Recessions bring out the worst panic reactions in business decision-making, from stopping new product launches to cutting investment in R&D and marketing communication. During downturns, product leaders must balance efforts to pare costs and shore up short-term sales against long-term investments. So, how do you successfully market your product in a recession? Northeastern University Distinguished Professor Koen Pauwels shares knowledge on best practices for marketing in a recession.
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On how to change your marketing in a recession
Most marketers, when marketing in a recession, think that they need to cut new product launches and ad spending and increase price reductions. Or, they want to increase the R&D budget and share of voice and maintain price discipline. But who is right? Koen says they are both wrong! It depends on your situation! Here are some questions to ask yourself when marketing in a recession.
IT DEPENDS ON YOUR SITUATION!
- How much will your sales be affected by the recession?
- How much will your margin be affected by the recession?
- How will your marketing effectiveness change?
IT DEPENDS ON RECESSION DEPTH AND TIMING:
- How deep will this recession be?
- Will your new product launch at the start or end of the recession?
On to launch or not to launch in a recession
Through Koen’s research, he found that products launched in a recession had more overall success than products launched during boom periods. So, there is a lot of potential! But when marketing in a recession it’s important to remember that your success depends on your situation. You must ask yourself important questions about your product and your brand. These are some questions to ask yourself when launching products in a recession:
- How much will your sales be affected by the recession?
- How much will your margin be affected by the recession?
- How will your marketing effectiveness change?
- How will your competitors adjust their marketing?
- What’s your brand offer’s appeal and can you increase it?
On the optimal budget for marketing in a recession
What if there was a formula for creating the perfect budget for marketing in a recession? Good news! Koen has come up with a formula that allows you to determine your spending budget. He has also outlined some rules to follow when marketing in a recession. Check out this formula for success and the rules to follow:
Gross margin * elasticity (% sales increase for a 1% marketing increase) = Unit margin * expected sales * elasticity
- Rule: spend less in a recession UNLESS your elasticity goes up
- Rule: spend less in a recession UNLESS your elasticity goes up
- Spend less when lower unit margin, as typical in a recession
- Spend less when lower expected sales, as typical in a recession
Why may you obtain a higher elasticity in recessions?
- Higher response due to low clutter (competitors cut back)
- Lower cost due to less competition for ad space
- Your value offer has particular appeal, or you can increase it
About the speaker
Koen Pauwels is a Distinguished Professor at Northeastern University and co-director of its Digital, Analytics, Technology, and Automation (DATA) Initiative. Named a worldwide top 2% scientist, Koen published dozens of award-winning articles on marketing effectiveness and five books on marketing analytics and digital transformation. As Principal Research Scientist at Amazon Ads, Koen turns data into advice for hundreds of thousands of advertisers.