April 2020 was a tough time. It was, to misquote Churchill, the start of the beginning. The initial horror stories from Wuhan had abated and been replaced with a global realisation that this was the pandemic so many had warned us about for so long. Thousands contracted the virus that month and hundreds more died with each passing day. It became terrifyingly apparent just how deadly this novel coronavirus was. And just how difficult the months ahead would be.
And while it was certainly not an important issue in the scheme of things, marketers all over the planet had to work out what they were going to do about 2020 ad budgets. Companies were staring at unprecedented and inestimable revenue decline as consumers stayed home, reined in and saved money. These executives looked over their planned marketing investments set during the gay, naïve days of 2019 and reached for the nearest red marker.
That made the Q3 results call with consumer goods giant Procter & Gamble particularly important – not because anyone on the call particularly cared what had happened during Q3, but because everyone wanted to see what P&G was going to do in the Covid-contaminated quarters ahead. More than Coca-Cola, or GE, or Ford, or any of the other Fortune 500 companies, this was the call that those in the know wanted to listen to.
Taking P&G’s lead
There were three reasons why P&G cast a longer corporate shadow during those deadly days of 2020 than any other. First, its age means the company has already weathered many a serious storm. This was the first great macroeconomic test for big brands like Uber and Tesla. But for P&G, founded in 1837, Covid was simply the next big bump along a very long and bumpy road.
Second, P&G has not only consistently navigated these bumps but prospered from them. It’s one of the company’s most famous traits. Survey its performance during any major crisis and the same ancient P&G playbook is brought out, the same sage heads prevail, and the same subsequent success materialises as a direct result. P&G prospers because of hard times, not despite them.
And finally, this Q3 call was important because – quite simply – it was with P&G: the company that invented most of the concepts that now form the basis for modern branding. It was P&G that created brand management. That invented the role of a brand manager. That properly organised a functioning house of brands. That came up with the concept of above-the-line and below-the-line. They wrote the book. And, with Covid clearly representing a new, dark chapter in the latest edition of the book, everyone clambered onto that Q3 call on a cold Friday morning to see what its original authors planned to do about it.
The man on the end the line that day was Jon Moeller. I always want to preface any mention of P&G’s then joint CFO/COO with the adjective ‘big’, as in ‘Big Jon Moeller’. I have no idea how tall he actually is and none of his bios answer the question. But he looks about six foot seventeen. A Cornell MBA, Moeller’s avuncular presence at interviews across American media about P&G’s performance has made his large face and slightly crumpled appearance somewhat famous. Moeller opened the call that day with a tense but reassuring review of the current impact that Covid-19 was having on P&G’s workers, operations and associated communities.
Very quickly, however, he was on the front foot. “The best response to what we are challenged with today,” he told analysts, “is to push forward, not to pull back.” This was not a time to “retrench” Moeller explained. Instead, his company would “double down” and “move forwards, not backwards”.
“There’s big upside here,” he explained to one analyst’s question, “in terms of reminding consumers of the benefits that they’ve experienced with our brands and how they’ve served their and their families’ needs, which is why it’s not time to go off-air.”
It was clear from Moeller’s answers that P&G was not only going to continue its advertising, and commit to its full 2020 budget, the company was actually going to increase budgets in the face of Covid-19. For Moeller, this was about serving consumers, retail partners and the broader society. And it made good business sense for P&G too. “It’s a trite and overused statement,” Moeller concluded, “but we really do expect to come out of the crisis stronger than we went into it.”
You had to pinch yourself. If a CMO had made these comments you would have rushed over and kissed him, passionately, on the mouth. But this was the CFO talking! About mental availability, the ‘long of it’, and the need to double down in the face of a downturn. Proper leadership. Real brand focus. The whole caboodle.
If you recall, most CMOs were gibbering messes at this time. All that crap about leadership being “emotion” and “empathy” had obscured the reality that it was actually, and always has been, about making the right decision and getting the fuck on with it. These lost CMOs oversaw rudderless brands that were either cutting ad budgets or pissing them out of the nearest window on piano-tinkling, cliché-ridden wankathons that all looked alike and resonated with none of the consumers they purported to connect with.
Faced with Covid-19, most big companies decided to reduce – and in many cases completely cut – 2020 advertising budgets. The World Economic Forum calculated that total investment in advertising decreased by 10% in the USA, and a whopping 12% in the UK during the first half of 2020. The Interactive Advertising Bureau reported that almost a quarter (24%) of brands had paused all advertising by Q2 and gone completely dark.
Big companies, facing the same fork in the road at the start of 2020 as P&G, zagged backwards instead of continuing to zig forwards. Coca-Cola, for example, “paused” its global advertising efforts during the worst of the pandemic months. Advertising investment was cut by 35% and £2bn was wiped from the company’s communications budget that year.
Coca-Cola cited three reasons for this reduction – none of which make any sense. Apparently, the postponement of the Tokyo Olympics, a pause in hateful social media during July and a desire to “support local communities” explained the billion-dollar decision.
Covid caused every brand to question itself. The brave, the clever and the ones with long memories doubled down. Those with lesser budgets, shorter memories or a lower grade of leadership cut back and paid the price.
The harsh reality is that Coca-Cola blinked in the face of Covid. “Why would I want to spend money in a period if I can’t get the return, particularly if there’s a strong lockdown?” CEO James Quincey asked during a Q2 earnings call in July 2020. “We thought, no marketing is going to make much difference in the second quarter, so we pulled back heavily.”
I can give Quincey three good reasons why he should have kept advertising throughout the dark and deadly days of 2020. Incidentally, they are the exact same reasons that led Jon Moeller and the team at P&G to increase its ad spend while Coke was going dark.
First, Coca-Cola’s short-term sales still needed a boost. Sure, on-premise sales of Coke and its other sister brands were hit hard by lockdown and a general reticence to eat out. But Coke’s own data confirms that most, if not all, of those sales simply transferred to alternative channels of distribution that still sold Coke.
Second, unless Quincey was expecting Covid-19 to knock out all demand for his products for the next five years, there was also the more important issue of building long-term brand equity. This branding rationale is much bigger for Coke than the shorter sales activation argument, given the 60/40 rule.
Why would James Quincey think that marketing was not going “to make much difference” when brands continually, and constantly, need reinforcement to maintain brand equity over the long haul? Especially when Covid had forced everyone indoors and ensured that more people were consuming more commercial media (at reduced ad rates) than ever before.
And, finally, the “pause” ensured a significant competitive advantage for Coca-Cola’s rivals. Most notably PepsiCo, which followed a more P&G path last year and maintained ad spend.
Don’t cut in a crisis
In a play as old as recessions, the story is always the same. Brands cut back from advertising because they and their target consumers are facing a difficult period. One brand, however, maintains its marketing investments and reaps all the rewards as a result. Not because of the company or the customers it targets, but because of the competitors and their silence. As they cut back or go completely dark, the same ad budget suddenly delivers a significantly better share of voice. Excess is a relative term after all. And excess share of voice has been shown to deliver significant growth in the short and, especially, longer term.
Covid caused every brand to question itself. The brave, the clever and the ones with long memories doubled down. Those with lesser budgets, shorter memories or a lower grade of leadership cut back and paid the price. In Coca-Cola’s case, arch-rival PepsiCo seized a significant upper hand and reported net revenue growth of 5% for 2020. Contrast that with Coca-Cola’s disappointing full-year reduction in net revenues of 11% for 2020.
More importantly, consider P&G’s results. Revenue growth of 4% for 2020 has set up an even stronger performance this year. “We’ve got the strongest share growth we’ve seen in many years,” outgoing CEO David Taylor announced last month, “which tells me the combination of our superior strategy and the brand execution by our people is really working, and we’ll continue to invest behind brands that are winning.” Incidentally, Taylor is outgoing because P&G will have a new CEO in November. Big Jon Moeller takes over. Obviously.
Of course, there is a lot more to revenue growth and decline than just advertising investment. But the latest empirical evidence from the Ehrenberg-Bass Institute suggests just how right Moeller was to maintain ad spend and how wrong Quincy was to cut it.
I don’t know what it is about Ehrenberg-Bass data, but it is the source for more misinterpreted, bastardised theories in management than any other. The Institute produces rigorous, rather splendid insights and then a host of buffoons who don’t even fully understand the work (I have my hand up while writing this by the way), appropriate it for their own ends, often with little or no accuracy to its original intent.
This week the ink had barely dried on the latest Ehrenberg-Bass paper in the Journal of Advertising Research, showing the impact that pulling all advertising has on sales, and it had already started to bounce around the interweb in all kinds of different versions and colour combinations. The variations were much to the disgust of the original authors, who were – quite understandably – keen that their original charts be left the fuck alone.
I sent the (original) paper to a number of marketers that I work with, who struggle with overzealous finance teams that exhibit an ignorance for marketing investment and an underwhelming appreciation for advertising. Gratifyingly, most of the marketers had already seen and downloaded the paper. Several of them had even been sent it by their finance teams. Whatever you think about the empirical veracity of Ehrenberg-Bass, never question its reach or – ahem – its differentiation in the market.
Which leaves only one obvious question. Given Ehrenberg-Bass is so empirically clear about the dangers of going dark, especially for brands that are in decline, why on earth didn’t Coca-Cola – a fully paid-up member of the Institute – listen to them?