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recession

95% of businesses fear recession, will likely cut marketing budgets

As central banks around the globe ramp up interest rates in a bid to curb inflation, many businesses fear an oncoming recession. But as they look to protect themselves from the worst effects of a potential recession, it’s clear that many haven’t learned from the past and will cut sales and marketing budgets.

Those are the headline findings from the latest International Business Barometer report from Sapio Research. Titled, “Wave 6: Preparing for a Recession?”, the report shows that some 95% of businesses around the globe are concerned about a potential recession.

Those concerns, however, aren’t equally spread. In the US, 45% of businesses are highly concerned about a recession, compared with just 11% in Germany.

Just over a fifth of businesses (22%), meanwhile, are already being affected by the current economic uncertainty. Again, these effects aren’t equally spread. Japan and the US are faring worse, with 28% of businesses in those countries already feeling the pinch. Globally, the percentage of affected companies is expected to rise to 42% by the end of the year.

The research also shows, however, that the responses to any recession are likely to be as misguided as they’ve been in the past.

“While many companies say that their top mitigation strategy will be ramping up sales and marketing activities, most are still likely to bite the hand that feeds them,” said Jane Hales, Managing Partner, Sapio Research. “The highest proportion of potential redundancies are set to be made in crucial areas such as sales and communications.”

Additionally, half of businesses anticipate cutting discretionary marketing spend (such as PR, events, advertising, and sponsorship) over the next 12 months. At present, just six percent of companies are cutting marketing budgets.

With the world’s advertising leaders currently gathered in Cannes for the annual Cannes Lions International Festival of Creativity, that’s hardly likely to come as welcome news. Nor is the fact that many business leaders question the effectiveness of advertising as an influencing channel.

“Globally, social media and paid social media are significantly more valued marketing channels for driving retention and drive growth than advertising, particularly in the US,” said Hales. “The UK is the only country that values the two channels equally.”

At least some business leaders, however, view any potential recession as an opportunity. In the US, for example, some 37% plan to use it to and the promise of more captive audiences as an opportunity and plan to increase their marketing spend.

This may ultimately be the better approach.

“Companies that cut their marketing budgets due to recession not only make it harder to retain customers but also to bring back new and existing customers once economic growth returns,” Hales concludes. “They also leave themselves more vulnerable in the event of a PR crisis that puts the organisation at risk, something that 41% of US organisations experienced post-COVID-19. It would be a shame if they chose to forgo the lessons learned during the pandemic and put themselves at risk again.”

The report will be released online 1 July 2022 and will be available for download here https://sapioresearch.com/international-business-barometer#

The next great depression – Is your business ready?

We are living through extremely uncertain times regarding both public safety and the global economy. Even before the Covid-19 pandemic swept the world, we were teetering on the brink of a recession. Economists such as David Blanchflower compared the pre-Covid financial landscape to that of pre-banking crash 2008. If nothing else, this is a major red flag which should give you the motivation you need to take every possible measure to protect your business.

Is an international recession on the horizon?

At the very beginning of the year, the UN warned that we could be facing a global recession in 2020. That was before taking the impact of Covid-19 into account. Factors including trade wars, currency fluctuations, and Brexit were all amounting to an uncertain global economy and the Unctad report, “global growth will fall from 3% in 2018 to 2.3% this year — its weakest since the 1.7% contraction in 2009”.

Add the impact of Covid-19 to the already precarious situation, and we are now expecting to be hit with a recession rivalling even the magnitude of the Great Depression (and far worse than the 2008 financial crash). As of June this year, the global growth projection for 2020 has fallen to -4.9 per cent (1.9 per cent below the forecast made by the World Economic Outlook (WEO) in April). In addition, the road to recovery doesn’t look like it will be as fast as the WEO initially predicted, and they are now only forecasting a 5.4 per cent global growth for 2021, 6.5 per cent lower than the predictions before Covid-19. Low income households are expected to feel a particular acute financial impact, and global poverty, which has been significantly reduced since the 1990s, is likely to reach another crisis point.

Because of strain on the global economy, we are expected to encounter rising levels of debt in both developing and advanced countries, as well as a “global downturn that could increase unemployment and inequality”, as stated by Kristalina Georgieva of the International Monetary Fund. Redundancies and a decline in job vacancies on an international basis are expected to follow such a crash, with unemployment rates increasing at an alarming rate. 

How hard will the UK be hit? 

The OECD’s (Organisation for Economic Co-operation and Development) most recent reports do not look promising. Experts have predicted that the UK will likely be the worst hit country in Europe and the economy is forecasted to contract by 11.5 per cent after the first wave of the pandemic. If we end up seeing a second of Covid-19 later in the year, this contraction is predicted to increase to 14 per cent. 

One of the major reasons why the UK is likely to feel such a stark economic impact is our country’s reliance on the service industry for our economic growth, a sector which has been particularly damaged by the repercussions of Covid-19.

In addition to the economic factors surrounding Covid-19, the US trade war with China has caused a larger drag on global growth than anticipated, and the UK will be on the receiving end of the economic repercussions. What’s more, the looming prospect of Brexit poses different threats to the UK’s economy. At best, the uncertainty caused by both Brexit and the Covid-19 pandemic has created a hesitant consumer base in the UK. Customers are spending less and are more cautious of businesses than ever. It is a difficult time to maintain customer loyalty, as would-be consumers are tightening their purses in the fear of a looming financial disaster. 

Learn how to protect your business 

Times may be challenging, but if you think ahead, you’ll be able to safeguard your business against a recession. Businesses that prepare for every eventuality are the ones that not only survive but thrive in the face of adversity. Leaving it too late to implement a recession strategy could be your undoing, so get ahead of the game and prepare for a period of great financial difficulty. Here are some key strategies that will help your business face economic uncertainty:

  • Focus on existing customers — as we have discussed, consumers aren’t spending as much due to lack of trust and growing apprehension. Because of this, it is essential that you focus on your existing customer base during testing financial times. This will increase brand loyalty and grow customer confidence. Offer them benefits and reasons to stay true to your brand.
  • Put some adjacency and extension strategies in motion — a recession is not the time to start looking into completely new avenues of profit. However, you can’t let your services become stagnant. Adjacency strategy is the optimum solution to this — find an area adjacent to your core product or services to expand into. Extension strategy is similar: take your current service a little further and offer new and exciting opportunities or products to existing customers. Ensure that you have a flexed forecast so that the business is fully prepared for all possible outcomes of this new strategy.
  • Forge some powerful alliances — mergers, acquisitions, and alliances are all key strategies during a recession. Alliances offer a great way to expand your business without investing in anything completely new during times of uncertainty. 
  • Don’t be afraid to outsource — outsourcing key elements of your business can save you time, money, and financial anxiety during a recession. Outsourcing your accounts department may allow you create scale and flexibility within your organisation. 
  • Reduce inventory costs — look to see if your business has the leeway to reduce costs without sacrificing the quality of the services or products it provides. This will help to take the pressure off your finances. 
  • Don’t sacrifice your marketing budget — often, brands make cuts to their marketing budgets in response to financial anxiety. However, this will spell disaster for your company. There is no time more crucial to maintain your marketing efforts and show customers that your brand is tackling the recession and winning. 
  • Tighten up on your corporate governance — companies that see a downturn in performance are more likely to survive if they have good corporate governance embedded into their culture.  Part of this is ensuring that the company has had a financial audit. If in doubt, contact an accountancy from that specialises in audits, tax advice, and small business VAT.

No one knows quite what to expect over the coming months and years, but now is the time to start safeguarding your business against an imminent recession. The road ahead does not look easy, but if you put certain measures in place and react in a timely manner, there’s still time to recession-proof your business and come out on top. 

Sources

https://fullfact.org/europe/boris-johnsons-new-brexit-deal-four-key-questions-answered/

https://www.theguardian.com/business/2019/sep/25/global-recession-a-serious-danger-in-2020-says-un

https://www.theguardian.com/business/2019/sep/27/brexit-uncertainty-pushes-uk-to-brink-of-recession

https://www.forbes.com/sites/allbusiness/2014/11/12/5-ways-to-prepare-your-business-for-the-coming-economic-recession/#7c4089d34d4f

https://www.thebalancesmb.com/business-thrive-tough-economy-2948298

https://www.theguardian.com/business/2019/sep/09/kpmg-predicts-no-deal-brexit-recession-in-2020

https://unctad.org/en/Pages/publications.aspx

https://www.bbc.co.uk/news/business-52991913

https://www.imf.org/en/Publications/WEO/Issues/2020/06/24/WEOUpdateJune2020

https://www.theguardian.com/business/2020/jun/10/recession-uk-britain-coronavirus-developing-world-oecd