Collective Intelligence: Marketing Insights & Ideas to Help Brands Thrive

CI Conversations: How Brands Can Respond to Economic Uncertainty

October 11, 2022 Interpublic Group of Companies (IPG) Season 1 Episode 17
Collective Intelligence: Marketing Insights & Ideas to Help Brands Thrive
CI Conversations: How Brands Can Respond to Economic Uncertainty
Show Notes Transcript

In this episode of CI Conversations, we chat with Tom Morton, the global chief strategy officer for R/GA, to find out what is in store for the typical consumer and how brands can respond.

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Intro: [00:00:01.29] Welcome to the Collective Intelligence Podcast from IPG. We deliver marketing insights that help modern brands thrive. In this episode, you'll hear about the latest perspectives featured at Listen then log on to find new opportunities for your brand to stand out.


Paul Parton (Host): [00:00:22.47] Hi there. I'm Paul Parton, and this is the CI Conversations podcast. And my guest today is the sagacious Tom Morton, who is the global chief strategy officer for R/GA. Tom, good to see you.


Tom M: [00:00:35.88] Hello, Paul. Good to see you. I hope I will bring some sagacity to our conversation.


Paul Parton (Host): [00:00:40.23] Oh, I know you will. So you've been talking of sagacity. You've been peering into the looking glass recently and thinking about the economic environment we're stumbling toward. And as I understand it, you're seeing a market in context that's quite different from one that we may have seen in other recessions. What do you think's in store for us?


Tom M: [00:00:59.47] Well, let's talk about first how the current recession is hitting differently. This really is a recession that is born out of the extraordinary circumstances of how the post-COVID economy reflected dislocated move to the burbs and how that created a bunch of inflation and bottlenecks. Then a lot of external shocks, especially Russia's invasion of Ukraine hit, which had enormous effects on things like supply chain and energy prices. And suddenly we find ourselves in an unusual recession, which is basically borne out of not so much a lack of demand. It's just harder to buy things. And everyday life has become more expensive and more difficult now. And I think especially we see that now with what's happened to mortgage rates in the US. Like a mortgage rates have more than doubled in the last year. Grocery prices are up by about 13%. Energy prices are up by about a quarter. Life life is kind of become more difficult and it's also become more difficult in areas that were really expensive before. We're coming out of a period of plentiful products, very low unemployment, low energy prices, low mortgage prices. And it's this combination of very areas of the economy that are really hot and then rapid cooling at the same time in different parts of the body has just created. What we're thinking about is like a fever economy where some things are very hot, some things are really chilling, and the whole effect is very dislocating on people and their plans.


Paul Parton (Host): [00:02:28.33] Fever Economy is a really nice expression. I guess hot and cold analogy is what makes this kind of odd at the moment. But do you think it's going to get cold and cold soon once demand starts to level off?


Tom M: [00:02:42.18] I'd probably answer this question differently a month ago. I think watching interest rates rising has been really telling. When you think about what a driver of of economic activity in the West. House moves house prices can be. I think suddenly the cost of moving the cost of buying has gone up dramatically. And I think that's just created a bit of a wall. I think we saw this in this shock reaction to the budget in the UK where a number of big mortgage lenders simply stopped offering mortgages for a couple of days because they just didn't know how to price them. That was like a crisis version of it. But there has just been this more gentle thing, this creep up now, where, as I say, a mortgage that would have cost you 3% this time last year will now cost you like a 6.7% APR, That's going to make a real difference. It's also it's interesting that's happening to companies as well. So if you think about the the money that consumers basically back themselves with and build a bigger future with the mortgages for companies, it's about fundraising. And so obviously the cost of raising capital has gone up and at the same time, the expectation of growth that's related to that has gone down, which I think is also why we're seeing the biggest dislocation in the economy right now. A company level is tech stocks, is growth companies. It's companies basically built on investing today's money in a bigger future tomorrow. So suddenly a lot of these companies like Google and Facebook that were the absolute driving forces of the economy, really since the global financial crisis, actually, they've had some of the hardest times as a result of that.


Paul Parton (Host): [00:04:16.18] Futures Definitely long term futures is definitely a very difficult game to play right now. I suppose many marketers are looking at a shorter term future. Just often a quarterly future. What kind of reactions are you seeing or predicting from marketers? Even if in the fever economy, let's say the fever economy that we're in now? How is that impacting and how are people reacting?


Tom M [00:04:41.55] I think is very dependent on the sector that you're in. If you're one of those pandemic stocks. If you're a tech company, if you're a recent IPO or VC backed company, your marketing outlook has changed dramatically because the growth you thought you were going to get and the capital that you thought you were going to get it with has changed very dramatically. And so we're seeing a lot of pull back from those kind of new economy tech type companies, organizations with a longer history, a longer time horizon, or even just companies that are trading in more defensive and day to day things like packaged goods like health, we're not seeing the same pullback. I mean, weirdly enough, probably the best predictor of your marketing activity in the next year is your stock price this year.


Paul Parton (Host): [00:05:25.90] Because that gives you a sense of confidence about what's to come?


Tom M: [00:05:29.14] Yes, because a lot of these companies that were really dependent on rosy fast growth scenarios are discovering they don't have those now and are pulling back versus the companies that are slowly, steadily plodding on through it, through the economic cycle, just less affected by that.


Paul Parton (Host): [00:05:48.13] How do you sort of council are you providing very different counsel to these very different types of companies, or are there any kind of guiding principles that you're using across the board?


Tom M: [00:05:58.82] Well, I think the the the general guiding principles have been pretty well known now over over multiple downturns. The classic principle that marketers are tired of hearing but doesn't stop it from being true is that the organizations that continue to invest in a downturn tend to win the next business cycle. And that's not just a rhetorical thing. All the evidence is companies that maintained or grew a share of voice tended to come out of the downturn with with higher market shares. So that's a big piece of guidance that we can always give. Some of the guidance that I think is probably specific now to the current downturn and the fact that this is probably the first sustained economic downturn of a digital first world. Has actually been around consideration. One of the big effects of that happens to marketers and to brands in this time. Although, let's say overall economic activity might fall, the amount of choosing that happens actually goes up because people have less money in their pockets. They're trying to buy products that are more expensive and more scarce. There's a lot of shopping around that goes on. We've seen really big upticks in the number of people who are trying new brands. We also hear that I think it's 87% of all searches right now for a product contain multiple brands. And so let's say while overall demand might fallen, overall choosing is actually going up. So there's this incredible kind of brand audition period that all brands are in. And so we're very much advising that's a very strong case for why you continue to market. So it's a very strong case for why you amp up your search and amp what you're doing. Let the consideration stage, because every purchase now is a high consideration purchase and every brand is finding itself being auditioned by its customers. And if their shopping around, they're looking at their alternatives. You really don't want to miss out on that opportunity.


Paul Parton (Host): [00:08:00.95] I love the idea of a brand audition. Is there a way that brands need to rehearse for an audition that they wouldn't have done before?


Tom M: [00:08:10.02] Fundamentally, you need to be there when this is happening. I think there's. In terms of how you change your posture. There's there's a couple of things that are really worth looking at, I think, as a brand, especially like how you prepare for this recession. So one of the things we know prices are going up and so work out what is the what are the quality cues you give? What are the reassurances you can give about your quality? What you can do for customers becomes really important. The other consideration, I think, in terms of how you show up and I think this is really I think this is almost like a bridge from between like you as an advertiser and you as, say, a product company and a product innovator. Well, the big thing is, I think, changes about how you approach the market. It's not that a recession doesn't mean that customers want less from you or they've dialed down their expectations. The truth is, people people are still going to go and have their lives and move forward and they're still going to be looking for things like value for money, product quality, innovation, ease of use, all the good things that people want. They just have less resources to get them. So I think one of the big principles is going to be how you show up when everyone's looking around, because how are you helping customers do more with less? I don't like using too many examples and past recessions because we're in a new situation.

Maybe the two best marketing moves of the global financial crisis were Hyundai in the US and British supermarket called Waitrose and Hyundai, who they famously created a guarantee a pledge to people who wanted to buy a car but worried about losing their jobs. If you lost your job, they would cover six months of payments. And so that was a great piece of enabling a customer to do more with less. In practice, most people never needed to to call on that facility, but it meant you could buy with confidence in a way you couldn't. The Waitrose, for listeners who aren't from the UK, is a very upmarket British supermarket and unsurprisingly being an upmarket deluxe food store at a time when people are cutting back is very hard. And so their reactions. The last recession was to launch what they called an essentials range. But what they did, they launched essentials of nice things like essential balsamic vinegar, essential pecorino cheese, and at a time when they should have been destroyed as an upmarket store, they actually picked up a 15% growth in sales. And both of those are cases of just doing more with less and basically helping. How do you help people have the quality, the good times, the certainty they want? Just acknowledging they have fewer resources to get them. That's probably the biggest new way in which you can show up during a downturn.


Paul Parton (Host): [00:10:53.17] Both of those examples strike me as very human reactions also. They're very empathetic and very kind of reassuring.


Tom M: [00:11:03.09] I think that's absolutely right. Recessions are hard. There's a lot of evidence that thinking about money is one of the hardest cognitive loads that people carry. There's a great book by a behavioral economist called Sendhil MULLAINATHAN called Scarcity. And one of his biggest theses about it is that in research, when you ask when you give people money problems and ask them to solve a problem, at the same time, the effect of worrying about money is basically about as hard as taking ten points off your IQ or waking you up, give you a sleepless night, and then setting you a test at that much of a burden. And so I think understanding that these are hard times, people people have been forced to think about money, which everyone hates. The best thing you can do is just show up with a bit of humanity right now. I mean, maybe that was the lesson. The bigger the marketing lesson from from COVID, where suddenly brands had to respond to a very urgent crisis moment in everyone's lives. It was really the brands that stepped up and helped out that did the best. And I would hope that we're only two years out of that. I'd hope that lesson is still there for marketers thinking about whether it's been more or less human and more or less empathetic. The customers go into a downturn.


Paul Parton (Host): [00:12:15.15] So that's a great example of a neurological issue that all of us have and how brands actually. Manage that or help with it. You've also got to think that the people, if worrying about money impacts as to that degree, then once again it's going to impact disadvantaged communities more than everyone else. I wonder what brands can do about that.


Tom M: [00:12:44.77] I think I think you're absolutely right. And a lot of the evidence that we've seen in surveys is that the people who are most worried about the cost of living are the people who have least now. And it's the double injustice of of economic downturns. They hurt everyone, but they hurt people have less more. And I think marketers, especially people who are trying to serve the median household, really have to have to have to think about that. In terms of how you help people in this difficult time. One of the things that we've actually discovered is that just as there's this big fall of like confidence and consumer confidence is falling dramatically and customer satisfaction is falling very dramatically. And one of the big things we found is that really the thing that actually determines whether you're happy with your brand, whether you're going to stick around, whether you going to show any kind of loyalty is basically almost every attribute that drives that satisfaction is basically connected to confidence. So we think about what do you do with people who are worried, who have less, who have a lot on their minds? One of the big things actually is to is to just design your entire customer experience around building people's confidence. And I don't mean the kind of pep talk sense, but actually in the deep sense of. How do you help people master products? How do you help people get quick wins so they know they've bought the right thing? How do you help people understand they're putting their money into the right thing? How do you help them do incredibly easy comparisons so they can understand what product is right for them? Because I think, as you say, the cognitive load is going to be on people, on everyday people as they're worrying about money. And I think we're just going to have to design all of our customer experiences now to instill instill that degree of confidence and just be easier to buy and easier to own, really.


Paul Parton (Host): [00:14:35.77] That seems like a very easy suggestion for marketers to take on board. It's some of the ones that you mentioned earlier, the kind of very counterintuitive idea that you should that during a downturn you should go and invest more, which we've all heard for many years over many recessions, which is also very hard to do because we are much more likely to fight than fight in these situations. Sure. But that suggestion seems entirely practical and entirely doable.


Tom M: [00:15:13.27] I think so. And I think another reason why it's more doable now, as I say, this is the first economic downturn we've had in a digital first marketing world. So compared to the great financial crisis of 2008 2009. E-commerce is about four times bigger than it was then. Digital's share of advertising is about four times bigger. So your ability to to change your interface, change your customer experience, create interactions that help with that kind of confidence. It's much easier to do that now than it was in the more analogue time of the great financial crisis. And a lot of these things shouldn't necessarily cost more because a lot of these are about just simplifications. There's a lot of design or let's say customer experience targets like surprise and delight or ease of use. And the truth is designing for ease of mastery. Designing for confidence actually is know is no more expensive than any other approach, but it's what the stressed minds of today really need.


Paul Parton (Host): [00:16:14.08] It just it just once again requires a bit more humanity and a bit more empathy, doesn't it?


Tom M: [00:16:18.58] Yeah, I think so. And I think there's another cause of this which is dealing with a hard financial time is hard in a head office, it's hard in a boardroom, but it doesn't mean that as a as an executive, you should take that kind of angst and agita and finance director anyway, you shouldn't take that and go and project it onto your consumers. As I say, they're still looking for product quality, ease of use, good times, reliability. They're still trying to live their lives and make good choices and live their best lives. And so you don't need to project your own economic woes onto them. The truth is the economy and the news headlines will do that without without brands adding to it or without brands deciding they're just not going to serve people or show up during a during a contraction.


Paul Parton (Host): [00:17:07.67] So that's a really interesting distinction. You sound pretty confident that if brands can do that, if they can separate out the internal conversation about the financial picture from the external reality of their customers, that actually there you could be you sound reasonably confident that the market themselves out of a difficult situation.


Tom M: [00:17:29.91] Well, I don't want to promise an easy path. We're we're very clearly looking at an economic downturn. That's going to be hard. There's no there's no easy path through. But I think. I think if you can just stop that fight or flight reaction that you were speaking about a few minutes ago and think about how do you show up, right? How do you continue to serve people, then that's the right approach, just because, let's say sales, falling budgets, it doesn't mean that you as a business disappear or that the lives and needs of your customers disappear. I was talking yesterday with a client of ours, and she's the she's the CMO of a fintech company and it's a fintech company right now is not a lot of fun. But she says one of the really big things, they get back to their customers. They get what they call I wish statements a lot, where their customers are telling them all the time, Here's what I wish I could do with this product. Here's what I wished I could get from you. And she like listening to the fact that those are still coming, even in tighter economic times. Gives you a clue that people still have needs. They still want to be served. And I think just having the having the humility and the good sense to listen to that, I wish voice. And and innovating around that I think is still really important.


Paul Parton (Host): [00:18:43.74] Having the humility to approach business with a view to continuing to serve also seems to be something that would stand people in good stead just in general.


Tom M: [00:18:52.44] Completely. And I think it comes back, as I was saying, the lessons from COVID. And that was a traumatic time, both in terms of economic impact, in terms of what's happening to people's daily life and wellbeing. And yes, it was the just because it was the organizations that stood up, recognized people had needs and there was some where their brand was well equipped to help. They're the ones who did well. And I think corporate America doesn't have a long memory. But that's only two years ago. We could like remember that good behavior from then and pay it forward into the downturn of 2022 23.


Paul Parton (Host): [00:19:28.38] So a bit more humanity, but more empathy continue to serve. And we might we might survive the great audition. Sounds like a pretty good summary of your perspective.


Tom M: [00:19:39.25] I would hope so. I mean, there is this period where customers are going to be really re-evaluating the brands they buy, the choices they make, what's available to them. And I think making sure that you're there, whether that means just you're there in communications and search terms or you're there in a sense of you understand their needs and you're designing for them and you're recalibrating those needs, I think is the way ahead. I think one further reflection on that, just as we don't want like the the cloudy mood of the boardroom to get passed back down onto consumers. There's another thing about tone and the appetite for innovation and the appetite for marketing right now. One of the unusual things about previous recessions go and look at the best advertising of down years. Go and look at the the best, the highest rated films, the best music. The truth is, in bad years, there's a lot of creativity and let's say our capacity for creativity and our appetite for new ideas and new thinking and new forms doesn't go down in a recession. And I think that creates a real opportunity. Whether you are let's say you're you're a marketer trying to tell a story or you're a business owner trying to innovate a product. The appetite for the new, the fresh, the smart, the interesting is as high in a downturn as it is in a boom year.


Paul Parton (Host): [00:21:08.44] I wonder if it goes up, even just the need for separation.


Tom M: [00:21:13.06] It's quite possible. I mean, I know there's been a lot of like sociology written about how the Seventies was a really difficult decade in terms of economics, in terms of social stress, but was a golden age of music and film and literature. And again, just the exercise of looking at the Cannes line winners of 2009, all the work that was created and the absolute depth of a recession. Actually, it turns out the the amount of creativity in those difficult years was really high. Now, IBM's Smarter Planet came out. T Mobile was entertaining everyone with flash mobs. Shepard Fairey was creating the hope and change posters for President Obama. Fiat bought out the eco drive. There was a lot of creativity in the previous recession. The the capacity to create and the the appetite for creativity doesn't go down.


Paul Parton (Host): [00:22:05.35] In all forms, I guess, and in commerce as well. I know that MTV and Trader Joe's and the iPod were all launched during the recessions.


Tom M: [00:22:14.59] Absolutely. I mean, the history of whether it's like businesses or cultural products, it's still it's still very high. I mean, Uber, Airbnb were both products of the 2008-2009 recession.


Paul Parton (Host): [00:22:28.54] There's hope than Tom.


Tom M: [00:22:30.16] You should never wish for a downturn. This is nothing moral or good or unexpected upside to this. But I think there are there are just ways of being as as a marketer that mean that you'll continue to serve people and you'll also you'll emerge stronger. And this is a point that another one of our IPG friends, Tyler Turnbull from FCB, makes that if you look at recession since 1945, the average downturn has lasted 11 months. And while it's painful at a time that's that's relatively short term and a business cycle. And I think that having the goal of getting through this current period but winning the next cycle should be on the minds of all business leaders.


Paul Parton (Host): [00:23:14.69] I love that. Probably a good note to end on. Thought provoking as always Tom. Really appreciate you sharing that with us.


Tom M: [00:23:23.92] Thank you for having me.


Paul Parton (Host): [00:23:25.60] Good to see you.


Tom M: [00:23:26.68] Thank you very much.


Outro: [00:23:28.12] Thank you for listening to the Collective Intelligence Podcast. For more marketing insights and ideas, please subscribe to this podcast or visit intelligence.