Don't cut your budget

By Lou Barrett | 15 November 2022
Lou Barrett, managing director national sales, News Corp Australia.

Lou Barrett, managing director national sales, News Corp Australia

The biggest question I’m being asked by clients across the country right now is a seemingly simple one: “How do I grow my business?”

It might seem underwhelming, but it’s the same question that's been on the minds of business owners for years; from the country’s biggest advertisers right down to the local businesses who engage with our community mastheads week in and week out.

While the question remains the same, the answer varies greatly, and right now the path to the future is particularly unclear. Six months of consecutive rate rises, everyday expenses hitting an all-time high and a hangover from the most disruptive global event in decades have prompted many Australians to have a pessimistic attitude toward our economy in the near future. Plummeting purchasing power has placed an extra eye on ROI for businesses, but that should not come at the cost of advertising.

Last month I attended AdWeek New York, where this topic was raised in a session named Finding the ROI Upside of an Economic Downturn. The panel – including representatives from Nielsen, Dell and Wavemaker – insisted that if we are to learn from past downturns, marketers need an effective plan for at least the next 18 months. It doesn’t include cutting budgets, but it does mean getting smarter.

While consumer spending patterns are shifting, it is a dangerous misstep to assume that means advertising your product is a waste of money. According to Finder’s Australian Household Spending statistics, the average household expenditure increased 6.5% from 2020 to 2021. Simply, this means increased competition for reduced spends, particularly in the largest four contributors to consumer expenses: rent/mortgages, food, recreation and culture, and insurance and financial services. 

When competition is increased, it is the worst time to stop communicating with your audience. Rather than reduce marketing budgets as consumers become more frugal, now is the time to increase your efforts to convince them your brand is essential to their lives.

The AdWeek panel indicated marketers are now equipped with a full-funnel set of data and tools to analyse their media spend and ensure they maximise impact and ROI of their initiatives, but their numbers suggested only 30% of marketers around the world are currently taking this into consideration. Doing this effectively means scrutinising spend across channels, investing in those that are most efficient and often focusing on marketing your baseline products, rather than relying solely on innovation, to return the most profit.

Consumers are still engaging with content, they are seeking guidance on how and where to save, with three quarters engaging weekly with cost of living content across our network. There is a clear opportunity to connect with these consumers, who will make up their minds before entering the supermarket or searching for your brand’s website. Brands must use these connections to create value in their products, in turn reducing risk of a loss in sales. 

For quite some time now, Professor Mark Ritson as well as British marketing academics Les Binet and Peter Field have made it clear that brands who sustain value-building marketing and increase investment in meaningful and significant innovation over the long term will capitalise when market conditions return to normal, while remaining a viable brand in the short term. This value is sourced through keeping your brand familiar with consumers in an uncertain environment, eliminating friction in the path to purchase for consumers, providing assurance through product guarantees and providing value solutions that make customers feel secure in spending on a certain product.

This logic hasn’t changed for two decades. In a 2002 study on the effect of advertising on sales, Thomas Kamber looked at advertising expenditure data matched with financial data for more than 822 firms over a six-year period including the 1990-92 recession.

He found that companies who sustained ad spend over this recession had five-year sales growth post-recession that was 25% higher than the companies that did not. The data also proved an increase in ad spend during the recession had a positive and statistically significant relationship to an increase in short-term sales, and importantly, that the relationship between advertising expenditure and sales growth is strongest during a recession and other times of economic turmoil.

It’s also crucial to point out that the current economic headwinds do not preclude a certain set of opportunities for those willing to spend. That is to say, consumers are spending differently, but that does not mean they’re not spending at all.

For example, our Newsamp cost of living study in partnership with Kantar – the world’s leading data, insights and consulting company – shows that grocery shoppers will cut back on perceived expensive ingredients and takeaway food. This makes sense, however, they are continuing to spend more on dining out and the experience it offers regardless of cost as a run on from the missed opportunities from the pandemic.

These examples of consumer willingness to splurge on experience-based items extends beyond food. The travel industry is burgeoning with over 50% of Australians intending to take a holiday in the next three months. Current economic pressures are less felt by youth travellers between the ages of 15 to 29, who are gearing up for the “trip of a lifetime” post-COVID.

Importantly for advertisers, that also counts for international travellers visiting Australia. Hospitality Trends USA indicates 72% of Gen Z plan to take on a huge trip over the next year, followed by 68% of Millennials. This is a category that, pre-COVID, represented 45% of all visitor spend and $20 billion to the Australian economy. News Corp Australia’s research with JUCY published earlier in the month shows a huge opportunity returning in this market.

The clear takeaway here, is that despite tumultuous conditions, those willing to brave the storm and continue engaging with consumers and create value through those engagements will always come out on top. Opportunities always exist for those advertisers willing to capitalise and even this market proves no exception.

For more insight, see the AdNews annual magazine due out later this month. 

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