By Dr Grace Kite

A marketer’s guide to the economy after covid

We’re past the worst of the covid-19 crisis. Not completely out of the woods, but the trees are definitely thinning.

And while we were in the depths of it, two roads diverged, so that different people are now coming out on different paths. Some are much worse off; others are actually fitter financially than they were before.

That’s why economists are calling the recovery “k-shaped”. Categories and consumers on the top arm of the k are bouncing back, they have money to spend. Others, on the bottom arm, are struggling to make ends meet and will continue to.

And this matters for marketers. Effective marketing depends on reaching the right people at the right time with the right message. In 2021 and 2022 that means knowing which arm of the K potential buyers are in, and adjusting strategies accordingly.

There are good opportunities in the top arm of the k, as people reward themselves for surviving the dark times. On the other hand, advertising aimed at those in the bottom arm needs to be very sensitive, and even then, it may not pay back in the short term.

The economic recovery is already here, it’s just not very evenly distributed

When taken as a whole, the data reveals a UK economy in good health. The chart below shows economic measures relevant to marketers and compares data from April and May 2021 to the period just before the pandemic. It shows that both spending and hiring are significantly up from what was normal before covid.

But the overall figures mask massive divergence in fortunes for different types of people.

At one end of the scale, already wealthy people have had a good pandemic financially. High earners overwhelmingly work in sectors that stayed open and the majority could work from home. With their incomes unaffected and fewer opportunities to spend, many ended up with +£300 per month more than usual in their bank accounts (IFS).

This same group also benefitted from an increase in the value of their assets. The stamp duty holiday and demand for more and better space at home has brought increasing house prices, and the value of many stocks and shares soared too.

At the other end of the scale, and it’s sad that it happened this way, covid has been much more damaging to poorer people, younger people, and mums.

The sectors that got shut down often were those that didn’t pay well in the first place, and with retail – a significant employer of women – closed, it was mainly mums who sacrificed work to take on the task of home schooling.

Opportunities for marketers

A good way to evaluate whether these outcomes will continue or quickly revert to the pre-covid pattern is to consider how painful the changes were and how easy it will be to change things back.

Through this lens, the outcome in the top arm of the k is clear. With the country back open, those who had a good pandemic financially will reverse their enforced thriftiness and begin to spend again. And it’s likely that at least in the short term they will spend more than they did before covid.

In April, the OBR estimated that there was a total of £180bn in new wealth, and that at least 10% of it would be spent in the next 12 months. They said that the additional purchases would be made up of treats, as the nation breathes a sigh of relief, and durables, including cars, which many postponed buying during the crisis.

The chart above shows data on the period since partial reopening on 17th May. It’s early days but the indication is that so far, their predictions were right.

While the splurge continues, marketers of more expensive products have an opportunity to grow sales and penetration.

A recent trawl through the EACA’s database of premium brand euro effies entrants reveals some clues as to what strategies might work. One useful finding was that the majority of these successful cases combined broad reach TV with targeted online media both in recessions and between them.

But the most striking finding was the one in the chart below. It shows that bringing new products to market is generally a useful strategy regardless of the economic backdrop.

Risks for marketers

Things will be trickier for marketers whose target market is wholly or partly young or low income. These are the people in the bottom arm of the k, they’ve had a tough pandemic and the hard outcomes are likely to persist.

The reason is that a good proportion of the new unemployment that affects these groups came hand-in-hand with significant investments into different ways of doing things that won’t be rolled back any time soon.

Retail businesses set up new ways to sell online and consumers got used to buying things that way too. It means that in-person retail will not go back to where it was before, and many of those jobs won’t be re-created.

In other services sectors, the new capability for working from home will also be kept. This makes it much easier for low-skilled administrative jobs to be automated or even outsourced abroad where wages are cheaper.

And young people will continue to struggle. They disproportionately rely on the sectors that were shut down for jobs. Although those sectors are re-opening, there are now fewer surviving businesses, and those that do still exist continue to struggle, with between a fifth and a quarter facing severe or moderate risk of insolvency.

This means that marketers need to be careful about how their communications reach young and lower income people. Tone deaf advertising can do damage to brands, and there’s a serious risk of delivering a “treat yourself” message to someone that can’t make ends meet.

Careful, well targeted media buys are part of the solution, but it may also be worth some brands staying off air. With lower incomes, groups on the bottom arm of the k will not be able to respond to advertising the way they did before covid. Return on investment will be lower, and for some brands it won’t pay back.

For most marketers, scenario planning based on econometric models that incorporate the effect of the pandemic is helpful in working out the best way forward. This shouldn’t have the objective of forecasting the one actual future, but of understanding a range of different possible futures, and identifying strategies that work in most of them. It’s not an easy task, but it’s one that can make all the difference.

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