Opinion: The big mistake businesses need to avoid during the Delta outbreak

Responding to short-term losses could be a mistake. Photo / Getty Images

OPINION:

Early last year, the sharemarket dropped about 30 per cent in the space of four weeks.

For many of those Kiwis who pay close attention to their KiwiSaver balances, this was somewhat alarming. What to do?

One friend told me about his swift and severe action: "I switched from a growth fund to a conservative fund before it went down any further!"

On the face of it, that makes perfect sense, so he just kind of blinked when I told him that I'd topped up my growth fund with a voluntary payment at around the same time.

Around 17 months later, every dollar of my top-up is now worth $1.50, while my friend locked in his losses. Not only did he miss an opportunity, but ironically his attempts to save money cost him.

It's not difficult to imagine a similar exchange between two competing CMOs in March/April last year. "I cancelled all of my ads just in the nick of time!" says one, dusting off his hands.

"Oh, I know," says the other CMO. "I just bought all of your TV slots."

Covid and lockdowns have had big impacts on sales, no question. There are a few winners in streaming video, dietary supplements, Big Toilet Paper, etc., but most categories have taken a hit – notably travel, accommodation, retail and hospitality.

For many, the rationale for pulling ad spend was simple – it won't make any difference to sales, so it's just money down the drain. Especially for businesses facing revenue slumps and even staff cuts, apparently pointless ad budgets were an obvious option to cut costs and improve profits.

But like your KiwiSaver, brand is a years-long asset built through regular investments. And like with KiwiSaver, smart marketers hold the course or even increase their investment during downturns.

In April last year, marketing professor Mark Ritson made this point in his column: "The best marketers will be upping, not cutting, their budgets".

The recently published Ehrenberg-Bass Institute study of 57 instances of brands stopping mass-media spending for at least a year supports Ritson's argument. The study examined data over 20 years, a period ending before Covid began.

Commenting recently on the study, Ritson also highlighted a Covid-specific lesson comparing apples with apples: Coca-Cola and PepsiCo's different approaches to the pandemic.

Marketing professor Mark Ritson argues passionately for longer-term thinking in marketing. Photo / Supplied

Coke dropped its advertising budget by 35 per cent, while PepsiCo stayed the course. The result? Coke's loss was Pepsi's (relative) gain, with Pepsi reporting net revenue growth of 5 per cent while Coke's was down 11 per cent for the same period.

So much for short-term results. But the EBI study findings also suggest that the impacts will continue even if Coke revs back up to a share of voice in parity with its share of market.

Of course, the Coca-Cola brand is a monster. No one's going to forget it just because there's a third less advertising for a year – and no one is suggesting that anyone will.

But the impacts of relative brand investment (that is, of excess share of voice) on longer-term market share are well documented. Those incremental shifts may sound small, a per cent here or there, but those are small percentages of some big numbers.

So, what's the explanation? Why does brand-building in a downturn yield particularly good longer-term results?

There are a few factors in play:

• Your category competitors are more likely to cut their spend, which means your mass-media spend has a greater impact on your relative share of voice.
• Players in other categories are also more likely to cut their spend, dropping demand for media placements, which lowers the prices, meaning you get more absolute reach and frequency for your media buck.
• Larger brands tend to coast by on sheer momentum for a while before the effects of cutting advertising start to appear, leaving their managers unaware of their impending decline – and too slow to defend their mental turf in time.

Interestingly, our original analogy to KiwiSaver and the share market still holds.

Staying the course can make a difference in the long run. Photo / Getty Images

One of the reasons that shares drop in price ("go on sale", as Mr Money Moustache would say) is because other people are selling them, or at least not buying them, precisely when they should buy.

The whole opportunity is predicated on the assumption that most others will make the wrong move while you make the right one.

Here are a few tips for being the smug bastard 17 months later:

• Pay attention to competitor share of voice. Your media agency can help with that. And if that's a separate lot from your brand agency, get the media team to share that info with them.
• Measure your brand's business impact on relative market share, not absolute year-on-year sales revenue. Category-impacting factors like pandemics and recessions are outside of your control, but your performance within that category is not.
• Evaluate today's brand-building decisions on their projected impacts six months from now, not on tomorrow's sales figures. Accurate predictions aren't the point; thinking long-term is.

Hidden bonus tip: actually have a brand strategy and brand-building assets. Maybe this point should have come at the top of the list (or perhaps it should have come a few years ago).

Businesses that have only sales-promotional tactics in their toolbox just aren't prepared to take advantage of market downturns in this way.

So be prepared. Stay the course. Take advantage of competitors going quiet. And, you know, hope that none of them are reading this article.

- Ryan Sproull is a strategy and experience director at the independently owned New Zealand agency YoungShand.