As consumers accept price hikes as a side effect of inflation and distribution chain disruptions initially brought on by the pandemic, savvy marketers are now looking at advertising as an investment as opposed to a cost.
This may not necessarily result in a larger ad spend during the current economic downturn, but some companies, including one of radio’s largest advertisers Procter & Gamble, are using these unprecedented times to reinforce product brands that American consumers are willing to absorb price increases for.
“It’s neither an entirely good or bad predicament for the ad industry — it’s complicated,” Digiday’s Seb Joseph writes. “After all, inflation can be a good marketing opportunity to get consumers to pay more for a product they love when they’re braced for price increases. They’re making advertising investments now that they hope will pay off in driving growth.”
Advertising is more strategically important than ever, the largest companies say, because they need to push through price hikes on proven brands. Companies now have to think differently about ad spending.
For instance, Procter & Gamble CFO Andre Schulten said the company has moved spending from linear, non-targeted TV to programmatic and digital ads, which he says is “a lot more targeted and a lot more precise in terms of delivering reach.”
Schulten says by focusing on a brand’s reach as opposed to building budget plans for categories, the brand should be able to hit its projected reach at a lower ad cost than what P&G has spent in the past.
Furthermore, reinforcing strong brands through difficult economic times will benefit the company in the long run as costs will eventually come down but price increases on products rarely do.
“Consumers are clearly taking on more of the price increases than many companies had expected so now is actually a good time to advertise in order to push through price increases,” Ian Whittaker, a market analyst and founder of Liberty Sky Advisors said at a recent Ebiquity event.
“It raises an interesting question about whether the firms who can push through price increases to the consumer are likely to see a permanent uplift that comes through to their margin. In this way, advertising, or rather brand advertising, becomes more like intangible capex.”