We live in interesting times: Faris Yakob explores the tensions facing brands and advertising as consumers start to feel the pinch.
There is an English expression, apocryphally dubbed an ancient Chinese curse, that says “may you live in interesting times”. Despite its inaccurate providence, it conveys a certain kind of truth. Specifically that, as Brecht wrote, “unhappy is the land that needs a hero” because interesting times are not what you want to live in. Times of peace and tranquility are uninteresting and if a land needs a hero, or a ‘strong man’ leader, it’s because the society is not functioning properly.
Since the age of people in agencies skews young, the majority of people in the industry will not have worked through ‘interesting times’ like the ones we are about to experience. The last recession was in 2008 and the average age of an agency employee is 37. The last time things like a general strike were being discussed or inflation was above 10% (according to Citibank it may reach 19% in the UK by January, which is higher than Ukraine’s) was in the 1970s.
This is where the industry’s youthfulness becomes an obvious weakness, in the same way that investors who started after 2008 and rode the longest bull market in history find themselves suddenly out of their depth as the stock market crashes.
There is well-established advice from the advertising industry about how to weather a recession. The IPA recently ran an advertisement with this proposition in the Financial Times, to remind our paymasters that there are consequences for considering advertising budgets a cost to be cut rather than an investment in the long-term health of the business and, by extension, the economy. The ad reads “Come back in a year and tell us if cutting your budget was a good idea. Brands can help in a cost of living crisis by cutting their budgets. Wrong. We have more than 40 years of evidence that a short-term reaction is never as effective as long-term investment.”
Our newest ad ran in the @FinancialTimes last week, warning against marketing budget cuts and it started quite the discussion.— Institute of Practitioners in Advertising (IPA) (@The_IPA) August 23, 2022
Do you think companies will regret cutting marketing budgets? pic.twitter.com/Qgbcrwxc0H
This is well documented and makes intuitive sense. If advertising works and excess share of voice drives growth (spending more in media than your equivalent market share) then spending when other companies cut their budgets gives you more share for the same money (although the media market, especially television, is experiencing significant price inflation too). This, of course, means that the biggest companies with the deepest pockets will do disproportionately well during and after recessions because they are able to maintain investment when smaller competitors cannot.
There are countervailing points of view, one of which comes from the British government. They announced that they would be running an advertising campaign aimed at getting businesses to divert marketing spend into cutting prices in order to help mitigate the cost-of-living crisis. (This hasn’t materialized as yet, the government seems somewhat preoccupied). Obvious irony of advertising to tell companies not to advertise aside, the government said they would provide no funding to help brands lower costs, which was called a ‘slap in the face’ by the Federation of Small Businesses, because only the biggest companies will be able to keep investing when there is significant inflation across supply chains.
What to do? This is not a simple problem. The economic value of brands, that long term appreciation we know from Binet and Fields’ most famous chart, is based on the ability to create price inelasticity of demand. That means you can charge more for the same product because of the investment in brand over the long term, creating webs of associations that drive salience, cognitive fluency, or ‘mental availability’ if you prefer, at specific buying occasions that function as heuristics to simplify the endless mind-numbing decisions that every supermarket excursion or Amazon experience now entails. Brands are a hedge against inflation.
We live in interesting times. The most recent data suggests that 40% or more of households in the UK will experience fuel poverty this winter, which means choosing between food or heat for their families. This is despite energy companies making record profits and announcing massive share buybacks along with bonuses for their executives. The CEO of Scottish Power said that “come October [it’s] going to get horrific, truly horrific. It has got to a stage now where the size and scale of it is beyond what I can deal with, beyond what I think this industry can deal with. I think it needs a massive shift, a significant shift in the government policy and approach towards this.” I doubt he meant an advertising campaign asking companies to stop advertising.
Every ad on television in the UK is now being adapted to allude to the cost-of-living crisis. Meanwhile, use of food banks has skyrocketed and research from the Food Standards Agency shows that more than 3/4 of people in the UK are concerned about being able to feed their families. More than 1/5 had skipped meals because they couldn’t afford food. Common company responses to inflationary costs are shrinkflation, where the size of the product is reduced without reducing the price to maintain margins, or increasing prices by leveraging their brand investment to pass along cost increases to consumers, causing consumer price inflation when people can least afford it.
That said, I doubt that consumers will warmly welcome the slew of expensively produced advertising we have come to expect during the festive season in their cold homes but might appreciate any assistance that corporations can provide. Perhaps rather than giving billions back to shareholders they might consider increasing salaries of their employees. Research from Reach Solutions indicated that 58% of the UK believe brands should help consumers through this crisis. Corporate actions speak louder than advertising when so many will be forced to choose between heat and food this winter.