Regardless what the current administration and economic Beltway pundits say, two quarters of back-to-back drops in GDP (Gross Domestic Product) is the technical definition of a recession. Despite the double-speak and spin from Washington, consumers from every political and economic sector are feeling the impact of soaring inflation, rising food and energy costs, increasing interest rates, continued supply chain shortages and higher unemployment.
How is this going to impact the cannabis industry? During the pandemic and nationwide lockdowns, cannabis retailers were considered "essential businesses" and actually benefited from billions of dollars in stimulus checks sent to Americans from the Federal government.
Recently, New Frontier Data published a report comparing point of sale data from Q2 of last year to Q2 of this year. While some markets like DC, Utah, Delaware, Rhode Island and Vermont experienced double digit growth, the other remaining twenty-three states experienced a decline ranging from 2% to 32%--resulting in an average decline in consumer cannabis spending per transaction of 7% nationally.
New Jersey, Missouri, Virginia, and Nevada suffering an alarming negative 32% to 24% decline.
Strangely enough, it is a common misconception that companies need to reduce marketing budgets during a recession. But how a brand responds during a downturn in the economy can have significant impact on business both in the short term, but also long term. While it may seem like a natural inclination to reduce spending and batten down the hatches, one only has to look at a recent case study of Proctor & Gamble vs. Coca-Cola and how these two consumer product companies' different strategies faired during the 2020 pandemic.
Not even two years ago, both large and small B2C companies faced an unprecedented and inestimable revenue decline, as consumers were forced to shelter in place. Companies not capable of offering a robust online capability were forced to shudder their doors. Dispensaries who were equipped to be able to deliver faired extremely well. The term 'curb-side-pickup' was invented to provide consumers yet a third alternative.
However companies like Proctor & Gamble zigged when the rest of the CPG heard zagged, and instead doubled down on their advertising spend, while Cola-Cola did exact opposite, and went dark.
To everyone's surprise, Proctor & Gamble's revenue soared while Coca-Cola's and others declined. John Moeller P&G's joint CFO/COO wasn't surprised. The company was founded in 1837 and weathered crisis after crisis ranging the Great Depression and two World Wars. To them, COVID-19 was just another bump in the road. "The best response to what we are challenged with today," said Moeller to analysts, "is to push forward, not to pull back."
This wasn't a time to "retrench" Moeller explained. Instead, the company would double-down on its advertising.
Faced with COVID-19, most big companies decided to reduce marketing budgets--and in many cases, completely slashed their budgets to the bone. According to the World Economic Forum, the coronavirus pandemic had caused a consider drop in advertising spending. Ad spend was down 9% across Europe and 10% in the United States.
It was clear from Moeller's answers to analysts' questions, that P&G was not only going to continue its full 2020 advertising budget, but increase it. According to Mark Ritson of Marketing Week, "Covid caused every brand to question itself. The brave, the clever and the ones with long memories, doubled down. Those with lesser budgets, shorter memories or a lower grade of leadership, cut back and paid the price."
Lesson Learned: Don't Cut And Run
Recessions come and go. One only has to look back to 2008. Brands that cut back or canceled all their marketing budgets because they and their customers are facing a difficult period, only suffered because a few brands who recognized this as an opportunity to grow reaped all the rewards.
Some marketers believe it a sound strategy to grow one's bottom line by focusing on their existing customers. The old 80/20 is as old and true as time. It is far more easier and less expensive to nurture one's customer base, versus the expense of new customer acquisition.
Other marketers believe it is better to acquire net new customers--regardless of the costs. Many of these, who may be less experienced, do this by forcing a price-war in their market. This damned the torpedoes attltutde is not sustainable--especially in a recession.
Then there are those marketers, much like leadership at Proctor & Gamble who believe that growing market share by taking the competition's customers is the sweetest strategy of them all.
Conquest marketing is a form of programmatic advertising where, you leverage geo-spatial tools to send ads, promotional offers, etc. to your competition's customers. Not because of the company or the customers it is targeting, but because of the competition's silence. Advertising is often compared to white noise. It's every where, digital, television, out of home, or on the radio. When the mass of white noise is silenced, those who are advertising, echoes the loudest.
Now more than ever, today's cannabis marketers need to ensure that each of their marketing channels is being maximized to its fullest potential. Being top of mind and filling voids in your markets is important.
iResearch by Ehrenberg-Bass Institute for Marketing Science found that on average, brands saw their sales fall by 16% after one year without advertising and by 25% after two years and by year three, sales declines 36%. This data proves that companies that take an advertising hiatus not only leads to notable sales declines, but often they cannot easily be recovered from.
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