It's not just FMCG brands that will weather 2020’s economic storm

As we charge towards the first global disease-driven recession of the modern era, the brands that survive will be those who reinvent their business models for an uncertain future.

2020 has not been an easy year to work in advertising. Most major global markets are facing an economic downturn, with the UK and Japan being the most recent to report a decline in GDP for two consecutive quarters.

In turn, ad budgets are being squeezed and spliced, and advice for marketers varies. The prevailing theory pedaled by experts is that a continuation of brand investment is the only way to weather the economic storm. However, those same voices are increasingly honing in on digital transformation, saying that those who will emerge strongest from the crisis will be the businesses that innovate their way out of it, instead of just splashing out on billboards, slashing prices and running value-based ads reminding customers they exist.

“Predicting the categories that will weather a recession will be dependent on an organisation's ability to rethink and reinvent business models for an uncertain future, whilst executing at warp speed,” explains Kenny Powar, founder of digital and design consultancy Rebel Owl.

Keith Johnson, chief marketing officer and chief intelligence officer at Forrester, agrees that to survive, marketers will need to get smart about the digital resource they have and accelerate automation where it makes the most sense to support critical tasks.

“This could be vetting specific households that are ripe for specific messages, measuring marketing effectiveness market by market, and delivering critical communications about revised open hours or health protocols,” he asserts, saying brands need to make budget choices based on what is effective, not just efficient.

This time around, it’s not all about FMCG

Consumer confidence (and spending) has tanked in some markets amid the uncertainty brought by Covid-19. Like recessions before it, this one has also seen consumers continue to shift their spending to essentials and seek value across purchases.

McKinsey’s most recent consumer study shows that in the US, it’s only spending on ‘essentials’ that has remained at, or above, pre-pandemic levels. The recovery in intent to spend on ‘discretionary’ categories has been declining since mid-June. Most people continue to believe that the impact of the crisis on their routines and personal finances will last beyond the next four months.

FMCG brands are still considered to be well placed to navigate these choppy waters, chiefly because of their proclivity towards essential products. In the most recent quarter, Unilever’s sales dipped but its profits rose. For P&G, sales have increased 4% over the past three months. This recession around, though, the rules of play are different – and other categories will be adding their name to that safe list, too.

Enders technology and media analyst, Sanchit Jain, says it would be wrong for marketers to take it at face value that customer spend will be limited to essentials only for now.

“During the 2008/09 crash, we saw inexpensive ’eventised’ categories such as personal care, cinema and hospitality do incredibly well too,” he says, saying that while households dropped their overall expenditure levels, and were uncertain about the future, they still sought some ways to enjoy themselves.

“We will see similar behaviours again this time,” he says. Though, he concedes that the reality of social distancing means out-of-home spending will remain hampered for the time being.

“The most unexpected shift during the lockdown has been a recovery of retail to pre-pandemic levels, driven by e-commerce. Consumers are spending more online than ever before – and doing so across all categories,” he notes, pointing to Deloitte’s consumer tracker which shows that where offline retail declined by 22% year-on-year over Q2, online retail grew by 74% for UK customers.

Jain argues that as people seek inexpensive ways to enjoy themselves at home, entertainment brands like Netflix and Disney will see strong results as consumers seek ways to remain occupied at home. In short, Covid-19 consumers are redefining the meaning of ’essentials’.

“The fact that many cinema releases are going straight to TVOD will only help this, while household goods (furniture, household electronics, cleaning etc) will also remain strong, as consumers aim to improve their homes,” he adds.

Jain says that while personal care, FMCG and groceries will (as ever) emerge as strong verticals, the real challenge for all brands will be to improve their online presence and digital advertising efforts.

“Many categories can do well during this recession, but they must ensure they’re effectively targeting customers online.”

An opportunity to rewrite the rules

For Forrester’s Johnson, this is crucial. Brands need to home in on where their customers are now and what behaviors have changed, as well how will they evolve as the pandemic differs state to state, country to country.

“Be ready to dynamically adjust your media and adapt messaging,” he cautions.

“Look for flexible media terms and performance guarantees where possible so you can take some bets and be prepared to pivot if things change rapidly with the pandemic and the recession,” he says.

Agencies need to better align themselves too if they’re to help brands enable their digital transformations.

“Agencies should invest in digital and data capabilities as well as human and machine creative teams so they can be most effective for your clients when they are ready to invest and they call upon you to deliver,” Johnson concludes.