Education

Brand investment in times of crisis: “Time to go in for the kill”

By Gabriela Salinas

Global Managing Director, Brand Finance Institute

Wiston Churchill once said, “the farther back you can look, the farther forward you are likely to see.” It is key to understand that there are so many lessons buried in historic crises and we should have them present not to repeat the same mistakes other brands have incurred during past financial crises.

This is why, in this article, we will review some publications and studies that illustrate two lessons:

  • Link between brand investment and brand strength during crises
  • Link between brand strength and business performance during crises
  1. Link between brand investment and brand strength during crises

During times of crisis, many companies resort to systematic marketing spend cuts, without considering the long-term consequences of this action.

The current crisis is no exception. According to an IAB suvery (IAB, 2020), “nearly a quarter (24%) of respondents have paused all advertising spend for the rest of Q1 & Q2.”

But what we are really interested in exploring is why companies systematically cut their investment in Communication at times like this. We can think of many reasons, but I think we can highlight five key reasons that explain this behaviour:

  • Because it´s easier to cut the marketing budget than firing people, for example.
  • Because brands are not considered as long-term assets that require continuous investment to protect their value.
  • Because it is wrongly believed that, after “going dark”, marketing investment can be increased again without any long-term harm. In reality, the problem is that the long-term effect that these cuts can have is not understood.
  • Because, generally, the key communication performance metrics (if any used at all) are not linked to value creation. If the metrics of the marketing measurement system do not explain the profitability of the investments, it is very difficult to justify why the investment should be maintained in times of crisis.

But academic and empirical evidence shows that crises represent the ideal time to take advantage of opportunities in a market in which most competitors are cutting back.

Peter Field (2008) analyzed 880 companies from the IPA database and showed that brands that increase their Share Of Voice (during recessions and boom periods) are more likely to increase their market share. The short-term benefits of reducing budgets in a recession were offset by the drop in long-term profitability (which was most acute after the third year of reduction).

But while some companies cut down on their marketing spend, others have historically gone in for the kill and took the opportunity “steal market share” during financial crises. A.G. Lafley, ex CEO of Procter & Gamble, used to say that at P&G they had “a philosophy and a strategy: when times are tough, we build market share.”

The Drum has recently reported that P&G have committed to continue investing in communications to retain the “mental availability” of its brands (Deighton, 2020). Increased media consumption creates an opportunity to “double down” on brand visibility.

So, the first lesson learned from past crises: maintaining or increasing advertising investment during a recession, increases market share during the recession and the profitability in the long run.

  1. Link between brand strength and business performance during crises

Brand Finance conducted an analysis of the brands that had been most affected during the 2008 crisis in terms of negative impact n brand value (see Figure 1).

Figure 1. Sector Performance During the 2008 Financial Crisis

Source: Brand Finance

Within these sectors, not all brands performed equally. Our analysis reveals that during past crises, stronger brands are consistent winners during a recession (see Figure 2).

In addition to measuring overall brand value, and to understand brand resilience through crises, Brand Finance also evaluates the relative strength of brands, based on factors such as marketing investment, familiarity, loyalty, staff satisfaction, and corporate reputation. Alongside revenue forecasts, brand strength is a crucial driver of brand value. Brand Finance has tracked how brand values have fluctuated during the three major economic downturns experienced in 2009, 2012, and 2016.

 

The key take away of this long-term analysis is that strong brands, as measured by Brand Finance, perform better during crises, across all sectors. Considering brand strength, over the period from 2008 to 2019, the Consistent 100 Fallers have average Brand Strength Index (BSI) scores of 66 while the Consistent 100 Winners have average BSI scores of 72.

Figure 2. Average Brand Strength of Consistent Winners and Fallers in Time of Crisis

Source: Brand Finance

Two key learnings

En definitiva, invertir en comunicación (entendida en un sentido amplio, no sólo como inversion publicitaria) es rentable, porque aunque pueda impactar negativamente la rentabilidad a corto plazo, incrementa la fortaleza de marca, y de este modo, impacta positivamente la rentabilidad de largo plazo. El mecanismo es simple: invertir en marca incrementa la fortaleza de marca, y la fortaleza de marca está positivamente relacionada con el desempeño financiero de las compañías.

In short, investing in communication (understood in a broad sense, not only as an advertising investment) is profitable. Although it may negatively impact profitability in the short term, it increases brand strength, and thus, positively impacts profitability in the long term. The mechanism is simple: investing in marketing increases brand strength, and brand strength is positively related to the financial performance of companies.

As The Economist recommended back in the 2008 crisis, “it is time to go in for the kill.”

About the author

Gabriela Salinas es Global Managing Director of the Brand Finance Institute. Gabriela is a Global Managing Director of the Brand Finance Institute. She has a broad international experience, having worked for clients such as Bank of America, Repsol, YPF, Telefónica, Terra Networks, Bausch & Lomb, Johnson & Johnson, Roca, GM, Great Eastern Life. In addition to her everyday work, she lectures on Brand Valuation, Management and Strategy at several business schools in Europe and Latin America. Gabriela has written numerous academic articles and books on brand valuation, among others: “Brand Valuation: a review of approaches, providers and methodologies” (2007, Deusto, Spain), “Brand Valuation: measuring to create value” (2008, Deusto, Spain) and “The International Brand Valuation Manual” (2009, Wiley, United Kingdom).

 

References

 

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