Inflation forces brands to rethink their advertising spending

Be it oil, hous­es, pas­ta or cof­fee, the cost of liv­ing is going up.  Some com­pa­nies plan to cut their ad spend to push costs down – but is this a wise mon­ey-sav­ing mea­sure, or a false econ­o­my?

Infla­tion is now run­ning at 30-year highs, forc­ing com­pa­nies to either absorb increased costs and reduce their prof­it mar­gins, or raise their prices. As can be seen from the increase in costs of every­day items, many are opt­ing for the lat­ter, though it’s a risky move for brands when con­sumer spend­ing is being squeezed. 

How marketers are responding to inflation

What should mar­keters do dur­ing peri­ods of eco­nom­ic tur­moil? Reduc­ing ad spend is an option, though some view this as detri­men­tal over the long-term. Take Unilever, for exam­ple. As infla­tion hit 5.5% in Jan­u­ary, the com­pa­ny behind brands like Mar­mite, Mag­num and Dove com­mit­ted to main­tain its €7bn (about £5.8bn) in glob­al adver­tis­ing spend as it push­es through price ris­es. 

“We would cer­tain­ly not trim BMI [brand mar­ket­ing invest­ment] if we felt that it was going to com­pro­mise the health of our brands,” chief exec­u­tive Alan Jope told investors. Proc­ter & Gam­ble – which makes prod­ucts like Ariel, Gillette and Pam­pers – is also main­tain­ing its $8.2bn (around £6.2bn) world­wide ad spend as it increas­es the price of some prod­ucts. 

How­ev­er, cof­fee chain Star­bucks takes a dif­fer­ent view. It’s rais­ing the price of many of its prod­ucts despite a 31% rise in prof­its for the last three months of 2021, say­ing its prof­it mar­gins are under pres­sure from the effects of ris­ing costs. It will reduce adver­tis­ing and mar­ket­ing spend this year in response. 

City ana­lyst Ian Whit­tak­er works as a con­sul­tant at out­door ad com­pa­ny JCDe­caux. He thinks the right strat­e­gy is to invest. Brands need to trum­pet their qual­i­ty cre­den­tials and set out to per­suade peo­ple to pay extra for prod­ucts rather than switch to cheap­er, own-label alter­na­tives, he argues. Those that shrink pack sizes will need to restate their appeal with big­ger, bold­er adver­tis­ing cam­paigns. 

“If you look across the board at com­pa­nies, they are try­ing to push through sig­nif­i­cant price increas­es at the moment, in some cas­es quite healthy dou­ble-dig­it increas­es,” he says. “In order to get those price increas­es through, you have to per­suade con­sumers of the need to buy your par­tic­u­lar prod­uct.”

Why rising competition should make brands nervous

The rise of new com­peti­tors – often dig­i­tal – should also make com­pa­nies wary of cut­ting their ad spend.  From food deliv­ery brands like Getir and Goril­las to home deliv­ery meal kits, inter­net phar­ma­cies and online used car sell­ers, these star­tups are invest­ing heav­i­ly in adver­tis­ing, forc­ing incum­bents in a range of sec­tors to hit back with their own cam­paigns. 

A pow­er­ful exam­ple of the infla­tion­ary effect is the UK’s used car mar­ket, where prices rose 28% in the first 11 months of 2021, the high­est in Europe, accord­ing to INDICATA. Used cars are in high demand as new car pro­duc­tion falls due to a short­age of semi­con­duc­tors. This has dri­ven strong sales at online sec­ond-hand car brands like Cazoo and Cinch, which have been heavy adver­tis­ers over the past year.

Lucas Bergmans, brand mar­ket­ing direc­tor at Cazoo, says infla­tion hasn’t impact­ed the company’s adver­tis­ing strat­e­gy in the short term and that demand for used cars is strong, despite ris­ing prices. “We are a dis­rup­tive brand look­ing to trans­form how peo­ple buy cars, so our mes­sag­ing focus­es on explain­ing the ben­e­fits of buy­ing online from Cazoo rather than focus­ing on price,” he says.

How­ev­er, he wor­ries the infla­tion­ary envi­ron­ment could dam­age con­sumer con­fi­dence and make life tough for adver­tis­ers. “If infla­tion is here to stay, both in terms of con­sumer prices and media, we could see reduced con­sumer demand and high­er prices for adver­tis­ers to reach small­er audi­ences,” he says. “Adver­tis­ers will have to adapt their approach to main­tain return on invest­ment for their mar­ket­ing, both in terms of what chan­nels they invest in and how they evolve their mes­sag­ing and over­all offer­ing.”

Is the advertising industry really in trouble?

The out­look for adver­tis­ing spend­ing in the com­ing years is strong, accord­ing to fore­casts by media agency Zenith. The com­pa­ny fore­casts a 6.3% rise in UK ad spend to a record £29.5bn in 2022, fol­low­ing a 26.2% rise last year and a 3.2% decline in 2020. By 2024, total ad spend is pre­dict­ed to reach £32.4bn. 

This is part­ly down to start­up brands adver­tis­ing heav­i­ly, says Zenith head of fore­cast­ing Jonathan Barnard. It’s also due to the switch to dig­i­tal mar­ket­ing, which requires brands to adver­tise through­out the cus­tomer jour­ney, influ­enc­ing research and con­sid­er­a­tion, as well as final pur­chase. 

This height­ened inter­est in adver­tis­ing is lead­ing to media price infla­tion, mak­ing it more expen­sive to adver­tise. For exam­ple, air­time prices are ris­ing for com­mer­cial TV (up by 5% accord­ing to Zenith) despite a drop in view­ers, mak­ing it cost­lier to reach the same num­ber of eye­balls. 

How to make ad budgets go further

One response is sim­ply to spend more, says Charles Val­lance, chair­man and found­ing part­ner of the adver­tis­ing agency VCCP. But if that isn’t an option, there are more cre­ative ways to make your adver­tis­ing spend work hard.

“If you can’t spend more then the answer is to invest bet­ter in the fea­tures of your brand that real­ly cut through,” he says. He calls these fea­tures dis­tinc­tive brand assets (DBAs) and says they are “marketing’s new gold stan­dard”.

DBAs can be graph­ic, such as the blue and bub­bles of O2. They could be lin­guis­tic, as with Com­pare the Market’s ‘Simple’s’ line or a jin­gle like McDonald’s I’m lovin’ it. They could also include a brand mas­cot like Kellogg’s Tony the Tiger or spokes­peo­ple such as Gary Linek­er for Walk­ers Crisps. 

“They ensure true pro­duc­tiv­i­ty of invest­ment,” says Val­lance. “With­out them, even if you spend tens of mil­lions, all your brand will leave behind is a trail of com­mu­ni­ca­tion rub­ble. With them, you’ll build a com­mu­ni­ca­tion wall, even if your bud­gets are mod­est or threat­ened by infla­tion.”

Cre­at­ing these pow­er­ful adver­tis­ing sym­bols enables brands to cut through the clut­ter of media sat­u­ra­tion and pro­mote their qual­i­ty cre­den­tials in a world of ris­ing prices. 

Pre­vi­ous eras of high infla­tion dur­ing the 1970s and 1980s were con­sid­ered a gold­en age for adver­tis­ing, with excit­ing prod­uct launch­es, audi­ences eager to receive new mes­sages and an econ­o­my buoyed by ris­ing wages. With today’s infla­tion­ary envi­ron­ment, com­bined with the promise of dig­i­tal media, the expan­sion of online star­tups and a renewed cre­ative focus, the build­ing blocks could be in place for a new gold­en age.