Coca-Cola, the soft drinks manufacturer, is reducing its marketing activity in the face of COVID-19 due to concerns about consumer responsiveness and return on investment (ROI), but plans to “reengage when the timing is right”.
James Quincey, Coca-Cola’s chairman/CEO, discussed its careful scrutiny of capital expenditure during a quarterly conference call with investors.
“We're also being mindful about the right level of brand marketing and new product launches given the consumer mindset across markets,” he said.
For April to date, Coca-Cola’s global volume sales are down by around 25%, largely because of declines in out-of-home locations – like restaurants, sporting venues and convenience stores – which yield some 50% of its business.
Through the month of February, by way of comparison, volumes were up by 3% when excluding China, where the COVID-19 crisis exerted an early impact.
Negative shifts of this kind are causing Coca-Cola to trim its adspend – placing it in contrast to firms like Procter & Gamble, the packaged goods giant, which has made marketing a priority in light of robust sales.
Limited marketing effectiveness
A core driver of Coca-Cola’s marketing strategy pertains to the reduced impact of communications in nations that are still under lockdown as they grapple with COVID-19.
“We've developed and determined that, in this initial phase, there is limited effectiveness to broad-based brand marketing,” Quincey said.
Elaborating on this subject, John Murphy, Coca-Cola’s CFO, suggested the decision in favour of “pulling back on our marketing spend for now” is based on consumer insights and worries about return on investment alike.
“Staying close to our consumers in a relevant way is a key guiding principle, and staying disciplined to demand an appropriate ROI is a close second,” he said.
“We are taking a similar approach with our trade dollars. While much of that spend is managed by our bottlers in both our bottling investments and North America businesses this is an important area to effectively manage and be willing to reengineer.”
The loss of live events
Live events are a cornerstone of Coca-Cola’s brand strategy – not only from a sales perspective, but also as it is a sponsor of properties like the Olympic Games, which has been postponed from 2020 until 2021.
“I think that it's pretty clear that we're going to see a relatively limited … amount of large sporting events with audiences in the next couple of quarters,” Quincey said.
The Olympic Games are the biggest fixture on the 2020 calendar to have been pushed – and there is a “degree of fixed investment in the asset, in the sponsorship,” Quincey said.
“And we're talking to all our partners about how this disruption of the virus impact the assets, and what we can do together.”
The need for flexibility
Against a backdrop of uncertainty, Coca-Cola has been focused on “increasing the degree of flexibility and reprioritisation of all the marketing” and operating expenditure on its books, reported its CEO.
“The majority of the spend is largely in the activation of the marketing programs with the asset, and those tend to be variable cost media buys of one sort or another,” Quincey said, “or a marketing activation, where we can actually repurpose that money to other things.”
Adopting a strategy that can develop with evolving marketplace conditions is vital, reported Quincey, “because we just know which channels or events are going to open up when and potentially change from one day to the next.
“So, we're maximising flexibility. The good news is most of the marketing spend – the large majority of the marketing spend – is variable and we retain the opportunity to change our plans as we go through the year.”
A market-by-market approach
As Coca-Cola cuts back on its marketing output in the aggregate, the company is similarly leaving room for a nuanced approach in different markets as they progress along the COVID-19 curve.
“We've reduced our direct consumer communication we'll pause sizable marketing campaigns through the early stages of the crisis and reengage when the timing is right,” Quincey said.
“These plans will vary from market to market – with our earliest reengagement focusing on the recovery in China,” which was hit early by Coronavirus, and is now bouncing back.”
Sourced from WARC