Why Marketing Budgets Should Not Be the First to Get Cut in Times of Recession
In this “Pass the Mic” virtual fireside chat, #GAalumni Nicolas (Nico) Leonhardt joined #GAmentor Kevin Indig for a conversation on how to optimize your marketing efforts during COVID-19. Nico, CEO and Co-Founder of Wagawin, whose technology allows advertisers to optimize their results in real-time, was able to provide invaluable insight into what tactics B2B startups can implement during tough times. As a digital marketing SEO expert, Kevin was able to share lessons learned from the Dot Com recession and engage Nico in an important and timely conversation surrounding marketing during tough times.
Tough times don’t last, tough people do. In your view, what are some of the lessons we can learn from previous recessions?
Kevin: I have been in the digital marketing field for over 10 years, with my career beginning at the tail end of the last Great Recession. Since the outbreak of COVID-19, I have spent a lot of time researching previous recessions and looking for guidance on how to navigate the current crisis and impending recession. What I have found is that while most recessions have different causes, they all have somewhat similar progressions and similar implications. I would recommend taking the time to study the outcomes of previous recessions as there are impactful learnings you can apply in real-time.
Can you please provide an overview of what you are currently seeing in marketing from your practical observations?
Nico: Currently, we are experiencing a crisis. There are many brands who are “slamming on the brakes” and pausing all business activities, such as booking platforms. There are other brands who are not directly impacted, but are operating much more cautiously in this environment. These companies are reducing spending and focusing on more measurable activities, since at this moment it is difficult to predict just how long the recession will last. An example is a call I had recently with a global streaming service, who is benefiting at the moment, but are aware that they may run out of content since all productions have been put on hold. Overall, all companies regardless of size need to come up with a survival strategy for the next 24 months.
There’s this notion out there that marketing budgets are the first to go when companies are looking to make budget cuts. How should startups approach their marketing budgets right now?
Nico: It is important to distinguish between B2B and B2C startups, especially since B2C companies in general tend to spend more on their marketing. As a B2B company, the first thing we did was to significantly reduce our costs and adjust our forecasting. We offered our investors an attractive deal to lengthen our runway and we’re now looking at 18-24 months. The next step is to check where we cautiously invest our resources in. Since client acquisition currently is challenging, we heavily focus our marketing activities on our core business. For our core clients, we are giving discounts and sending out marketing materials with advice on how to optimize their marketing activities during times like these. The remainder of our marketing budget we spend on lead generation, on either LinkedIn or Google.
Kevin: This is a similar situation I observe from my work with startups. The first step should not be thinking about how to acquire new customers, your first step should be how to reduce customer churn as much as possible. There’s a new saying out there “flat is the new growth” – startups that can hold onto what they currently have throughout the crisis will do well. While that may not always be realistic, you want to make sure you hold onto as many accounts as possible. In the B2B space, it is crucial to bring sales, customer success, and marketing together as close as possible. Especially for startups, try to have daily meetings to see which accounts are at risk, see what can be done to show your value, and then make sure you align with the product team because these relations are important to make the product even more valuable.
Once you have put measures in place to maintain your existing clients, then you can look towards customer acquisition and businesses that have a very strong interest in your product. If you look at net promoter scores (NPS), think about the businesses that really want to become a customer and not the ones you have to fight for. Right now in a downturn, I would rather go for 10 smaller customers than one big one. I would refocus my marketing strategies accordingly to get as many accounts as possible that are easy to maintain.
How should startups adjust their marketing strategy towards digital marketing?
Kevin: If your product is targeted towards small- and medium-sized businesses (SMBs) there is a good case to revert more spend towards digital marketing since most people are working from home and you could not reach them with an offline ad. However, if you’re on the enterprise side I would consider strong differences between investing in sales and marketing. An example here would be sales collateral. If you have a strong sales component to your business you want to double-check to see if you can shorten sales cycles and build credibility upfront.
Nico: In general, I have observed some startups don’t have a proper communication strategy or measurements in place. For them, I would be extremely cautious and focus on identifying the things that work vs. things that don’t work. If you have not run any proven campaigns, I would recommend going for the lower funnel activities. B2B businesses should focus on direct communication, shift marketing spend towards core clients, and develop special activities for new clients. While we are in a digital environment, do not forget about direct communication with potential clients, especially while people are at home and want to make sure you will be there for them!
One aspect I am really interested in currently is which specific ad campaigns work best right now. Nico, what budget allocations of ad campaigns are you witnessing that are yielding the best returns?
Nico: The demand is heavily shifting towards performance-driven traffic, as clients want to measure results instantly. Our revenue split in terms of buying matrix before COVID-19 was 70% pure CPM (cost per mille) /CPC (cost per click) and 30% performance compensation. Currently, we are seeing a complete shift with 70%-80% performance compensation. Right now, there is not a lot of money being spent on awareness campaigns at all.
One thing I learned in my research of the Great Recession is that Facebook ads were very popular because the platform was up and coming. But now, as this platform has matured, this is not the case. What new emerging channels are out there right now with high returns? What should startups invest their time, resources, and money in?
Nico: At the moment, especially for our offices in Asia and Europe, we get a lot of requests asking if our technology can run on TikTok. We plan to run tests in the coming weeks. Pinterest is another channel that comes up often. What we currently use and work best for us are websites and mobile apps.
What platforms are good for A/B testing and paid marketing campaigns?
Kevin: There are the integrated A/B testing solutions from platforms, such as LinkedIn Campaign Manager, that allow you to run all sorts of tests such as: creative, copy, click-oriented vs. impression-oriented. There is also the user side of things where you use software like Optimizely or VWO to run different user tests and steer some acquired traffic to a different version of your tests. Regardless of the platform, what is important is to set up the right test and test for the right things. This is the time to change more than just the color of a CTA, but test different hero images, ad copy, or the structure of your landing page. This is a great time to test and really understand what your customers are looking for.
Nico: In general, I believe A/B testing shouldn’t be too nitty-gritty. I would focus on the landing page and look at how customers convert there. If you want to generate leads or sales, you want to see what discounts to offer and how to advertise your products on your landing page. The first step is defining what is your ultimate goal and target audience. The next step would be to determine how you want to get customers to your landing page. Then finally, use different creatives, measurable channels, and video displays to test.
When you are running tests, how large of a sample size is large enough for you to feel comfortable to determine if something is working better?
Nico: Again when it comes to A/B testing it depends on how many creatives you want to test. You should deliver 50,000-100,000 ad impressions with one single creative you would like to test. From that, look at what is your click-rate compared to your bounce-rate. Remember A/B testing is worthless if you cannot measure, make sure you have trackers in place before you start any campaign.
Kevin: Agreed, you need to have clear parameters for your experiments. Tests need a certain minimum amount of traffic, but not all startups have that if they are very early on or operate in a small tech niche. In these instances, you should revert to qualitative testing. You can ask your 10 most valuable customers and iterate based on the feedback. It is also valuable to speak with customers who almost signed up and it is important to know which feature is missing that led them not to sign up. Here speed is more important than accuracy, you want to make sure you iterate fast and not wait 4-6 weeks to get to statistical significance waiting for your test to finish. In summary, if you have the means to acquire a lot of organic traffic you should be setting up tests, if not, you want to take more qualitative feedback into account.
How do you turn attention into engagement? How do you turn a lot of traffic into sales conversions and signups especially during COVID-19?
Nico: This is the ultimate goal, how do you finally convert someone who is confronted with my brand into a loyal customer. Given today’s tough times, this highly depends on what you are offering at the moment. You don’t want to have the shiniest ad, you want to give value. Make sure you focus on how you can bring value to your current customers. In the end, people will only convert if they are convinced.
Kevin: What I found to be the most helpful is to reduce the friction to product value as much as possible. What this means is you want to do everything you can for people to experience the core value of your product as quickly as possible. This could be a free trial, giving free demos without any expectations, or not asking for credit card information – anything that adds friction to the signup process I would temporarily eliminate at the moment. For B2C brands, one simple marketing tactic is offering coupons during times of crisis, this way you can make your product offering less expensive without reducing the actual price of the product.
Wrapping up, how can startups respectfully market during COVID-19?
Nico: A lot of big brands changed their messing towards COVID-19 and urged everyone to stay home and stay safe. One company in particular, Coca-Cola announced they were investing all their marketing budget towards COVID-19 research, which in the end was a marketing/branding move. As it’s been more than 2 months since COVID-19 broke out in Europe, I would not invest in messaging to stay home anymore, but rather highlight how your product or service is beneficial during this time. Especially for startups, there are many institutions where you can offer your services and help support society. For example, providing free advertising to government institutions who want to educate which behaviors people should be following during this time.
Kevin: I like to reiterate “Actions speak louder than words.” A company shouldn’t express they want to help without an action attached to it. If you are able to afford it, offer your help, and provide as much actionable value as you can. These customers will not forget what you’ve done for them and you will create goodwill!
Further insights on from #GAmentor Kevin Indig can be found in his newsletter: Tech Bound.