What Car? Insight special in conjunction with Campaign Magazine
Spending now is key to future success
Gideon Spanier has been UK editor-in-chief of Campaign since March 2020. He was previously global head of media at Campaign, which he joined in 2015. He is a columnist for the London Evening Standard, where he was previously media editor, and has also worked at The Times and The Independent. He is a former chairman of the Broadcasting Press Guild. He began his career as a TV producer at CNN.
“WE’VE NEARLY SUSPENDED everything,” PSA Group revealed earlier this month as it reported it had slashed marketing spend by 90% because of the Covid-19 crisis. “At the moment, it’s useless to be on TV … because people are at home, on the internet,” Philippe de Rovira the chief financial officer of PSA Group, said, explaining the decision to halt advertising. Like most of its peers, the French car-maker has made deep cuts because it expects sales to fall 80% across Europe in April and wants to conserve cash.
But that raises an important question for many in the ad industry: How much is the automotive sector taking a risk by “going dark” at this time?
While there is no sign yet of an end to the lockdown after five weeks in the UK, there is early evidence from China that the car market can quickly recover when restrictions ease – for example, in the city of Wuhan, where the lockdown ended after 11 weeks in early April. What’s more, multiple studies from past recessions have shown that brands that keep advertising during a downturn tend to perform better than rivals in a recovery.
A survey of 1000 businesses in the 2001 recession found that those companies which increased their marketing spend over the next two years enjoyed a 2% average increase in market share, according to Profit In Market Strategy (PIMS), part of management consulting firm Malik.
‘Businesses that increased spend enjoyed a 2% average rise in market share’
Businesses which maintained marketing spend at similar levels as before the downturn had a 0.8% rise in market share during the recovery. However, those companies which cut spend saw market share fall 0.8%, PIMS found (further detail on the graph below).
Continuing to invest in brand awareness and salience during a downturn does not have to mean spending the same amount of money, especially when the company may need to make urgent financial savings.
Instead maintaining – and, ideally, increasing – share of voice relative to competitors can be more important, according to marketing consultant Peter Field’s analysis of case studies from the Institute of Practitioners in Advertising’s databank from the 2008 recession.
Increasing ad spend in your category, ahead of market share, generates extra share of voice (ESOV) and is a powerful driver of growth, the analysis showed.
“Businesses with high ESOV reported future market share growth several times larger than those with small or no ESOV,” the IPA says, its data illustrated in the graph below right. A brand that increased ESOV by 8% went on to enjoy a 4.5% annual increase in market share in the category.
By contrast, a brand which kept ESOV flat or reduced it only had a 1% increase in market share in the following year. Crucially the IPA adds: “Increasing share of voice in a downturn does not necessarily mean spending more. Since ESOV is a relative measure, businesses can still have high ESOV by maintaining or even trimming budgets, if others are making deeper cuts.”
Economic recovery from the coronavirus crisis may take time but long-term brand-building remains important in the automotive sector, especially given purchases tend to be infrequent and high-value, second only to house-buying for many consumers.
Brian Wieser, president of global intelligence at Group M, the media-buying arm of WPP, says: “While the decision- making process has a short cycle in many product categories, consumers may form brand preferences for passenger cars years ahead of their actual purchases.
“For that reason, companies in the automotive industry will benefit if they focus on how perceptions formed now drive sales made many quarters and years from now.”
‘Increased ad spend generates extra share of voice, a powerful driver of growth’
Colin Gottlieb, the former chief executive of Omnicom Media Group, says luxury brands at the top end of the automotive market are likely to be in a stronger position at the start of the downturn because they have high levels of “desirability”. He believes car brands with broader appeal face a particular challenge if they reduce their advertising and marketing.
“To go silent when you don’t have powerful brand metrics – if you’re not one of those brands at the top in terms of desirability – then you’re in danger of moving backwards really fast,” Gottlieb warns. The automotive industry was already facing disruption before the coronavirus downturn because of structural shifts, including the rise of automation and electric vehicles, a younger generation who may be less committed to car ownership and newer brands such as Tesla that are selling directly to consumers.
The economic shock could be a catalyst for positive change in the automotive sector, according to Benjamin Braun, the former marketing and digital director of Audi UK, who joined Samsung as its European chief marketing officer last year.
“Car brand websites are still years behind other industries in customer usefulness,” Braun says. “How can the automotive manufacturers build amazing cars but terrible websites? If COVID does not accelerate car brands’ digital transformation, what will?”
He predicts the legacy of social distancing will be to usher in changes in the sales and marketing process such as a car dealer bringing a vehicle to the customer for a test drive. Gottlieb also sees the crisis as an opportunity for car brands to invest more in online, data-driven advertising and content, including organic reach on social media, to engage younger consumers. It is a reminder that the quality of the creative messaging also matters. “By itself, spend is a less important driver of effective advertising than creativity,” the IPA says. “In the 2008-9 slump, for example, both Hovis bread and the airline Virgin Atlantic increased their share of voice. But their increases were either matched by rivals or their total spend still lagged that of a principal competitor.
“However, both businesses invested in advertising that memorably drew on their brand heritage to get talked-about again, and make an emotional connection with consumers that revived brand preference.”
These are important lessons for everyone in advertising and marketing as we plan to weather the downturn and prepare for recovery.