Tuesday, August 16, 2022

The impact of the supply chain on ad spend

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Shreya Christinahttps://cafe-madrid.com
Shreya has been with cafe-madrid.com for 3 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider cafe-madrid.com team, Shreya seeks to understand an audience before creating memorable, persuasive copy.

By Ben Zimmerman, President at Media Design Group.

It is now a well-known story. The Covid-19 pandemic collapsed in 2020, wreaking havoc on the economic path before it. And by 2021, global supply chains slowed to a crawl. These conditions were initially fueled by working conditions. As the virus spread, mask mandates, state-imposed quarantines, and other factors impacted overall workforce availability. Covid-19 infections caused many workers to miss work, leading to staff shortages. While some industries were able to transition to remote working, others were not – and essential frontline workers became the heroes of 2020.

Labor shortages have never disappeared. Even as vaccines — and subsequent boosters — were rolled out, the global economy remained stagnant. New spikes in Covid-19 cases added further uncertainty to a country already tired of the public health crisis. In the US, many workers looked inward and left their current work situation for greener pastures. In fact, McKinsey found that nearly two-thirds of American workers said: the pandemic made them think about their goal. In what has been called the “Great Resignation”, workers left the workforce en masse. By early 2022, both layoffs and vacancies saw historic levels.

Even in June 2022, employment data still showed a gap of more than 5 million between open jobs and available workers. This perfect storm has not only led to historic economic imbalances – I haven’t even mentioned how inflation is highest in nearly three decades— it undercuts the vulnerabilities and inefficiencies seen by a struggling supply chain.

Impact on the supply chain

This oversimplified version of the global economic crisis is not without nuance. In addition to consumers (via higher prices), companies have also paid the price. During the pandemic, demand for some products skyrocketed while demand for others fell, forcing manufacturers to expand or contract. Do you remember the shortage of toilet paper? According to Harvard Business ReviewSKU proliferation — the process of adding products to a company’s inventory as a result of changing market conditions — was partly to blame. Manufacturers were forced to change their production lines to accommodate the demand for multi-layer toilet paper rolls, rather than the single-layer supply of hotel chains, restaurants and office buildings. Shifting production lines makes forecasting difficult, while replacing products during shortages creates confusion – all of which upsets the balance of an already tense supply chain.

As the HBR article states, some things probably won’t change. Consumers will still prefer lower prices, while competition will force companies to keep costs low, even if they are thin. Accordingly, some industries are still in recovery mode, especially the automotive industry. As MIT Technology Review points out that the “just-in-time” (JIT) supply chain model has become prevalent in the automotive industry in recent years. This supply chain model, popularized by Toyota, relies on ordering raw materials and products only when needed, in an effort to avoid bloating and minimize costs. JIT works when the supply of materials, production of goods and customer demand are in harmony. But if one steps out of line, he risks imminent collapse. Such is the case for the auto industry during the pandemic. Car sales plummeted at the start of the pandemic, leading to: automakers scale back on semiconductor orders. However, sales recovered faster than expected and by mid-2020 there was a global shortage of semiconductors. This illustrates a huge break in the supply chain.

Advertising in difficult times

While we’ve seen one increasing demand for new vehicles, the semiconductor stock has not been caught up. This has led to low supply, high prices – and a lot of frustration. This has led many manufacturers to rethink their marketing budgets. In reality, automakers have cut ad spend by as much as 46%. While we may be entering a bull market for vehicles, auto companies are still making money. But is this wise in the long run?

I’ve written about advertising when the going gets tough. While it may not make sense to increase your ad spend per se, maintaining a stable budget can help you secure the share of voice you’ve already built with your consumers. Not all of us are lucky enough to have the same brand awareness as major automakers – and many brands are already stretching their margins to stay top of mind.

So think about it. What would you do if your biggest competitor cuts its ad spend today? Would you reposition your brand in a more balanced market? Or would you sit on your hands and miss a chance to get in while getting it right?

I think it’s important to get on the board. While it may be instinctive to focus on getting quick wins (e.g. sales and conversions), it’s equally important to play the long game. Maintaining customer confidence is critical, especially in an economy adapting to a post-pandemic world. Maintaining brand equity can show resilience. But it is also an act of self-preservation. For example, if the auto industry bounces back (in whatever form it takes in the future), brands that have saved media spend could get a head start. In the long run, keeping the balance will keep you top of mind while spreading costs more evenly.

Of course, there is no way to predict the future, especially in an economy rocked by a pandemic, a supply chain crisis and a fluctuating global market. But there are ways business owners can maintain their brand image. By maintaining responsible, consistent marketing spend, your customers know you’re there for them, even in tough times.

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