Investment During Inflation

May 2022

In this tough economic climate, should your company invest more or less in marketing?

Raising Investments

Never let a good crisis go to waste

Winston Churchill

 

With inflation at a 30 year high in the UK and expected to rise over the course of the year, the cost of living has led to higher prices and a consumer culture of thrift and frugality. In the past year, increased costs for things such as shipping mean companies big and small all over the globe are feeling the effects as profit margins get slimmer.

In the middle of this tough inflationary environment, many companies may consider the move to cut back on marketing spending due to price increases, presenting the perfect opportunity for other, bolder businesses to step up, start increasing marketing investment, and take a greater share of the marketing landscape.

 

High Inflation Is Back...

Firstly, let’s acknowledge the problem. Whilst many countries around the world (including the UK) are welcoming the move back to normal as the coronavirus pandemic comes to an end, the impact of lockdowns and restrictions are proving to be more long term and are still being experienced by economies across the globe.

Moreover, there is much speculation about the impact of Brexit in contributing to the current economic downturn with many marketers suggesting that it might be the reason for a 'lack of business investment'.

 

Rising Inflation and the Pandemic

Throughout the global covid pandemic, financial turmoil persisted as Covid-19 led to a shutdown of supply.

As the price of production went up due to things such as supply chain issues businesses had to weigh their investment strategies and choose between charging a higher price for their products or services to keep profit margins the same or keep selling at the same price but for less overall yield. If companies chose the former, they had to be able to justify these price increases to the customer.

 

The War In Ukraine

As one of the largest exporters of oil and energy in Europe, Russia’s ongoing conflict with Ukraine has meant that inflation continues to escalate to its highest since 1990. Increased energy prices have resulted from the pile on of the West’s sanctions against Russia's economy. This has further added to the rate of inflation in Europe, data suggests.

 

Impact On Consumer SpenRisk Investing?ding

According to data research, rising inflation and price rises have a corresponding impact on the behaviour of the consumer in an economy. The cost of living has increased, and consumers are naturally becoming more selective about what they spend their money on.

 

 

The Lipstick Effect

For this reason, more and more businesses face the challenge of adjusting their marketing campaigns and work to present their product or service as invaluable or a treat that will brighten a dark and stormy outlook. 

For example; during the financial crash in 2008 we saw sales of Dior lipstick at an all-time high. Dior lipstick held a premium price in the market, but it overcame this by positioning itself as a luxury that reminded women of better times to come.

This is what has become known as The Lipstick effect, an economic theory which claims that consumers will increase their investment in less costly luxury goods during a spell of inflation or recession; people enjoy these small indulgences to compensate for an otherwise bleak monetary state of affairs.

However, many companies (especially those led by financial directors) are tightening their budgets and reducing marketing expenditure to try to balance out increased production costs and keep profits consistent. Many more are subtly upping the prices of their products and services to make up for the deficit.

Whilst both these strategies may save money in the short term, they require a good brand image for customers to remain loyal as they fork out more cash for the same product. This is made all the more harder when your brand image performance takes a fall as it is not being reinforced due to cuts in marketing investments.

Whilst it may seem like a risk to spend more money on online advertising when demand trails off and people are willing to buy less, history tells a story of many winners bold enough to act differently.

Why you should invest more in advertising? Sale Stickers email image 2

 

1. With ad spending lower, the share of voice and cut-through of your brand will be stronger.
2. A reduction in demand means that advertising prices drop.
3. A voice of reassurance goes a long way
4. Brand equity can be quickly destroyed by halting communications.
5. Bargain hunters will be receptive to price reductions, sales, or promotions you advertise.

 

How can Digital Willow’s Superpowers help improve your marketing strategy?

There are many ways and methods of appealing to your potential customers in times of inflation. Here are just a few ways Digital Willow can help your company.

Brand loyalty schemes are a tried and tested method of getting results when it comes to generating sales and revenue during a tough economic period.

Customers are more receptive to great value, sales, and promotions, and can be enticed into signing up to a mailing list or longer terms deals in exchange for personalised offers and better value for money.

As an example of our Superpowers, Digital Willow can deploy our expertise and experience in nurturing customers across a buyer journey with retargeting, social media and email marketing; all designed to secure the extra sales that make the difference in an inflation economy.

 

Inflation and marketing investment

A common mistake made by many marketers and businesses during periods of inflation or recession is to follow the pack and reduce advertising spend. However, with your competitors backing down, there’s no better time to invest, putting your brand at the forefront of the marketing landscape.

Now is the time for your company to expand its growth and get the attention of the masses. After all, fortune favours the bold – and there are always winners and losers in times of crisis.

Marketing Investment

With inflation very much here to stay, there’s no better time to boost your marketing campaign by outsourcing to our team of experts.

For more information, fill in the form (top right) and we will be in touch with you.