Conventional wisdom around cutting marketing spend at the first sign of a recession is wrong
Grzegorz Blazewicz
Salesmanago Founder & Board Member, Entrepreneur, Advisor, Investor.
Ayrton Senna once said: “You cannot overtake 15 cars in sunny weather... but you can when it's raining.” It looks like we are finally getting more proof for that in the marketing space. The question now is who/ what now will replace marketing cuts with looming recession.
I would appreciate if you shared your thoughts in the comments where you think is best to start optimizing eCommerce business, where to cut costs what strategies to take when the world gets uncertain and challenging.
And enjoy the rest of this biweekly eCommerce news summary and have a reasonably good day :)
How to Maintain Advertising Effectiveness in Challenging Times found that 60% of brands that increased their media investment during the last recession saw ROI improvements, according to analyses of hundreds of billions in marketing spend. Brands that increased paid advertising also saw a 17% rise in incremental sales, while those who slashed spend risked losing 15% of their business to competitors who boosted theirs.
"The best way to get through a possible recession and prosper on the other side of it is to think long term by investing in your brand and your relationships with customers.” - Mike Menkes, SVP at Analytic Partners
Increased media and marketing investment during the last recession caused ROI improvements and increases to incremental sales. In addition, those brands that increased marketing spend saw ROI growth in back-to-back years. More than half (60%) of brands that increased media investment during the last recession saw ROI improvements, according to the latest ROI Genome Intelligence Report by marketing intelligence provider Analytic Partners. While brands that increased paid advertising saw a 17% rise in incremental sales, those that cut spending risked losing 15% of business to competitors that boosted their spending.
In 2021, worldwide ecommerce sales growth dropped to a still-healthy 17.1%. In 2022, however, the deceleration will be severe. It is estimated just 9.7% growth this year. The good news is that the rapid deceleration in ecommerce growth should tail off after this year. It is expected that a slightly healthier global economy in 2023 will lead to a very mild rebound, after which growth should remain in the high single digits for several years. Ecommerce will account for almost a fifth of total retail sales in 2022, an all-time high. However, this figure continues to be skewed by China, where an outsize 45.3% of retail sales will be transacted digitally. If we exclude that megamarket, ecommerce’s share of retail around the rest of the world will be 12.5%.
More than half of U.S. consumers (51%) say they’d be less loyal to a brand if the digital experience isn’t as enjoyable as in-person, according to PwC’s Customer Loyalty Survey 2022. For Gen Z, that number soared to 69%. Younger consumers are less loyal. Thirty-two percent of Gen Z stopped using a brand in the last year. This is compared to 27% for Millennials, 31% for Gen X and only 19% for Boomers. Across all industries, bad experiences with products and services (37%) and bad customer service (32%) were the top two reasons for dropping a brand. Also, 15% said they liked another brand’s experience better, and that was the reason they left.
Southeast Asia is home to the three fastest-growing ecommerce markets in the world. This year, Singapore will post 36.0% digital sales growth, while Indonesia will see an increase of 34.0% and the Philippines, 25.9%. India, Indonesia, and Brazil—the three largest on the list—will collectively generate about $230 billion in retail ecommerce sales this year, nearly double the rest of the top 10 combined.
Nearly a quarter of brands increased their marketing spend in the second quarter of 2022 despite building economic uncertainty, showing their intent to “market aggressively” through this tumultuous period. Some 24.2% of surveyed companies increased their spend versus 13.4% registering budget cuts, resulting in a net balance of 10.8%. Events marketing was the strongest performing category by some way in Q2, and a key driver of total growth. A net balance of 22.2% of companies increased budget for events in the second quarter of 2022, up from 18.7% last quarter, as brands look to host face-to-face activity now lockdown restrictions have eased.
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Online research has become an integral part of the consumer purchase journey today. A recent study by Amazon Ads brings to light key consumer search trends observed during 2021. The study highlights 4 key trends observed in terms of consumer searches on Amazon.in: a) surge in online product search; b) new passions replacing old ones; c) changing nature of search terms; d) rise of voice and vernacular.
Almost half of online fashion consumers use direct load (where they don’t search but type in the url or website name). Because consumers go directly to a site, no amount of google ad words or search engine optimization will reach them. Even before a brand starts looking for new customers, almost half the market is unavailable. Even if a brand gets a consumer to type in the url, there’s only have a 3% chance that a sale will happen. Over 80% of online fashion consumers are shopping on a mobile device. Even if a brand attracts a consumer to shop on their site, the consumer is most likely distracted because they're doing something else while they're shopping. The data say that fashion consumers on mobile spend almost 20% less time shopping compared to desktop users. They also look at fewer pages and spend less than on desktop, about 30% less, and they order fewer items.
According to Cheetah Digital’s recently published 2022 Digital Consumer Trends Index, even the 76% of UK consumers who define themselves as loyal to certain brands say they’d still buy from competitors if it was cheaper or more convenient to do so. 70% of UK consumers who frequently buy from the same company say they’re not necessarily loyal to the company. These are the things UK consumers say brands can offer in exchange for their loyalty: recognition, rewards points, exclusive/early Access, personalized recommendations, discounts, contests and community features.
New study by Invoca finds as inflation increases, so do the expectations for the customer experience, making it a make-or-break moment for brands when it comes to earning customer loyalty. Over three-quarters of respondents (76%) said they would stop doing business with a company after just one bad experience. In comparison, 63% said they will still pay more for great customer service. 58% are slightly less likely or much less likely to purchase at all due to inflation. Rising prices have not significantly slowed consumer demand for products and services, but they have increased their demand for superior customer service.
CPG brands cutting quantity or quality to bolster earnings are enraging customers. Nearly two-thirds of customers (62%) say they’ll stop buying from brands who do this, according to a new Gartner report. More than half of consumers (56%) reported seeing instances of shrinkflation (reducing size or quantity of packaged goods without reducing the price) in food and groceries. Skimpflation (using cheaper ingredients or components) was most prevalent in apparel and footwear, with 17% saying they noticed a drop in quality.
New data released reveals that 75% of US and UK consumers are not comfortable purchasing from a brand with poor personal data ethics. The three-quarters of consumers (74%) are concerned about brands being able to view and track their online behaviour to target them with advertising. This lack of trust and knowledge in how their data is being used results in consumers opting out of advertising at increasing rates. If given a choice, 42% of consumers would not share any personal data online with advertisers, and 51% would like to choose the types of personal data to share online with advertisers.
Currently, 70% of consumers reported receiving mistargeted information from brands at least once a month and 24% say they receive mistargeted information daily. Consumers are willing to provide access to their data in exchange for better customer experiences. Half of the consumers surveyed (52%) want customer experiences with less transactional friction and an additional 30% want discounts and future promotions in exchange for their data. Yet, despite the willingness to share information, ongoing mistargeting of next best offers or next best actions by many brands antagonizes consumers expecting personalization. In the survey, 51% of consumers said it negatively impacts their overall customer experience with a brand when they receive mistargeted communications.
Best, Greg
Senior Account Executive at Fastspring
2yNice one Greg! Definetely, cutting marketing budget would not be the best option. I’d rather cut some of the costs and invest in a more cost efficient strategy such as affiliates. Since you only pay for advertising if and when the affiliates bring you a purchase it comes with great ROI and relative low marketing costs.
The SaaS Remarkability Architect | Turning 'Just Another SaaS' Into 'The Only Choice' | Author of The Remarkable Effect
2ySo true, Greg. In the process of writing my second book I had various CEOs/CMOs make the remark that 'next recession' they'd do everything to avoid the negative mid- to long term impact of freezing marketing budgets. Often it's done as an easy short-term measure, but then you realize that the negative effects far outweigh the short-term gains - across the entire business.