Agency head Richard Parsons looks ahead to the role that business-to-business marketing will play in our recovery.
Pretty much everything is Business to Business (B2B). More than half of the companies listed on the FTSE 350 are pure B2B, 50% of our economy is generated by B2B transactions, and 82% of companies derive some or all of their income from B2B. Unlike Business to Consumer (B2C) trade, we have a global surplus in B2B trade. So how does this work, and why do so many people miss its significant contribution?
In his famous essay “I, Pencil”, Leonard E. Read, the founder of the Foundation for Economic Education, outlined the different skills, materials and jobs involved in producing a pencil. It contains cedar wood from Oregon, logs from California, graphite from Ceylon mixed with clay from Mississippi among several other materials.
It is not just logging or the assembly line jobs that account for the employment dependent on the pencil. Read also highlighted the lighthouse keeper signalling the ship in, and the factory worker sweeping the floor.
So B2C might dominate brand awareness, but it is built on a solid bedrock of B2B. And B2B companies have a vital role in our ongoing economic recovery. Learning the lessons of previous economic challenges, here are some of the trends that we are likely to see in the coming months and into the new year.
Below the line to above the line
A shift from “Below the Line” marketing (such as direct response advertising) to “Above the Line” marketing (such as mass media brand advertising) is essential if brands want to recover well. Even in normal times, many businesses place a disproportionate emphasis on lead generation and brand conversion. Typically, 90% of marketing spend is allocated to short-term lead generation, focusing on telemarketing and mailshots. This balance should be much closer to 50% with the remaining 50% spent on building brand equity.
Lead-generation tactics have a role to play, but the B2B industry neglects emotional marketing in favour of rational campaigns at almost every juncture. Yet the B2B Brand Index Study – the most extensive global study of its kind – established that creative campaigns are 12 times more efficient at delivering business success.
B2B and B2C are different beasts, but there are certain similarities. For instance, brand awareness among your target audience is still a fundamental part for securing revenue. Whilst the decision-makers are not the same as impulsive consumers quickly deciding between a can of Coke and a can of Pepsi, it is still vital that your brand is well known.
The Rule of Three is well documented. In a developed market, when a prospective customer encounters a problem, they will usually immediately think of three brands that can solve it due to memorable campaigns and sustained awareness building. Further research will often expand this pool of options to around ten brands, but when it comes to the crunch, one of the original three will win the purchase between 70-90% of the time.
Value for money
Marketing budgets have been decimated throughout 2020. In an April 2020 survey, 90% of respondents said their budgets were delayed or under review. In the same study, 86% of respondents indicated that they were delaying or reviewing marketing campaigns.
The full economic impact of the COVID-19 is not yet clear, but we are a long way from normal market confidence and many businesses are increasingly – and understandably – cautious when it comes to allocating marketing spend.
We know that this approach is wrong. According to market research company System1, there has been no downturn in advertising ability to connect with people. Media consumption has risen during lockdown and CPM of Facebook advertising has fallen from $1.88 in November 2019 to $0.81 in March 2020. In short, the ROI for marketing spend is better now than before the crisis. Those who can spend, should.
Marketers of all stripes have done an incredible job at adapting at short notice to an unimaginably different world. Still, events – which are planned many months in advance – have been badly hit.
Seminars can become webinars and conferences can become virtual. While this is no consolation for a decimated events industry, virtual events are generally far cheaper to produce and to participate in than large-scale in-person events. This will leave a surplus of budget previously earmarked for events. While some may choose to be cautious and not spend, many will reallocate this money to other facets of marketing, to stimulate new revenues and a better recovery.
Think long term and hold your nerve
Institute of Practitioners in Advertising case studies show that brands that maintain marketing spend grow 4.5 times faster than brands that cut their marketing spend during times of recession. And the brands that cut marketing spend then struggle for longer and take five years more to recover revenue. A marketing black-out is not a solution, but rather yet another problem that will contribute to further profit loss.
Despite this, many brands will continue to pursue the short-term fix and cut marketing costs. This presents an opportunity for those willing to be brave and bold. It might not feel like a wise investment as profits tumble alongside the rest of the sector, but maintaining or increasing spend will allow large brands to outflank competitors and smaller brands to increase their share of voice and gain ground on more cautious competitors.
It remains to be seen how short-term marketing cuts will pan out in the mid to long term, but changes are indeed afoot. Crises are catalysts for change, and like any crisis, the current one will have winners and losers. Brands that hold their nerve, innovate and invest in their recovery are likely to see the benefit in the long term. The current economic uncertainty is accompanied by changes in other aspects of the way we live, work and travel. Rather than a threat, it presents an opportunity.
Richard Parsons is the co-founder of B2B marketing agency True.
Main image courtesy of iStockPhoto