As central banks around the world raise interest rates in an attempt to curb inflation, many companies fear a looming recession.
But as they seek to protect themselves from the worst effects of a potential recession, it’s clear that many have not learned from the past and will cut sales and marketing budgets.
These are the main findings from the latest International Business Barometer report by Sapio Research. Titled ‘Wave 6: Preparing for a Recession?’, the report shows that around 95% of businesses worldwide are worried about a potential recession. These concerns, however, are not equally widespread. In the US, 45% of businesses are very worried about the recession, compared to just 11% in Germany.
Just over a fifth of businesses (22%), meanwhile, are already affected by the current economic uncertainty. Again, these effects are not equally widespread. Japan and the USA are worse, and 28% of companies in those countries are already feeling the problem. Globally, the percentage of affected companies is expected to rise to 42% by the end of the year.
The research also shows, however, that responses to any recession are likely to be just as wrong as they have been in the past.
“While many companies say their main mitigation strategy will be to increase sales and marketing activities, most are still likely to bite the hand that feeds them,” said Jane Hales, managing partner, Sapio Research. “The largest share of potential redundancies will be made in key areas such as sales and communications.”
In addition, half of businesses anticipate a reduction in discretionary marketing spend (such as PR, events, advertising and sponsorships) over the next 12 months. Currently, only 6% of companies are cutting marketing budgets.
With the world’s advertising leaders recently gathered in Cannes for the annual Cannes Lions International Festival of Creativity, this will hardly be welcome news. Neither is the fact that many business leaders question the effectiveness of advertising as a channel of influence.
“Globally, social media and paid social media are significantly more valued marketing channels for driving retention and growth than advertising, especially in the US,” Hales said. “The UK is the only country that values the two channels equally.”
However, at least some business leaders view any potential recession as an opportunity. In the US, for example, some 37% plan to use this and the promise of a larger audience as an opportunity to increase their marketing spend.
“Companies that have cut their marketing budgets due to the recession not only find it difficult to retain customers, but also to bring back new and existing customers when economic growth returns,” Hales added. “They also leave themselves more vulnerable in the event of a PR crisis that puts the organization at risk, something that 41% of US organizations have experienced in the wake of COVID-19. It would be a shame if they forsook the lessons learned during the pandemic and put themselves at risk again.”
Are you interested in the world’s leading brands personally discussing such topics? Learn more about World Digital Marketing Forum (#DMWF) Europe, London, North America and Singapore.