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Applying past recession lessons to Covid crisis

9 August 2020

Greg Aris, business director at McCann PR & Social, examines key lessons from past recessions and what they mean for businesses today as they respond and communicate 

Spanish-born philosopher George Santayana once said, “Those who cannot remember the past are condemned to repeat it.” While he might not be a household name, his quote has been used the world over.

For good reason too. There’s a lot we can learn from history – especially when it comes to dealing with the COVID-induced recession we’re facing and communicating effectively as it takes hold. Only by doing so, will we make any headway against the already eye-wateringly high 19 per cent drop in UK GDP experienced in the three months to May[i].

While there are no simple answers or silver bullets, there are three broad areas for consideration – or lessons to learn – as we continue our COVID journey. These are based on extensive research comparing the 2008 recession with current data, which McCann has undertaken with research firm, Trajectory.

Lesson one: same impact, different order 

Each recession is different. Caused by many different factors. But the result is always the same: a retraction of the economy. In 2008, it was the banks not lending to one another that caused the “credit crunch”. In 2020, the banks are arguably in a stronger position. The problem has been caused by putting the economy into shutdown followed by a reluctance to spend again. This means different sectors are at risk at different times as the recession unfolds.

To explain a little further, let’s consider that some industries were already in recession as early as last year – well before COVID-19 arrived in Europe. Construction and manufacturing have been in trouble for a while, driven by Brexit fears[ii]. Furthermore, consumers had been in a recessionary mindset for two years even if we’ve not actually experienced a retraction. This means many firms were already feeling the pressure well before March.

With this in mind, each business needs to understand where it currently sits on the recessionary curve. If it can determine this, the recovery plan will we be stronger. It will also dictate the way they need to communicate.

For example, if your customers are quickly recovering, your comms plan needs to take account of this in its tone and content. But if they’ve been plunged into a recessionary mood, your story needs to be wildly different. If not, you’ll look out of step with reality, which will impact sales. In this context, communications really counts.

Lesson two: know your exposure to the headwinds
To solely blame a “recession” for a business losing value or even going under means lessons won’t be learnt the next time around. You probably never understood the problem in the first place, and perhaps accepted the inevitability of loss.

Recessions have clear causes and often just accelerate existing problems and expose the weaknesses that were already there, known or unknown. For example, we know the hospitality sector has been incredibly hard hit. Pubs and restaurants are in trouble. Yet the number of adults drinking weekly has dropped by 10 per cent since 2010. The trend for healthier living was already upon us and the crisis may have exacerbated that as people try to stay well.

Retail is also suffering. For years, people have been turning to ecommerce. Again, the lockdown merely accelerated that, forcing people to switch to buying online during lockdown. Now they’re reticent about going back, for health reasons, but also practical ones.

Knowing how the mix of trends – new and existing – affects you is key to finding ways to cope and communicate. Arguably, there are three major changes that differ to the last recession. Firstly, the “death of distance”. By this we mean that many people have been working, shopping and teaching from home through lockdown. They’ve been doing everything digitally. Think of endless Zoom calls, Amazon deliveries and online learning. People have realised they don’t need to be near the office or shops anymore. This could decimate commercial property and public transport. Yet it will benefit logistics and software firms.

Secondly, we’re all facing a “new seriousness”. People are worried about going out and engaging in leisure activities. From eating out to working out, the way people act has become far less carefree. Public attractions and gyms will suffer, but there will be opportunities for online subscriptions.

Finally, there’s a trend towards “collectivism”. By this we mean a sense of solidarity across the country. In 2008, the UK felt it had brought the crash upon itself and then looked for scapegoats in the form of bankers and regulators. It also looked to balance the books through austerity. In contrast, people feel the current situation has been thrust upon us. The result isn’t spending cuts. It’s a huge government investment in the form of furlough and public sector pay rises.

In short, when considering our second lesson, don’t accept the inevitability of a “recession”. Understand the pressures specific to your business and respond to them. From a communications perspective, keep the above trends in mind. Ensure your business talks about its ability to operate as a remote or dispersed organisation. Be aware of the new seriousness and be careful not to look carefree or reckless – or encourage others to be. Embrace the solidarity across the country, but do so meaningfully. One or two empty posts on social media about supporting the NHS just won’t do.

Lesson three: spend, but better 

In a recession, the first thing businesses do is cut discretionary spend. This is exactly what the government doesn’t want to happen – as it creates a downward spiral of lower GDP. Yet the instinct is to cut back on things like marketing and communications. In doing so, a business is killing off the one thing that can keep it growing.

There is an overwhelming body of evidence tracking spend vs recovery from recessions as far back as the 1920s showing those who cut budgets stay in a recession longer. Spend the same, but in different areas, or increase and your business will recover faster than removing line items from the budget entirely. There is a strong case to increase because gaining share of voice can be cheaper as others in the market retreat.

To put it another way, the deeper the cut, the longer the recovery. Often, the effects of cuts are not noticed immediately as a brand enjoys a residual benefit from previous spending. This lulls them into a false sense of security. Give it a few months of being silent and the damage will begin to appear. It can take years to recover a pre-recession sales position and be even more costly in the end.

If you cut brand advertising by 50 per cent in one year, it takes three to recover to the same sales position. A 100 per cent cut will take five. This is perhaps the simplest of lessons we can learn from the past.

From a practical perspective, identify which channels of communication are most effective and keep using them. If you see competitors pull back in certain areas, fill the space they leave. Look for opportunities and mitigate against wastage where possible. But keep communicating.

In conclusion, we must all take heed of George Santayana’s famous words. We must learn all we can from the past. The mistakes and successes. We must combine them with a proper understanding of what is taking place around us. Moreover, we must do all we can to resist the inevitability of recession. It will be difficult, but if you can master your circumstances, they’re less likely to master you.

[i] https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/may2020

[ii] https://www.independent.co.uk/news/business/news/uk-recession-brexit-construction-pmi-retail-manufacturing-economy-a9090016.html

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