The success of businesses and individuals is often defined by how they perform when times are tough. Not only does it reveal the ability to cope with challenges during a crisis, but there’s a strong correlation with the results even when things improve. And that’s why performance marketing channels should be leant on heavily in uncertain times.
Profitable effectiveness is key to surviving uncertainty, and growing as markets recover. So, it’s important to understand which advertising and marketing channels can deliver this in a flexible way to cope with any disruption to supply chains, physical retail or consumer spending.
- What is performance marketing?
- How does uncertainty affect consumer habits?
- Why should businesses maintain investment in advertising and marketing during a crisis?
- What makes performance marketing ideal for businesses during uncertainty?
- The next steps for your business
What is performance marketing?
The broad definition of performance marketing covers online marketing and advertising programs where advertisers only pay after a specific action has been completed. This could be when a sale has been made, or the competition of a form for lead generation. Or simply when an advert has been clicked on by a user.
Performance marketing can run across a variety of advertising and marketing channels, but some tend to utilise it more often. These include:
- Native advertising
- Sponsored advertising
- Affiliate marketing
- Social media advertising
- Search engine marketing
- Shopping advertising
Essentially, performance marketing relies on a commission model, rather paying to secure space in print, or for radio or TV advertising. Many of the channels listed will allow advertisers to choose whether to focus on display or performance advertising based on their campaign objectives.
RedBrain has always focused purely on providing Google CSS and Shopping services via a commission-based Cost Per Action (CPA) model as it offers the best results and profitable effectiveness for our partners, without risk. Which makes us a logical and easy choice for retailers across the UK and Europe.
How does uncertainty affect consumer habits?
The growth of online retail has led to greater insight into the changes in customer behaviour during periods of uncertainty, including the 2008 recession, and the ongoing Covid-19 pandemic.
With 3 million clicks on our partner campaigns every day, we’ve shared insights into how the response to coronavirus in the UK has impacted sectors including health and fitness, and technology. And the biggest finding has been how quickly UK shoppers responded to change, particularly the introduction and ending of both lockdown and non-essential retail. Demand for specific product categories saw massive changes in the space of days and weeks.
Our insight into UK shopping habits is reflected by global studies showing falling consumer optimism tends to result in spending focused largely on essentials. This was especially evident at the start of the lockdown period.
As time passed, discretionary spending moved towards self or home improvement (including fitness and DIY). Small luxuries and treats also started to appear in eCommerce shopping baskets, including alcohol or cosmetics and beauty products, as consumers sought to give themselves a boost during lockdown.
Big changes weren’t just confined to product sectors. Cases of supply-chain disruption and lack of availability has led shoppers to try different brands and products. McKinsey have seen more than more than 60% of global consumers change their shopping behaviour, with many intending to stick with their new purchasing routines.
The Covid-19 pandemic has accelerated existing retail trends, with an obvious surge in online shopping. But alongside different eCommerce habits, we’ve all been adjusting to new lifestyles and working environments.
This not only has an impact on sales of home office equipment. The length and depth of uncertain times can predict how long changes in consumer habits will endure. This Harvard Business Review analysis of previous recessions showed that typically brief periods of uncertainty lasting around a year will generally see consumption trends rebound fairly quickly when the economy recovers.
But bigger uncertainty, such as the Great Depression, can impact buying behaviour for the lifetime of consumers.
Why should businesses maintain investment in advertising and marketing during a crisis?
It’s almost 100 years since Roland Vaile completed his Masters at Harvard by looking at the fortunes of 250 companies based on how they had advertised their business during the Depression of 1920-1921.
His study demonstrated that companies increasing their advertising during the Depression grew market share and sales much faster during the downturn, and also in the years after it. Businesses which cut their ads not only lost sales in the recession, but for the following three years. In relative terms, they actually performed worse than firms which didn’t advertise at all.
These findings have been echoed in a number of studies over the decades since. For example, Stephen King and Alex Biel saw similar findings in a 1990s study. As did a 2009 review of more than 40 empirical studies, and a 2019 Bain & Company study.
Companies which emerge successfully from a period of uncertainty have organised their finances and restructured costs as early as possible. And then reinvested in the most profitably effective way for commercial growth.
Examples include Kellogg pushing their new Rice Krispies cereal in the 1920s , and taking market share from their rival Post. Or Toyota becoming the largest imported car manufacturer in the U.S despite the recession of 1973-1975. During the recession of the early 1990s, Wal-Mart experienced the fastest growth in the history of the retailer, expanding into markets which other companies were vacating. Followed by Target during the 2000 recession.
It’s easy to find many more examples of companies who benefitted from continuing to invest in their most effective advertising and marketing campaigns during uncertainty and recession.
Why does marketing during uncertainty have such a beneficial effect for retailers and sales?
If other companies take the seemingly logical step of cutting costs by slashing their advertising and promotion, it reduces the competition for customer attention. This makes any advertising more effective, increasing market share and sales.
But when the economy improves, everyone will tend to invest more heavily in promotions. No single business will see a big change in market share as a result, and that means the gains made during the downturn continue. Especially as the long-term effects of advertising can be underestimated and take time to re-establish.
If you’re the only retailer advertising in your sector during a recession, it builds consumer trust that you have the confidence and resources to continue promoting products when everything else has stopped. And the budget that captured a 15% share of voice before a downturn could double in impact if your competitors pull most, or all, of their expenditure
And a 2010 study showed that firms which cut costs faster and deeper than rivals actually have the lowest probability of doing better when circumstances improve.
But before you double your advertising budget during the next recession, it’s important to note that you need to balance the right cost reductions and investments to be successful. This means improving operational efficiency for savings, and investing in marketing, R&D and new assets.
What makes performance marketing ideal for businesses during uncertainty?
Performance marketing has a number of benefits which can deliver incremental sales and gains at any time. But the impact of those benefits can be felt much more by businesses during recessions and other periods of uncertainty.
Some of the main advantages are:
- Minimal risk
- Better ROI
- Scale and flexibility
- Ease of adding diverse approaches
When you work with partners on a commission-based performance marketing campaign, it removes the financial risk of failing to deliver on traffic and sales. RedBrain partners only pay after a successful transaction, meaning that they’ve already secured revenue from the customer.
This model hugely incentivises both the delivery of relevant customers who are most likely to complete a purchase, and reinvesting commissions into delivering even more traffic and revenue.
With media habits changing as fast as shopping during challenging times, the value of advertising space may have changed drastically. But you should have far more accurate knowledge of your product costs and profit margins, allowing you to ensure you’re maintaining the right commission rates to get the biggest benefits.
The remaining concerns tend to be focused around cannibalisation of existing campaigns, or ensuring partners are trusted and reliable. You can see more details on the marginal overlap experienced by RedBrain partners, or take a look at a case study to see some of the things to look for in a Google CSS premium partner.
An IAB study on the value of UK online performance marketing revealed it generated £19.4 billion in sales, which was £12.30 for every £1 spent. Since then, we’ve seen Google Comparison Shopping Services introduced as Shopping Ads on Google were opened up following an EU ruling.
Just as an affiliated publisher takes on the risk and resource cost of creating content and marketing to deliver sales, one or more Google CSS partners will take on the same tasks to produce incremental growth through the Shopping tab and advertising options. On a CPA basis, this means you can focus on setting the right commission rates and letting your partners handle tasks like optimising product feeds and bidding strategies.
Scale and Flexibility:
Display advertising traditionally required a larger investment to reach a bigger audience. That’s why you pay a lot more for a prime time Superbowl TV slot than to put a classified advert in your local paper.
But performance marketing works differently. If your partners or affiliates are able to reach a much bigger audience, it won’t cost you anything more. And by the time you are paying the commission on the growth in incremental sales, it will be from the revenue you’ve already received from customers.
There’s also more flexibility in performance marketing than you might expect. It’s possible to work with your affiliate and Google CSS partners to ensure your commission rates are adapted to cope with disruption. And although continued marketing is recommended, a Shopping Ads on Google campaign can be paused and restarted relatively quickly and easily should you have problems meeting a big surge in demand.
Ease of adding diverse approaches:
One further benefit of performance marketing is that you’re not limited to a single effort. Rather than one piece of content or promotion, your affiliates might create tens or hundreds of articles, social media posts and more, depending on the terms and conditions you set.
And Shopping Ads on Google is designed to benefit retailers working with one or more external Google CSS partners. The bidding system for advertising treats every bid for a single merchant as coming from the same source, so no-one pays more for multiple agencies and partners operating on their behalf.
The RedBrain AI Shopping Service combines machine learning at scale with human insight to provide optimised campaigns. But it’s perfectly fine for any RedBrain partner to also be running different strategies either in-house or with other CSS partners to cover as many approaches as possible for increasing sales.
The next steps for your business:
If you want to improve the chances of success for your business during a recession or economic uncertainty, then there are several clear steps to take.
It’s important to audit your current financial situation, and look for opportunities to save money whilst improving operational efficiency. This may mean trimming your product lines, or reducing your resources if you can improve delivery in a more efficient way.
While cutting marketing and advertising can seem a quick and easy way to save money, it’s important not to panic. By auditing your current campaigns and channels with a long-term perspective, you can focus on the most profitably effective routes to securing customers and sales.
A business needs to be flexible and ready to take up new opportunities even during a downturn. This could mean a merger or acquisition. Or simply adding a performance marketing channel like Shopping Ads on Google, which with the RedBrain model has no upfront costs or risks attached.
Ultimately every retailer needs to be positioning themselves for both survival and recovery. And that’s why performance marketing channels should be leant on heavily in uncertain times.