WARC Data's Managing Editor delves into the story behind the impact COVID-19 is having on advertising spending and consumer purchasing – with FMCG an area key to the full picture.
Marketing in the COVID-19 crisis
This article is part of a special WARC Snapshot focused on enabling brand marketers to re-strategise amid the unprecedented disruption caused by the novel coronavirus outbreak.
A month ago, I wrote about the ways in which the spread of COVID-19 would impact media planning and presented three scenarios for strategists to consider. Much has happened since.
A severe advertising recession is now all but certain in the first half of this year. The current consensus is that we will experience a ‘V’ shaped recovery, with spend returning in the second half of 2020 after sharp reductions in the first – the base scenario we offered in February’s note.
But this is not a given. IAB research suggests that the majority (67%) of US buyers are still to determine budgets for the final six months of 2020. A quarter are committed, though, with investment among these rising by as much at 88% versus previous plans.
MAGNA Global has downgraded its US forecasts for 2020 to -2.8% (from an original +6.6%), equivalent to a $6.7bn loss per WARC’s monitoring. All media are expected to record declines bar internet, which has had growth cut to +3.9% from an original projection of +11.4%.
This too may prove optimistic; the IAB survey shows paid search investment – 25.5% of the total US market – could fall by 30% in March/April, with online video down by 37% and social media a third.
Where possible, money is currently moving into targeted advertising on connected TVs, and is supporting mission-based or cause-related messaging. It is being drawn away from direct buys from premium publishers.
These trends are playing out worldwide, and it is not inconceivable that the likes of Alphabet, Baidu and Facebook will record their first ever falls in ad income when results are released this month – digital channels are often the easiest to switch off owing to shorter lead times. These platforms also rely heavily on SMEs which are overly-exposed to economic shocks which explains, in part, why Facebook is now offering these companies free ad credits.
It is interesting to note that this is happening at a time when online platforms are recording some of the largest rises in usage; ad money ought to follow by normal conventions. The fact that it isn’t speaks to the turbulence brands and agencies themselves are facing.
The same picture can be seen in TV. Nielsen estimates a 60% rise in the amount of video content consumed globally but broadcasters are bracing markets for the worst. Pay TV players are at risk due to the suspension of live sports, but even free-to-air broadcasters, such as ITV in the UK, are seeing a material impact on bookings.
TV companies are somewhat shielded as booking are made well in advance, but three in four US marketers expect a negative impact on upcoming upfront spending; they anticipate an average fall of 20% versus initial plans.
Best practice during a recession
It took the global ad market eight years to recover from the last recession, after accounting for inflation and currency fluctuations. Search was the only ad format to record growth in 2009 – perhaps a signal of the perceived value of performance marketing in times of crisis.
In a landmark study, Les Binet and Peter Field found that the finance sector, which recorded some of the deepest cuts to ad investment during the global financial crisis, saw a major decline in ad effectiveness when shifting to short-term strategies.
Further, evidence from previous recessions shows longer periods off air will weaken brand health and damage market share due to a reduction in share of voice. Brands that focus on customer satisfaction fare better during recessionary periods. It is hard to recoup lost equity and share – the best way to ensure long term brand growth is to maintain advertising spend.
Be mindful, however, that this recession will be different, and that the usual advice may not apply. Lena Roland, Managing Editor for WARC Knowledge, offers practical guidance on how brands can navigate tough times and adapt to the unique circumstances they face today.
FMCG and the new normal
WARC Data’s latest Global Ad Trends report, published this week, focuses on how the COVID-19 outbreak is impacting the FMCG sector – one worth $97.2bn to media owners.
One in four consumers is now shopping more online due to COVID-19. Millennials (39%) are more likely to do so, followed by Gen X (25%), per GlobalWebIndex. A WARC analysis of Edge by Ascential data shows sharp rises in the sale of FMCG products on Amazon in the US and UK over the last few weeks, with volumes far exceeding both Amazon Prime Day and Black Friday.
In China, sales of face masks, oral mouthwash, snacks & confectionary and alcohol have more than doubled on Tmall, according to data from Yimian. The value of transactions across 14 key FMCG products rose by over a fifth (22.7%) year-on-year, to RMB74.1bn ($10.4bn).
The upshot of increased e-commerce activity is that online players may become more significant as the gatekeepers to FMCG shoppers. For the big manufacturers, this could increase the importance of DTC or subscription offers.
Aside from this, brand-building should still be a priority within the food and soft drinks verticals, as products are sold via third-party retailers and not directly to consumers. These sectors are arguably better-placed to weather the impending recession as shoppers continue to buy the essentials, as seen in 2009.
Consumers are divided on how brands should advertise at the moment; 37% believe they should continue as normal, though 28% feel campaigns need to change. For FMCG brands looking to shift their tone, re-positioning to prioritise social values can prove to be a valuable strategy.
The current downturn may not hit FMCG as hard as some sectors, but it is likely to be significant in terms of changing purchasing behaviour. Consumers are now ‘living a new normal’, and crisis-buying habits may well become permanent.