieved a dismal 19%. Cahners also found that companies who increased marketing spend during that recession got significant market share gains in return.

1990–91 recession

The WPP Centre for Research & Development had similar findings. Companies that increased marketing spend during the recession got double the market share gains than those who didn’t.

2001 recession

Marketing During and After Recession (International Journal of Business and Social Science) is full of interesting material. There are some great arguments to take to your CFO to support your marketing spend during this time. My favourite quote: “A recession is an opportunity for the strong to get stronger, and the weak to get eaten.” Imagine dropping that line on your next video conferencing call! 😉

2007–08 financial crisis

Unsurprisingly, there’s more analysis available about what happened to companies who decreased/increased marketing spend during the last major downturn.

Major studies by four respected research organisations (Millward Brown, Data2Decisions, Malik PIMS and IPA Datamine) all came to the same conclusions.

This has been the only prior recession to hit an economy similar to our own (i.e. companies selling online). However, the aggregated main outcomes were absolutely consistent with those relating to studies of all previous downturns:

  • Cutting marketing in a recession only defends profit lines in the short term.
  • Ultimately, brands with cut budgets emerge from downturns weaker and much less profitable.
  • It’s much better to maintain Share of Voice at or above Share of Market during a downturn. The long-term profit uplift greatly exceeds the short-term cost increase.
  • If competitor brands are cutting budgets, the long-term benefits are, of course, even greater.

New opportunities

Downturns, of course, mean less business on a general level. But beneath that there is always a range of spikes in activity. You don’t have to be Warren Buffett to spot which sectors/products are going to spike over the next few months.

Anything to do with healthcare is an obvious candidate for growth as is anything associated with it. Take a look at China since the start of the year. Although economic activity is down, all online B2B and B2C activity is up. Remote working solutions, hygiene products, health insurance, social media and online gaming are all up.

If your company falls into any of those categories, you should have no problem releasing budget for marketing activities. For anyone else, hopefully you’ll find adequate evidence here to maintain or increase your marketing spend.

Aside from maintaining marketing spend, the next most identified factor for success from the aforementioned studies is launching/repurposing products. How could your company adapt to fulfil the new needs and opportunities created by the current global situation?

In China, a major social video platform has completely repositioned itself. It now acts as a delivery mechanism for online education, filling the gap created by the closure of traditional educational establishments. Another example is a national restaurant chain. They now make and deliver part-finished meals, to assist those who want to maximise time spent outside of the kitchen.

There’s a changing attitude to marketing budgets in relation to the rush to e-commerce and the opportunity it represents. One global confectionary manufacturer cut its whole China marketing budget. Instead of taking it as a cost saving however, it reallocated all of it to e-commerce and digital marketing. This is happening everywhere outside of China as well. Businesses will spend less on offline activities and more on online – a lot more.

Digital first the new norm

What previously seemed like a “nice to have” is now a “need to have.” The dramatic global transition from offline to online sales has had a huge impact on customer search and buying behaviours. And online is exactly where ratings and reviews complement and enhance these behaviours.

Building and maintaining strong brands – ones that customers recognise and trust ­– remains one of the best ways to reduce business risk. The stock prices of companies with strong brands, such as Colgate-Palmolive and Johnson & Johnson, have held up better in recessions than those of large consumer product companies with lesser-known brands (Harvard Business Review).

That’s why it’s so important to have strong brand loyalty and to maximise the transactions on your website. We believe ratings and reviews are ideally placed to help do this, which is why many of our online retail clients can boast such impressive sales results over the past two months, and hopefully into the coming months as well.

If you want to know more about how ratings and reviews could improve your business, drop us a line here.

Sources
A brief history of marketing spend during downturns