Why the Government's call for marketing cuts is wrong

Diverting marketing budgets to hold down prices artificially will damage businesses' future ability to grow.

When consumers are reassessing spending is exactly when you need to keep reminding them of your brand and make them feel happy to pay a bit more for it by investing in memorable, creative, entertaining and reassuring advertising.

Businesses are right to pay attention to the impact of the rising cost of living on their consumers, and pricing strategy will form part of any effective marketer's response.

But, as IPA Director General Paul Bainsfair has recently asserted: “Diverting marketing budgets to hold down prices artificially at a time of inflationary supply side costs and weakening consumer demand – as a reported Government-funded campaign will encourage UK companies to do – would at best result in short-term switching between promoted products at the cost of damaging the long-term growth of brands, businesses, and our economy as a whole.”

The weight of evidence shows that brands that artificially cut prices for a temporary promotion mainly attract 'deal hunters', who at the end of any promotional period, move to another price-promoted product. Over time, price promotions undermine both sales and profit growth. During times of low consumer confidence, research suggests that artificial price promotions are even less effective, as consumers are more annoyed when normal pricing is restored.

Look at the experience of Aldi, the value supermarket that no-one could accuse of ignoring the importance of competitive pricing. 

In the 2008-9 recession, when Tesco and other supermarkets started advertising their own low cost ranges price matched to Aldi's, Aldi's growth dwindled.  It was only when Aldi began consistently investing in creating a distinct brand, through a decade of entertaining advertising such as the 'Like Brands' and 'Kevin the Carrot' campaigns, that Aldi began to increase its UK market share and profits seriously.

You could as easily point to the experience of rival discount retailer Lidl, which has been on a similar long-term trajectory of investing in brand building, or brands as different as Wagamama, DFS, Weetabix, and Cathedral City cheese. IPA Effectiveness Award winning cases by these and many other brands have demonstrated that investment in effective advertising is an engine of sustainable business growth that cannot be attained by price cutting.

Why else would Diageo, a publicly listed company that has to justify its budgets to shareholders and market analysts, have increased its marketing investment by more than a third between 2016 and 2021? 

Investment in advertising also helped build Just Eat, the former employer of David Buttress, the Government's cost of living tsar who is now advocating marketing budgets cuts, and many of the other digitally-led growth businesses that have become part of consumers' lives in recent years. 

When consumers are reassessing spending is exactly when you need to keep reminding them of your brand and make them feel happy to pay a bit more for it by investing in memorable, creative, entertaining and reassuring advertising. 

As Harvard Business Review has written, "Worried consumers—even in the comfortably well-off and live-for-today segments—see familiar, trusted brands and products as a safe and comforting choice in trying times."

As Analytic Partners, a partner in the IPA EffWorks programme, argues, "In times of crisis, research shows that slashing marketing budgets hurts brands more than it helps. Rather than defaulting to austerity policies informed by panic, brands should protect and recalibrate their media investments, test recession-adjusted messaging tactics, and use analytics to strategically allocate resources to build their brands in the short and long term." 

It is during consumer downturns that evidence-driven marketers will hope to steal customers away by making their brands more appealing and visible, and by taking advantage of better value media rates to make their voices sound louder when others are going quiet. 

With recession looming, we must not forget that the IPA's evidence shows that brands that increased their marketing spend when others cut theirs as markets entered a downturn, have historically grown their profits and sales faster when markets recovered. And markets do always recover - no matter how bleak the outlook sometimes seems.

You can read more of the evidence of how and why brand advertising helps businesses grow.

The current economic situation is being driven by the surging cost of numerous business inputs - from energy costs to ingredient shortages and supply chain prices.

Businesses are also contending with a variety of other rising costs – from business rates to wages, rents and taxes – which directly influence their cost bases. 

There are plenty of alternative areas in which a Government-appointed cost of living guru could look to make savings for businesses, and by extension, help them readjust their cost base sustainably. It should not be advocating a short-term cost-cutting tactic, which will only endanger the growth of businesses on which, ultimately, all of us rely for our future prosperity.

 

Last updated 14 July 2022