Look Past COVID – How Do You Handle the Economic Train Wreck?
A day doesn’t pass without someone commenting on how they, a brand, their mum, their dog – every bugger is best handling the COVID pandemic. I am not being critical. Many businesses acted swiftly and thought laterally, making the best of a bad situation. For quite a few, the changes will be permanent, adding new revenue streams, when (if), we ever get back to some normality.
“Never waste a good crisis”, attributed to Sir Winston Churchill, though it is believed Machiavelli coined-term (a good analogy for impact spectrum of the pandemic). Travel, hospitality, and accommodation have been decimated – the cost to an airline the size of QANTAS having around 95% of its fleet sitting idle is eye watering. How many years will it take to make up for the losses of this financial year? But not just QANTAS, there countless other businesses who have been smashed you won’t read about in your social media news feed.
And we are continuously reminded of the shit we are in. A scan of credible publications shows headlines such as:
How GSK reorganised its portfolio in response to Covid-19
Podcast: Inside B2B – What comes after Covid?
What COVID-19 means for commerce leaders
Endeavor’s Bozoma Saint John: Covid-19 is one of the greatest marketing tests of all time.
No denying, we (as in the whole world) has not encountered anything on this scale of damage since the Spanish Flu hit in 1918 (it was even more deadly). 30 years of continuous growth, all sunshine, and flowers and then in a matter of weeks, everything and I mean everything, went to hell in a handcart. Whilst the focus is on COVID, not many people have looked up to the see the huge tsunami building behind it. And it keeps on building – the government will have to turn off the money taps at some stage. Those wonderful banks, who are about more than just money, are going to have the audacity to want their money to be paid back. How rude!
It is like a set of dominoes, as a large group of people lose their jobs (even Deloitte put off around 800 people in the past week), they don’t have the money to spend on things they usually do – cars (whose sales have already fallen through the floor), restaurants, holidays. It won’t matter if travel is allowed as so many people won’t have the money to travel anywhere, except to the unemployment line. So, the people whose jobs were dependent to a large degree on these people who have lost their jobs and it just keeps going.
The IMF forecast the world economy would shrink by 4.9% in 2020 and 2021 is not going to be any better. Australia is the best performer, down “only” 4.5%, but is forecast to drop by 10%, the biggest drop since the Great Depression. (Can never understand why it is called “Great”. Nothing “Great” about it, not even “Good”). Even China, on whose growth many countries directly or indirectly grew their economies, is struggling.
A genuinely terrifying concern is these huge falls can reach a point where social order breaks down (western democracies are already suffering large divisions). And COVID isn’t going anywhere. Have a look at the world news (this may be a good time to stop just getting news from your social media), the pandemic is running riot. Even if a vaccine is developed in the next couple of months (most unlikely), it will take a long time to manufacture and distribute world-wide. And the damage will have been done.
I can recall the 1987 stock market crash, the recession of the early 90s, the tech wreck and the 2007/08 GFC. There was a lot of talk, but the impact on most lives in Australia was sweet FA. For a variety of reasons, we were well cushioned from the GFC. Talk to people from England and the US and it was very ugly. Well not this time around. The world has become far more interlinked, a consequence of the digital era. And the Corona pandemic and its impact has hit every country on earth, except Antarctica.
There is one significant benefit to this pandemic that will help us try and stay afloat when that tsunami comes barrelling through. Many businesses did become fat, dumb and lazy over the past 30 years. Yes, many industry sectors had their margins squeezed, but there were many new businesses in the tech sector who didn’t. Since the pandemic hit, businesses have cut costs across the board. It is not all bad news for Alan Joyce. He has been wanting to trim down QANTAS for years. Though I do think he wanted to trim, not go full anorexic as he has had to. So, clever marketers, how do you survive? (forget prospering unless you are an accountant in administration, insolvency, and liquidation).
There is significant debate about long-term brand building activity and short-term, promotional activities. But the division between the 2 is not always clear cut – value add (winning prizes, redeeming FF points etc,) activities are short-term. But “experiential marketing” can be both – it runs for a limited time, but it does add to the brand image.
Bob Miller, the former Director of Marketing at Toyota, is probably not well known to many people today, but he is a genuine marketing legend. His definition of marketing – “ensuring long term positive cash flow”.
We don’t talk much about Profit & Loss and cash flow. We are advertisers and marketers, not accountants. Making a profit is certainly a good thing, but it doesn’t mean jack shit until the money is in your bank account. If a huge depression does wash over us, then there will be many instances where profit “evaporates”. In very tough times, one of your distributors may go belly up with not only your profit, but a decent chunk of your operational money.
In nature, only the strong survive. The individual is irrelevant. Survival of the species is all important and only the strongest individuals survive to pass on their genes to the next generation. If a huge depression does hit us, the basic law (and savagery) of nature will play out in business and some brands and companies will not survive, no matter how clever they become at marketing and advertising (some have already gone to the wall, but this will only be the tip of the iceberg). The brands that have focused most on brand strength and integrity will have the best chance. But that will not be enough, cash flow will be critical for survival.
Much has been written and said about the importance of advertising during times of recession. But this threatens to be far more than just a recession – full on pneumonia compared to a mild cold. Promotional activities will keep the brand in the public eye as consumers seek to get the most for their dollar. For the period of greatest public pain, brands that are already perceived as value, will have a far better chance of survival.
I have never been through a full-on depression (no one in marketing and advertising today has). There are 5 success stories from the Great Depression in the US that are still relevant today:
Floyd Bostwick Odlum: WTF are the they? Not they, who. A lawyer who believed the Depression was inevitable, sold everything he could to raise capital to invest in shares that fell to well below their asset value. He turned $39,000 into over $100 million in 15 years. In technical terms, that is a shit load of money even today, let alone back then. Not too late – you need assets to liquidate and still get good money and be a savvy investor. But picking stocks has not been part of our core skills set.
Movies: Escapism. Not so simple as just running movies – theatres had to run all sorts of promotions such as 2 seats for the price of 1, cut ticket prices by 50% and loads of promotions. Dish night is my favourite – every woman who attended was given a free dinner plate. There were cash door prizes, silver wear giveaways and probably the first time points (flybys were used) – each visit accrued points for a larger “prize”. It was a series of never-ending promotions, the Hollywood studios produced cheaper movies faster, and the industry got through.
P&G. They knew that even in tough times, people still need soap, washing powder etc. They scaled up their advertising and soap operas were born. Content, such a buzz word today, helped P&G through the Great Depression. In 1933 they produced their first radio “serial” and by 1939 they were producing 21 radio show, and they were TV pioneers – in 1950 they produced the first TV soap “The First Hundred Years”.
Martin Guitars. If you are a musician, the name will be more than familiar (Kurt Cobain, Nirvana. His ‘59 Martin recently sold for $9 million). They cut costs, bringing in a 3-day working week. They did NOT give high volume discounts, maintaining a strong relationship with the myriad of smaller dealers. (The 3rd P) They introduced new “less expensive” product but did not compromise on quality. No wood was wasted. Costing bugger all, they ventured into making violins and even wooden jewellery. Though mostly, high quality product (guitars) at “reasonable” prices and close to 100% of distributors, got them through.
Brewers: Production Diversification. Prohibition was still in place during the Depression, which resulted in a drop of beer from 300 million gallons in 1921 to 86 million gallons in 1932. “Root Beer” was a result. Brewers started selling products as diverse as meat and milk and one brewer even opened a dance hall.
In 2020, the execution would differ, but these 5 approaches cover the full spectrum of survival strategies and all had one thing in common – cutting costs to the bone in all but absolute necessary areas. Maybe that tsunami won’t hit, but if it does, the Chief Financial Officer will play at least an equal, in most cases a bigger role in a company’s survival. Brand purpose has come in for a fair share of criticism – particularly on “political” or “Identity Politics” issues.
But if the big one does come, it is a fair bet that brands who are genuinely pursuing a purpose to help the many that would be negatively impacted, will benefit. Every little bit will help.
