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 is clear that many have not 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, are not 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 are not 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 6% of companies are cutting marketing budgets.
With the world’s advertising leaders having recently gathered in Cannes for the annual Cannes Lions International Festival of Creativity, that is hardly likely to be 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.
“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 added. “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.”
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