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A new government campaign encouraging big businesses to curb their marketing spending to help tackle soaring inflation could create enormous opportunities for agile SMEs.

Expected to launch this month, the Government marketing blast will encourage businesses to divert spending away from marketing to cut prices instead as the nation grapples with a huge cost of living crisis. 

Those businesses who heed the call to suspend their marketing campaigns and bring down prices for consumers would be entitled to add the campaign name and logo to their branding to showcase their willingness to help out during tough times.

The initiative comes after the appointment of former Just Eat executive David Buttress as the newly created cost of living tsar. He suggested that marketing spend be “refocused” as part of a series of ideas put forward to bring down the cost of everyday items.

It has been suggested that price cuts should occur four times a year, with the beginning of the school summer holidays, the start of the new school year, autumn and Christmas cited as the most likely dates.

The call to slash costs rather than use company profits for marketing has not been well received, with the Federation of Small Businesses saying it wasn’t realistic to expect firms to absorb cost increases to protect consumers.

The cost of living crisis 

The UK isn’t alone in suffering a cost of living crisis. Still, it has hit a series of particularly grim milestones with rising inflation, supply chain issues and the war in Ukraine all pressuring household spending power in a way that hasn’t been seen since records began.

Inflation hit 9% in April, marking the highest level in more than 40 years, and is currently 9.1%[1] (as of July 2022). The Bank of England has said[2] that it expects to see 11% inflation by October.  

Household incomes aren’t keeping pace with inflation, with analysis suggesting that real incomes will drop 4.1% in 2022[3] as a result. The rising prices are being seen everywhere, from fresh food to energy bills, petrol to business supplies such as animal feed and fertiliser. Food is expected to become even more expensive this summer, with The Institute of Grocery Distribution forecasting a 15% rate of inflation[4] for items such as meat, dairy, fruit and vegetables.

NIESR projections[5] indicate that the cost of household bills, including expenditure on non-essential items, will be 130% higher than disposable income for the poorest households for the next two years if the current trends persist.

Inflation is expected to rise notably in October when another change is made to the energy price cap. That will increase energy bills by another £800 on average per year [6].

Unpicking the thinking behind the call to cut costs and pause marketing activity 

Businesses across the country are feeling the impact of inflation as the cost of being in business is also rising. Shipping, energy, labour costs, manufacturing cost and the price of raw materials are all elevated. That increase is being passed along the chain, leaving consumers paying more for goods and services than before.

With increasing prices stretching salaries to breaking point, some consumers have already begun to rein in their spending, impacting business revenue. Over 50% of people say they are now skipping meals, for example, due to escalating food costs or are buying less food[7]. In addition, 64% of people are eating out less, 50% are using transport less, 53% are using household appliances less, while 84% say they are spending less on clothes[8].

Many businesses now anticipate that higher prices will spell a slowdown. The electrical retailer Currys says[9] that inflation is creating headwinds for consumer spending, and it expects sales figures to fall.

With 44% of UK companies issuing profit warnings[10] because of inflation, we must ask, is reducing marketing budget to soak up price hikes rather than pass them along to the customer really the way to go?

A return to Covid-era policies? 

The Government message that firms should cease marketing and advertising efforts to free up cash to finance the increasing cost of being in business takes us back to pandemic times.

With economies stalled and retail and hospitality businesses shuttered, many advertisers dramatically downsized their budgets. In Q2 of 2020, during the earliest days of the pandemic, marketing budgets were slashed by 50.7% on average, the most significant decline on record. Advertising spend was down by an average of 9% in mid-2020 across Europe, while a quarter of brands, planners and media buyers paused their ad campaigns entirely[11].

For some retailers, such as B&Q, it simply wasn’t possible to serve customers, while others couldn’t compete with the likes of Amazon, leading to a market withdrawal as the pandemic progressed.

Stopping and starting advertising and marketing effort isn’t as simple as turning off ad campaigns and then putting them live again later.

Putting the brakes on sales and marketing is proven to have a long-term business impact, making the Government messaging ill-thought-out. A 2018 study by the Ehrenberg-Bass Institute of Marketing Science[12] concluded that sales fall by 16% after one year without advertising, 25% after two years and 36% after three years. Turning ads back on was also proven not to halt the decline, meaning that any cessation of marketing and advertising activity, however temporary, could seriously impact a brand’s profitability moving forwards. 

If more prominent brands heed the Government’s call to stop marketing and absorb rising costs with that cash instead, there is a tremendous opportunity for SMEs to step in to fill that void. Doing so means immediate sales benefits but also offers more medium-term advantages too. 

We saw during the pandemic that consumer behaviour shifted, and more shoppers were willing to try out new brands than before. SMEs able to win over new clients during a big business exodus from marketing have a chance to retain those shoppers in the medium term, building new brand loyalty for long-term success. 

Adrac’s data-driven approach to marketing provides agile SMEs with an informed, strategic plan of action. We’re here to help you capitalise on this opportunity and grow your business. Contact us now to find out more.

Sources:

[1] https://www.bankofengland.co.uk/monetary-policy/inflation

[2] https://www.theguardian.com/business/live/2022/jun/16/bank-of-england-interest-rate-decision-markets-pound-ftse-business-live?page=with:block-62aae2e58f0824f03c0cd4c4&filterKeyEvents=false

[3] https://www.theguardian.com/business/ng-interactive/2022/jun/21/cost-of-living-crisis-uk-households-charts-inflation

[4] https://news.sky.com/story/cost-of-living-food-inflation-to-accelerate-over-summer-and-prices-to-stay-high-institute-of-grocery-distribution-warns-12634758

[5] https://www.theguardian.com/business/ng-interactive/2022/jun/21/cost-of-living-crisis-uk-households-charts-inflation

[6] https://news.sky.com/story/cost-of-living-food-inflation-to-accelerate-over-summer-and-prices-to-stay-high-institute-of-grocery-distribution-warns-12634758

[7] https://www.bbc.co.uk/news/business-61813857

[8] https://www.bbc.co.uk/news/business-61813857

[9] https://news.sky.com/story/currys-says-rising-costs-being-passed-on-to-shoppers-and-warns-of-impact-on-sales-12647298

[10] https://www.thegrocer.co.uk/results/uk-profit-warnings-spike-as-spiralling-costs-hit-consumer-industries/667118.article

[11] https://www.weforum.org/agenda/2020/06/coronavirus-advertising-marketing-covid19-pandemic-business/

[12] https://www.marketingscience.info/when-brands-stop-advertising/

Author Rebecca

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