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In response to cratering sales and uncertainty over the coronavirus pandemic, many brands have followed a similar playbook: Cut expenses to the bone and hunker down till the storm passes.
But doing nothing creates its own risks.
One such risk that companies seem to be underestimating is the damage that this strategy, or lack of a strategy, could do to their brand value. If companies no longer protect, define and promote their brands, they could emerge on the other side of the pandemic with significantly weaker brand values.
A common view right now is that marketing and brand protection fall under the discretionary-budget category, which can be easily frozen. But the long-term damage this neglect could do to brands makes a strong case for it to be considered essential, as it is in normal times. An analysis by Brand Finance estimated that the brand values of major companies are set to collectively lose up to $1 trillion as a result of coronavirus and the accompanying economic shutdown.
Of course, not all businesses are being beaten up by the crisis. Walgreens WBA, -1.31%, COST, -1.25% and Target TGT, -0.19% have stayed busy, albeit with a focus on new or different product segments. The biggest hit is being felt by brands that rely on discretionary consumer spending, such as luxury goods or apparel. Analysts at UBS recently predict the latter sector to be hardest hit, forecasting a closing of some 24,000 stores in the next five years. Retailers Neiman Marcus, J.C. Penney JCP, +1.29% and J. Crew have filed for bankruptcy, and many others have suffered a massive drop in sales.
But the answer for businesses isn’t to kill their marketing budget. In fact, the economic freeze caused by the pandemic is throwing up a variety of threats to brands that actually demand a robust and creative response.
Rivals at the door
Other companies aren’t going to be standing still in this period. Dominant players with cash on hand are eyeing targets weakened by the crisis for acquisition on the cheap. Upstarts are certainly seizing the moment. And many other players are pivoting into new areas to sell pandemic-essential goods and services, which could threaten existing trademarks and brands.
Another reason for established retailers to remain vigilant at this time is the advance of direct-to-consumer (DTC) brands. DTC sales more than doubled to $14 billion in the two years to 2019, making inroads into traditional retailers revenues. While some DTC brands, especially in the non-essential categories, will struggle during this crisis, those selling consumer staples are likely to get a boost in sales and profile that will last beyond the outbreak as consumers spend more time shopping online. The pandemic is likely to accelerate the trend in DTC that has seen upstarts like shaving-equipment maker Harry’s emerge as a huge threat to Procter & Gamble’s PG, -0.82% Gillette, and could do the same for apparel brands that now don’t have to compete with the notion of trying on clothes in a dressing room.
Renewed creativity
To meet these threats, established brands need to put creativity and thought into their advertising campaigns — something that’s hard to do if you’ve decimated your marketing budget. Big retailers’ advertising in the pandemic so far has been underwhelming, to say the least, dominated by bland, repetitive language that invariably contains the phrase “in these uncertain times.”
Consumers appear to be tired of being hit over the head with reminders of how grim things are. What people want at a time like this is a distraction that lifts their mood, or information that can genuinely make their lockdown lives more bearable. That requires advertisers to come up with content that is less saccharine and has some subtlety, nuance or humor that resonates.
All of which is much harder to do when your budget’s been slashed to zero.
A decision to limit brand spending came in the initial stage of this crisis as a knee-jerk reaction to closing physical locations and plunging sales. Now that the initial shock has worn off, companies have more time to think strategically about how they want to emerge from the other side of what is likely to be a prolonged period of abnormality. A renewed focus on growing and protecting brand value should be a big part of that strategy.
Caroline Simons and Mark Puzella are partners at Orrick, Herrington & Sutcliffe who focus on trademark, copyright, false advertising and licensing disputes.
