Two of the BIG questions facing marketing managers today are: (1) when will consumers open their wallets again; and (2) will consumers behave differently when they do?

We know that consumer spending accounts for 70% of all economic activity in the US and we know that consumers are being asked to consume to kick start the economy and end the recession, just as they were asked to do so after World War II and 9/11. Once again, consumption is, being positioned as an act of patriotism. 

But what makes this recession different to all other recessions is the extent to which damage has been inflicted on individuals: unemployment is nudging 10% (although many more are affected by the downturn in the labor market), retirement savings and college funds have been decimated, and people have lost their homes and with it their sense of self worth. To hear grown men and women telling their stories, to hear the despair in their voices, the sense of betrayal they feel towards lenders and employers is revealing. Can people ever truly recover from the emotional and material damage the recession has caused?

Along with a drop in consumption, we have seen some behavioral shifts take place: consumers are taking care not to engage in conspicuous consumption, which is one of the reasons Starbucks felt the need to reposition its brand; many consumers no longer trust big brands, which is why American Express recently began a campaign to regain consumer trust; consumers have become a lot more value driven, which is one of the reasons why private labels are doing so well; consumers are delaying the purchase of big ticket items, which is why the sales of new cars have plummeted; consumers are paying attention to their carbon footprint which is on of the reasons why ZipCar is doing so well and bottled water is not; and consumers are paying more attention to the source of products they buy, which is why we have seen a resurgence in an interest in self sufficiency (remember Michelle Obama’s vegetable garden?).

If we take into account deep-seated cultural values, however, we realize just how hard it is to expect a permanent change. In the US for example, like many other market driven economies, business and government leaders are rewarded for generating economic growth and maximizing returns to shareholders – often in the absence of regulations and without consideration to likely negative consequences. We just need to look a the innovation and growth that occurred in the financial services sector, and the consequences that unfolded when Lehmann Brothers collapsed in September 2008, for evidence of this.

In the green shoots of economic recovery, it seems that there are also green shoots of behavior that resemble that which got us into trouble in the first place – for example, businesses that help people renegotiate the terms of their mortgages with lenders for a fee (more like take the money and run). What this demonstrates is that there will always be ways to make money, ways that are not (yet) illegal but are still harmful to consumers. 

It won’t be hard to identify an increase in consumer spending but it will be more difficult to detect whether in fact consumers’ values have fundamentally changed. Now that will be interesting.

The Nielsen Company has just released data that shows advertising expenditure in the US fell 15.4% in the first half of 2009. A total of $56.9 billion was spent on advertising in the first six months of the year, $10.3 billion less than the same time period in 2008.  All evidence that in times of recession, marketing budgets are among the first to be cut. But, cutting marketing budgets to balance the books is a bad idea. Here’s why.

Why are marketing budget cuts?  Well, we all understand that marketing expenditure is not directly tied to the immediate production of output. What this means is that marketing budgets are among the first to be cut when managers are trying to find ways to drive down costs in order to retain shareholder confidence and stay afloat. Because marketing expenditure is treated as an annual expense, managers often justify the decimation of marketing budgets on the basis that the effects will only be felt in the current year. The view is that once the recession ends we can return to our previous levels of marketing expenditure – that is, we can pick up where we left off without having damaged our brands at all.

It turns out that marketing expenditure does influence the long-term value of the firm. One day (when I had nothing else to do), I decided to pull together a database to enable me to examine firm performance during the last big recession – the 1980s recession. I measured firm performance in 1979, which is the year before the recession began, measured marketing expenditure during the recession and then measured firm performance one year and five years after the recession ended. 

I found that firms that spent more on marketing than their peers during the recession enjoyed a higher market value five years after the recession ended. To me, this result provides clear evidence of the long-term effects of marketing expenditure.

This result is important because during a recession, not only are marketing budgets being cut but also marketing managers are reconfiguring how to allocate marketing funds. What this means is that during a recession, it is tempting is to focus marketing expenditure on areas likely to result in short-term gain (for example, discounting prices, offering coupons and other sales promotions, or using direct response advertising which makes it easier to measure marketing effectiveness), without paying any attention to the maintaining and building the long-term value of the brands.

And so what do I recommend? Right now, managers should resist the pressure to cut marketing budgets and resist the pressure to focus mostly on marketing activities that generate short term gain. The recession will end and firms that come are stronger will be those firms that clearly understand the contribution of brands to the long-term value of the firm. Now that’s interesting.

A recent article in BusinessWeek (Sept 14, 2009) discussed organizations headhunters look to when trying to identify management talent. General Electric, IBM and Hewlett-Packard were cited as organizations that develop executives who thrive elsewhere, while The Coca-Cola Company does not.

The reason given is that "the very attributes that make Coke a great company - an iconic brand and an unmatched global distribution system - also make it easy for young mangers to rise without having to develop the entrepreneurial skills necessary to compete in other areas."  

What a fascinating contradiction. According to Interbrand, Coke is the #1 brand in the world.  Yet, it seems that in order to adopt stellar strategic brand management practices, the organization needs to adopt a bureaucratic culture that discourages its employees from developing an entrepreneurial spirit. Now that's interesting. 

There is much debate about whether the change we see now in consumption behavior will last. Because of the recession, consumers have cut back and are making different choices.

A recent article in the Los Angeles Times (September 13), outlined changes to consumption behavior in the luxury fashion industry. Consumers have become “less brand centric and more consumer centric”. They don’t want to wait six months between seeing designer clothes at a fashion show and being able to buy them in stores.

Motivated in part by the recession and in part by the use of the Internet to facilitate purchase decision-making, it seems that the world of luxury fashion is taking lessons from the fast-fashion world. Where fashion shows used to be for the elite, it seems that everyone can see the latest styles on the Internet immediately a fashion show is over and then expect these styles to appear quickly in ranges carried by Wal-Mart through to more prestigious designer labels.

 “The global strategy of branding and merchandising that has dominated the luxury sector for the last decade has fallen away in favor of more authentic, localized experiences.”

As with many industries, necessity is the mother of invention and, it seems, luxury fashion is not exempt: “Some people will be left behind but in the long run this will be healthy for the fashion business.”