In an earnings call a couple of weeks ago (23 April), Unilever’s CFO committed to maintaining AdSpend during the current downturn.
Whilst this may appear counterintuitive to many companies, and particularly to CFOs, the reasons for Unilever’s move are commercially logical. So, let’s explore why this marketing powerhouse has made this commitment to spend through any downturn.
First Unilever knows that now is the time to take advantage of historically low media rates
Currently audiences are up around 40% and media rates are down by about 40%. This means media markets are currently presenting marketers with exceptional value and a chance to build brand equity quickly and cheaply.
But before we talk about media value, let’s spend a moment on AdStock. ‘AdStock’ is arguably the most important word in marketing investment yet many marketers outside the P&Gs and Unilevers either aren’t aware of it or don’t fully understand it.
AdStock is the carry over effect of an advertising campaign. A 90% TV AdStock means 90% of your awareness will carry over into the next week and 90% of that into the following week and so on in a slowly decaying pattern. But here’s the clincher; a GRP or awareness impact of 100 with a decay rate of 10% per week requires 43 weeks to fall to 1. So investing in GRPs now means you are buying futures in brand awareness for up to 43 weeks ahead – at a heavily discounted price. And what’s really interesting about these AdStock futures is that unlike financial futures, they are risk free. Unilever know that this stock of advertising reach, awareness and brand preference will continue to pay dividends over the next few months.
So, whilst Unilever is cutting back on production it looks like it’s committed to taking advantage of the current preferential rates in media markets.
Second, Unilever will know that recessions and downturns can increase consumer use of lower price products – and change perceptions of own label positively
The big danger for premium brands is that consumers switch to lower priced own-label brands during any downturn.
Following the 2007 recession, McKinsey found that 18% of consumers switched to lower priced brands [1]. Whilst brand owners might expect consumers to switch back to high price products when the recession ends, the experience of buying lower priced products means consumer attitudes to lower priced brands can change – in favour of own label. McKinsey’s research found that of the consumers who had trialled lower price brands, 46% said they had performed better than expected and more worryingly for premium brands, 34% said they no longer preferred higher priced products.
Unilever will know that they have to counter this effect to protect market share in the future.
Third, Unilever knows that category brand positions can adjust and change in times of crisis.
Category brand positions are more likely to change in a recession than in times of relative stability.
In 2009 Domino’s was not the most popular pizza in the US. When the recession started to bite Domino’s invested in new recipes, research and advertising. The result was that Domino’s was catapulted into the top of the category. Earlier, in the 1991 recession Pizza Hut and Taco Bell took advantage of McDonald’s decision to drop its advertising and promotion budget. As a result, Pizza Hut increased sales by 61%, Taco Bell sales grew by 40% while McDonald’s sales declined by 28% [2]. In the 1970s oil crisis Toyota decided to continue advertising support for its cars whilst Honda and Nissan cut back. The effect of this move was not only to push Toyota’s sales ahead of its Japanese rivals in the US but it also nudged Toyota ahead of VW. By 1976, Toyota was the US’s leading imported car brand.
Even earlier than that, immediately prior to the great American depression the leading cereal brand was Post. You know, that cereal brand you’ve never heard of. Before the recession Post was a strong brand. It also had a smaller competitor called Kellogg’s.
Just before the 1929 crash, founder Will Kellogg had all the plans and copy for Kellogg’s advertising in 1930 prepared. In the autumn of 1929 Kellogg went on holiday but received a call from company president Lewis Brown recommending that ad budgets cancelled because of the stock market crash. Kellogg’s response was “I don’t think we’ll cancel our advertising now. In fact we might even increase it”. Kellogg’s earnings for 1929, 1930 and 1931 set new records [3].
But more than this, the category was redefined by Kelloggs’ action and Post’s inaction for almost 100 years and still counting.
And fourth, Unilever marketers will know that if you’re not in the market when recovery comes, it’s going to take longer to regain lost ground.
As tempting as it may be to go quiet, current media deflation means there will inevitably be high media inflation in the near future.
Media owners will want to end the year with as little damage as possible. If they’re down 30 in April and May they will be looking to claw as much of that back as they can when demand returns – that means they will harden their pricing in the next two quarters. Those advertisers who stayed in the market will have a stronger negotiation position – whilst those who stayed out could be punished from a commercial perspective.
Summary
According to research by Bain, ‘playing offense almost always trumps hunkering down or weathering through’. And more than this, Bain’s research showed that ‘winners in a downturn make more dramatic gains than winners do during boom times [4].
When we look at advertising and marketing we can see that marketers are living in a times of risk, but they are also living times of opportunity; the opportunity to get ahead faster than during boom times. And from a brand communications perspective, the current unique situation provides opportunities to build and strengthen brand position through growing audiences, falling media rates and dynamic category structures. Coronavirus it seems is presenting us with threats and opportunities at the same time.
- McKinsey ‘How the recession has changed US consumer behaviour’ December 2009
- Forbes.com ‘When a recession comes don’t stop advertising’ September 2019
- History of the Kellogg Company (unpublished) 1948, quoted from Simon Broadbent ‘The advertising budget’ NTC 1989
- Bain & Co ‘Using the next recession to change the game’ October 2018.