Marketing In A Recession

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 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 from the Federal government.

But recently New Frontier Data published a report comparing point of sale data from Q2 of last year to Q2 of this year. While some marketers like DC, Utah, Delaware, Rhode Island and Vermont experienced double digit growth, the other remaining twenty-three states experienced a decline 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.

Source: New Frontier Data, Equio

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 one only has to look at Proctor & Gamble vs. Coca-Cola and how these two consumer product companies' different strategies faired during the 2020 pandemic.

Both large and small B2C companies were facing an unprecedented and inestimable revenue decline as consumers were forced to shelter in place. However companies like P&G zigged when their 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 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.

Faced with COVID-19, most big companies decided to reduce marketing budgets--and in many cases complete slashed their budgets deeply. According to the World Economic Forum, the coronavirus pandemic had caused a consider drop in advertising spending. Ad spends were down 9% across Europe and 10% in the United States.

Source: World Economic Forum

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 double 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. The fact remains that brand that cut back or cancel all their marketing budgets because they and their customers are facing a difficult period only suffer because the few brands who recognize this as an opportunity to grow reaps all the rewards as a result. 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 mass of white noise is silenced those who are advertising echoes the loudest.

Source: Ehrenberg-Bass Institute for Marketing Science

Research 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 cannot easily be recovered from.

Interested in Learning More?

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