This story was originally published in the Winter 2023 issue of strategy.

By Will Novosedlik

There is widespread agreement among economists that we are headed for a recession in 2023.

What will that look like? BMO chief economist Douglas Porter says the coming recession will likely see the Canadian economy depressed for a year and a half. Common wisdom says that the Bank of Canada will likely raise its rate to 4% by the end of the year. RBC economist Claire Fan predicts unemployment will reach 6.6% in 2023.

We’ve been to this movie before. These sorts of downturns tend to happen every seven to 10 years or so. But, each time, the same questions come up, as if it’s never happened before: Should I pull back on brand spend and focus on pricing and promotion? Should I change up my marketing mix? Should I reduce spending on campaigns and focus more on value propositions and product, distribution, customer service and CRM?

To get the answers to your burning questions, we enlisted the help of consultants, academics and marketers. Here, David Kincaid of Level5 Strategy, Peter Rodriguez of Brand Igniter, professor Ken Wong at Queen’s University and Nicole German, chief marketing and digital experience officer at Tangerine Bank, bestow their wisdom to deliver the 2023 version of how to get through a recession (mostly) unscathed.

Should I pivot from building brand to driving short-term sales?

This question gets asked every time we’re in a recession. Responses were unanimous: share of market (SOM) depends on share of voice (SOV). Wong refers to this as the Fundamental Theorem of Market Share. If your competitors are cutting back on SOV, they risk losing SOM, and getting it back when things improve is a lot harder than if you had kept up your SOV through the downturn.

Rodriguez cites the classic example of Wrigley’s gum. Legend has it that in the 1907 recession, instead of cutting back on marketing spend, Wrigley’s increased it to take advantage of low ad rates, while its competitors pulled back. It not only gained SOM at the expense of its competitors; it became and remained market leader for years afterwards.

Wong turns to a less folksy source in the form of a Harvard Business Review article (“Roaring out of Recession,” from March 2010) which found that 40% of firms cease to exist (due to mergers, acquisitions, bankruptcies, etc.) three years after a recession hits. Most have cut prices and/or marketing. Those that increased their SOV grew sales and profits about 20% more than the average.

Firms that first did process reviews and then used the savings to “finance” price cuts or marketing efforts grew sales and profits 50% to 100% more than the average. For German, that means budgets may be reduced overall to balance expenses, but it’s critical to remain visible and stay connected with your customer.

Kincaid notes that, though you should not stop investing in your brand during a recession, how you do it needs to be examined. He recounts how, when working in his first marketing role at General Mills during the 1982 recession, the brand was siloed into product segments: cereal, coffee and juice were marketed separately. Then someone – in operations, not marketing – had the bright idea to bundle them according to usage occasion. They called it “Breakfestival.” By combining these products and merchandising them together, marketing spend was optimized, allowing price reductions on the individual components. It was a success.

The lesson? Never let a good crisis get in the way of an innovative solution.

Should I rebalance my marketing mix (brand versus promo)?

“If you can show your CFO how much reducing brand awareness will reduce your place in the consideration set over the next three years, they may agree that spending cuts shouldn’t be so deep.”
-Peter Rodriguez, Brand Igniter

The classic blend of 70/30 or 60/40 for brand-versus-promotion has proven effective over time. But Rodriguez advises that in a downturn, you need to reconsider your marketing mix modelling by asking: “Do I understand how much volume my mass media is driving? Or my trade investment? Or my temporary price reduction? What about my digital?” He says that all these elements have a specific impact on demand creation, and the first thing to be done as you head into recession is to calibrate how much gets allocated to each area – and recalibrate accordingly.

Nicole German concurs. “Traditional ratios will be challenged as marketing budgets shrink,” she says. “Marketers should invest in their most efficient and effective channels to drive funnel performance. New platforms are also emerging – such as Twitch, Snap, metaverse, connected TV – enabling more competition amongst ad platforms and more opportunity for marketers to pilot new data-driven approaches to add to their media strategy.”

What can I do to ensure I’m making more effective spending decisions?

“Using a customer data platform to consolidate data across all verticals will enable marketers to adjust messaging based on real-time client triggers and campaign performance.”
-Nicole German, chief marketing and digital officer at Tangerine Bank

Tighter budgets mean CMOs have to dig deeper into their data to find important correlations and insights. They need to understand not just the outcome, but the cause. To do that, they should engage finance in the analysis of their sales data, total marketing budget and marketing performance to uncover historical correlations between marketing investment, revenue growth and optimal budget allocation.

“These are the best conversations you can have,” says Rodriguez. “It’s not just a collection of ideas; it needs a financial rationale behind it.” He calls it evidence-based marketing. “If, for instance, you can show your CFO how much reducing brand awareness will reduce your place in the consideration set over the next three years, they may agree that spending cuts shouldn’t be so deep.”

Wong agrees that the CEO and CFO tend to talk the language of finance, so it is vital that marketers understand the kinds of arguments needed to support their plans and budgets. But he cautions marketers that while finance can help analyze and digest the numbers, marketing must never give up its responsibility to identify the metrics or to model customer behaviour. To do otherwise is to make customer considerations a secondary priority.

German extends the argument to include data. To sharpen both targeting and attribution, marketing and data teams need to connect first-party data to marketing platforms in real-time. “Using a customer data platform to consolidate data across all verticals,” explains German, “will enable marketers to adjust messaging based on real-time client triggers and campaign performance.” Just as maintaining share of voice during a recession ensures that your business will thrive after it’s over, tracking and responding to recessionary customer behaviour is critical to customer retention and long-term profit.

This, combined with a close eye on changing market conditions and client sentiment, enables marketers to be relevant and more agile with market messaging. These tools will direct spend where consumer demand is, creating a more efficient platform driven by marketing channel performance. Says German, “As pressure on marketing funds mounts, implementation and adoption will accelerate.”

Should I reduce spending on campaigns and focus more on value propositions and customer retention levers?

German believes that a strong connection to your existing customer base is very important to ensure the end-to-end customer lifecycle is optimized. “For example, clients may be seeking more high touch advice as opposed to adding new services,” she says. “Recessionary times can drive people back to basics. Marketing must be nimble and agile enough to shift channels and service the changing needs of the client.”

Kincaid agrees. “You’ve got to continue to invest in the development of insight about the changing consumer. Some people call that research, but I don’t like using that word because a lot of research today is just tracking. If I had a dollar to spend, I’d get rid of my measurement and I’d spend it on understanding how the consumer and her unmet needs are changing.”

“Marketing is the connection between our customers and our brands,” asserts German. “Riding alongside them no matter what they are going through is what differentiates great brands. Expenditures should be managed to ensure that strategies are in place to meet what’s happening in the everyday lives of consumers.”

She goes on to say that at Tangerine, being “client-centric” means leaning into purpose and empathy to help guide innovation. “Leading through empathy helps you see beyond the numbers to what your clients are really going through,” she adds.

In a recession, should brands be more pragmatic and less concerned with “purpose”?

“Your brand is an asset. If you don’t invest in that asset, its value will decrease over time.”
-David Kincaid, Level5 Strategy

“Purpose-driven companies do better than most. This has been researched,” says Wong. “However, one can’t assume that all companies, products or markets are equally responsive. It’s important to remember that spending to promote a purpose or cause is ultimately paid for by the customer. So the real question is: are customers in a recession willing to subsidize a cause, or would they prefer those funds be allotted to something that more directly benefits them?

“I don’t think you can generalize because not all causes are created equally – nor are all customers. Wealthier ones may be more open to funding purpose-driven campaigns because they can afford it, while younger consumers seem to operate more from a place of social consciousness. It stands to reason that ROI on purpose-based campaigns is highest when the supporters of the purpose mirror the firm’s target market.”

At the end of the day, it seems clear that, while there needs to be sharper fiscal discipline to get through a recession, it’s dangerous to stop investing in your brand. Kincaid sums it up best: “Your brand is an asset. If you don’t invest in that asset, its value will decrease over time.”