60 Seconds on Marketing Under Pressure

Richard Nolan

Operations Director

The Financial Services Forum

Falling house prices and slowing economic growth will affect consumers’ finances and financial services companies will be the first to feel the draught. Should companies advertise their way out of recession?
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Marketing voice is what matters
This has forever been a hotly debated topic, and certainly has created more than the odd bit of friction between finance and marketing directors. The classic example of a company that has kept spending through thick and thin has been Fidelity – and one cannot argue with the long term position of strength that they have achieved via consistently behaving like a leader in all market environments. However, for me, this topic is rather over-simplistic and indeed increasingly relevant to a bygone age when marketing budgets were seen by many cynics as a cost rather than an investment. After all, why go fishing if the fish aren’t biting?
Luckily, these days even the most basic of businesses are gripping the role marketing plays in helping them reach their long term strategic goals. And they realise that marketing is far more than just spending x in order to sell y.
For sure, the role of marketing in a recession is vital – it can provide reassurance and contact in times when customers get very jumpy, and maintain voice so that a business stays visible to its customers who for now are perhaps sitting on the sidelines. But that does not mean one should increase spend or even traditional marketing activity in a downturn. Put another way, marketing budgets should always have a variable or tactical content – so one can spend more for additional business if the marketplace is hot and spend differently if buyers turn off.
I like an approach used by many financial services companies to deploy a target ‘share of marketing voice’ as a way to define an advertising budget.
Its beauty is in its simplicity. You work out how visible you want your business to be relative to competitors and spend accordingly. In a recession, this can work very well. Indeed one can easily spend modestly and raise share of voice as some advertisers will be beaten by economic realities and turn off their spend and as a result media rates soften.
Richard Royds, Managing Director, BlackRock
Consumer confidence is key
In recessionary times size matters, but big is not necessarily better. Large organisations, such as Marks & Spencer and Tesco, have always been economic barometers and have given a good indication of the financial health of the nation. Their wide ranging product offerings and customer bases mean that when times are good they will do well and when consumers start to feel the pinch, then their profit and loss accounts take a hit.
M&S’ recent report that like-for-like sales had fallen 2.2% in the quarter to December 29 wiped £1.5 billion off the company’s value, despite a major celebrity backed advertising campaign designed to carry it through tougher times. Even Tesco disappointed City analysts with its Christmas trading figures, which turned in 3.1% like-for-like growth against an expectation of 4%. Its share price fell 2.3% on the back of the announcement. Clearly, every little bit of advertising doesn’t necessarily help when you’re a top FTSE100 company.
However, small companies can buck the trend and post good results in tough economic times. If your business is a speciality clothes boutique or grocer catering for the needs of a local market, it is easier to promote aggressively your products and services and bolster profits when everyone else is suffering from the effects of a sick economy. When your business is small, you don’t have to change the attitudes of a nation; just enough customers to keep the cash tills ringing.
However, even small companies are vulnerable if their businesses are not broadly based and costs kept under tight control. In the market in which I work, financial services, there are thousands of mortgage advisers who wish they weren’t quite so dependant on the housing sector at the moment and are desperately trying to diversify into other markets. However, simply throwing money at marketing campaigns may not solve their problems but only compound them.
The key, of course, is consumer confidence. If consumers have confidence not just in economic conditions but also in a company’s products and services, then the future looks good. Advertising can help build confidence, but it is neither a total nor a foolproof solution.
Mehrdad Yousefi, Director of Sales and Distribution, Wave

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