What Happens When Brands Stop Advertising?
Welcome to an interview with Cody Tusberg, GO’s VP of Partner Marketing, where we discuss a question that many brands are exploring right now:
“What happens when I stop advertising?”
Click to listen or read the transcript below.
From GO’s perspective, we know the challenges of today’s environment, the realities of inflation, the supply chain disruptions, inventory shortages, the supply and demand bullwhip effect from all the fluctuating consumer patterns; all of these things, plus some, are creating lots of questions for brands about what to do, how to respond, in a way that doesn’t just alleviate those immediate pressures but continues to position them for long-term sustainability.
Every brand is facing their own unique mix of challenges, but Cody, you and your teams are leading brands through these pressures every day. We’ve discussed internally that it’s no surprise that brands, in response to all of those pressures, are discerning whether they should cut back in advertising.
Cody, before we get to answering the question, “What happens when a brand cuts back on advertising?” Can you walk us through the mindset and the decision-making process that a brand would use to consider making those kinds of cuts in the first place?
“That’s a great question. What we see when we talk to our brands we look at really there are a number of reasons that ads can be cut. Whether it’s a recession or other times of financial pressure—resources might be needed somewhere else in other areas of the business. And advertising can sometimes be seen as a discretionary expense. Some folks will talk about it as a dispensable luxury. And that typically is because the budget isn’t fixed. It’s dollars that can be diverted quickly at short notice. Even in some cases, poor budget planning or extra spending due to seasonality, whatever the case may be, it can quickly divert ad spend.
So we’re seeing our brands go through a little bit of wonkiness, for lack of a better term. We’ve come out of a period of growth in the ecom space that frankly hadn’t been seen before and we’re going into a period that we haven’t seen before in ecom. Which is, what we’ll call the “r” word, a bit of recession. Some brands going to think about it as a way to pocket and improve a short-term net profit. And some of these folks are going to be doing, what might be called in the industry, “milking the brand”—running off the fumes they’ve created in this massive period of growth and putting those dollars in their pocket and relying on the consumers they’ve acquired over that period of time. It’s a little bit of a gamble because we don’t necessarily know what the likely consequences are going to be. But what we do know is that anytime you slow down household penetration, or you slow down incremental acquisition of net new consumers, long-term your brand is going to suffer. Especially if you have a brand that is any sort of frequency item—things that you purchase 2, 3, 4, 5 times a year.”
Need help seeing what growth looks like beyond a single metric like ROAS?
Check out this case study:
Focus on Growth →
That context is a really helpful set-up for the big question… “What actually happens when a brand stops advertising?” What’s at risk and how do we help brands navigate that risk while still balancing their long-term goals?
“Typically what you’ll see is a pretty quick indication of net new to brand is going to suffer a little bit, especially if you have spend that’s been cut across the board. If you’ve removed brand spend from multiple channels, if you’ve removed shopper marketing spend from multiple retailers, you’ll start to see your household penetration go down. You’ll start to see your new to brand rates go down. And things will start to flatline relatively quickly.
For brands that did a good job on acquisition, especially a frequency brand, you’re going to start to see lifetime value does have value, so some of those consumers are going to come back and purchase. But over time you start to see the up and to the right movement go down and to the right because you’re just not acquiring those net new consumers and you can’t keep up with the natural drop-off you have in consumers.
When you stop advertising, you stop obtaining those new consumers but there’s a loyalty aspect as well. Brands do have to invest in loyalty as well. So you get a combo effect of a slow down or steep drop in net new to brand but you also see a little bit of a slower progression in loyalty when it comes to the brand. Other brands have an opportunity to come in and talk to your consumers, or you’re not reinforcing the value of the brand as frequently as you need to.”
I love that you’re reminding us of the bigger picture to consider. You’re lifting our eyes up above the immediate relief of cutting the budget today so that we can see the long-term impact related to a loss of NTB, deceleration of loyalty, and the reality that when you pull back on advertising, you’re opening the door for a competitor to step in and talk to your customers.
So, the decision-making process truly needs to include that bigger picture. When you’re walking a brand through that decision to reduce advertising spend, what big picture questions and realities do they need to consider before reducing their spend?
“It depends on where you sit in the industry. If you’re a brand that requires a lot of frequency, I like to think of your net new consumers and your loyalty base as a bit of a bank account. Bank accounts can be deplenished. As you constantly go back to that well, and you rely more and more on loyalty, and more and more on repeat purchase, you need to have a clear understanding of exactly how big that bank is. You can do that through some of the ad tools. You know what your net new to brand rate is and you know your net loyalty rate, and you can figure those things out based on how your business has performed the last few quarters or the last year. Once you have a firm understanding of that, you can make a decision on what the impact will be from pulling back advertising.
I wouldn’t recommend pulling back all types of advertising. Typically the first things that you’ll start to see pulled back are more of the upper funnel activities and you’re going to be relying more on consumers that show real clear intent. We know consumers coming to a platform like Amazon or a platform like Walmart that have the ability to search for products, folks are going to come in and search for something very specific. So we’ll go to a very basic product that 98% of the world uses. Let’s say toilet paper. Don’t ask me about the other 2%. We know that somebody who comes to a platform like Amazon or Walmart or Target, if someone searches for toilet paper, we have a pretty good idea of what they are interested in. So we make sure we put our brand up in front of those folks. That’s a little bit of a less risky investment when deciding on where to spend our dollars.
If we’re leveraging upper funnel media and we’re talking to folks about toilet paper and our brand, we’re talking to those folks when there is not a lot of shopping intent. So we’re really relying on those folks and that brand recognition to complete the process later on down the funnel. Those dollars tend to become a little bit more risky when you’re doing the analysis that goes into it.
But what ends up happening when you cut those dollars that are upper funnel, you reduce the ability for folks when they are searching for something and they are in that moment looking to purchase an item, you’re reducing the ability for them to think of your brand right there. It’s a bit of a snowball effect that starts to happen. You’re going to move down to these lower funnel tactics because the return is more stable and more predictable. But it just starts to get less and less over time as you stop driving searches that are branded for your brand. By removing your brand advertising, you save some dollars but over time, you’re going to start to see degradation in your ability to drive net new to brand and, ultimately, your loyalty.”
Want to see an example of compounding success with a full funnel media approach?
Check out this case study:
Full Funnel Media →
Let’s jump to the practical next step pieces. When you’re coaching a brand through the decision process, you know it’s not just about advertising, but it’s about brands dealing with everything from supply chain issues and inventory shortages, all the way to their ongoing priorities of PDP optimizations and other things that make sure they get the highest conversion out of every dollar spent. So, what are those next steps that brands need to have top-of-mind right now?
“It’s a dynamic time. We’re dealing with a lot of market forces that I don’t know if we’ve ever seen combined before. You’ve got the consumer issue and the ability to market to folks, to pull back advertising. And you also have the supply chain issue. If you can’t put something together, to build something—you don’t have the ingredients, packaging, whatever the case may be—then it’s tough to advertise against a product that’s not there. So that can then influence some of your decision-making. I think you need to have a full assessment of the state of your business and your individual situation.
What I would say is that if you’re a brand and you can look at some of these things—let’s use recession again and that might be your only fear—your supply chain is there, you’ve got some competitive advantages. You play in a category where there is a specific ingredient that is not available for some brands you compete with but you might have an advantage there. Take a real clear assessment and look for the opportunities that are there. And the recommendation is that once we find those opportunities, lean into those. If you’ve got a specific advantage over other products in your category then there is no reason not to lean in. Short-term returns might be a little bit less. But I would say you’ll start to see those investments pay off. Let’s say you have a major brand that has decided to pull back because they are a publicly traded company and there’s pressure coming from all other areas. If you’re more of a mid-funnel brand that is growing and you don’t have some of those same pressures, let’s lean into the opportunity some of those larger brands have created in the vacuum space they’ve opened up. Let’s lean in and talk to those consumers that are frankly sort of thirsting for a brand message to come to them, and look for alternatives and innovation that some of these brands can provide.
So, for next steps? With ambiguity there is always opportunity. That’s something that I’ve seen throughout my career, whether it’s in an individual’s career or in brand-building. The brands that have the guts and ability to go out there and lean in, those are the brands that are going to come out on top of this thing and do well.
When we got into March-May 2020, there was a lot of these similar things where demand was going up while there was a lot of uncertainty. And we saw some brands that were a bit more conservative start to pull back. The vacuum they created and the opportunity for brands to creep into that space, the brands that came out of this period of growth were not necessarily the brands you might have thought would have. They were these brands that had a real opportunity to make a name for themselves. They were brands that decided to lean in. They were brands that decided to talk to consumers, talk about their innovation, and really talk about how their product benefits folks in their everyday life. Those were the brands that did well. That’s what we saw and we continue to see those folks do exceptionally well throughout a period of what was a lot of uncertainty. And I anticipate the same thing as we go into this next situation.
What I would encourage brands to think about is good, strong, fundamental marketing. The calculous, as complicated as it can get, at the end of the day it’s traffic x conversion rate = sales. So let’s find those pockets of traffic that drives that consumer, that resonates with your brand and let’s optimize on that conversion rate. I don’t mean to make everything so simple. But, at the end of the day, if you can ground yourselves in those fundamentals that we all learned in marketing 101, remember what those things are and clear out the noise, we’re all going to do pretty well.“