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By Sarah Scudder
With so much economic uncertaintity, Alternative Scenario Planning could help marketing and marketing procurement be better prepared for the many possible marketing plans and required sourcing strategies.
When marketers share these scenarios and plans with their marketing procurement colleagues, procurement can begin preliminary sourcing work for the products and services needed for all the alternative plans.
By now, everyone in business knows that the COVID-19 pandemic is causing immense economic damage around the world. The U.S. economy is already in recession, and most economists agree that economic performance during the second quarter of this year will be the worst in many decades.
For example, in an April survey of 45 professional economic forecasters conducted by the National Association for Business Economics (NABE), the survey panel estimated that real GDP in the second quarter of 2020 will contract by 26.5% on an annualized basis.
The reopening of the economy marks the beginning of the recovery phase of the coronavirus saga, and an important question now becomes: What will marketing – and therefore marketing procurement – look like over the rest of 2020? In my view, there are two things we can say with some confidence about marketing during the balance of this year. First, it is likely to be very different from the second quarter of this year. And second, business and economic conditions will almost certainly change over the course of the second half of the year.
Numerous research studies have shown that the economic lockdowns that began in March had an immediate and dramatic impact on the marketing and advertising spending at most companies. But recent research also shows that most marketers expect a significant rebound in activity and spending in the second half of the year.
For example, in a survey of advertisers conducted April 16-20 by Advertiser Perceptions, half of the respondents said they had canceled a campaign, and 42% said they had stopped all new advertising until later in the year. In the same survey, however, 52% of the respondents said they plan to increase ad spend beginning in the third quarter.
The second defining characteristic of marketing and marketing procurement during the second half of 2020 will be uncertainty and change. Most economists are predicting that an economic recovery will begin during the third quarter of this year, but there is little agreement about the shape and pace of the recovery.
In the NABE survey, for example, the average estimate for real GDP growth in the third quarter was 2.0%. However, the five most “pessimistic” survey panelists put Q3 GDP growth at -12.6%, while the five most “optimistic” panelists pegged Q3 growth at 20.7%. For the fourth quarter of 2020, the gap between the pessimists and the optimists is still huge. The pessimistic estimate is for 0.0% real GDP growth, while the optimistic estimate is 23.6%.
Sixty-nine percent of the respondents in the Advertiser Perceptions survey said they are using the economy to determine if and when they will run a campaign. It’s likely that this line of thinking is being used for most types of marketing investments.
The problem is, marketers and advertisers have little visibility today about what the state of the economy will be in the second half of the year. As a result, marketing and advertising planning is almost entirely short term. Advertiser Perceptions found that advertisers are now making media commitments less than three months in advance, which is about half of the typical window for media planning.
Marketing Procurement should be involved in early planning
So what does all of this mean for marketing procurement professionals? Most importantly, it means that agility will be a critical determinant of success for marketing and marketing procurement during the balance of 2020.
In a period of high economic uncertainty, planning horizons shrink, and marketers are unwilling to commit to specific programs or investments very far in advance. Yet marketers must also be ready to run appropriate marketing programs as and when business conditions become clear. Under these circumstances, it’s often difficult to use normal marketing procurement processes.
One tool that marketers can use to deal with uncertainty is scenario planning. With scenario planning, marketers construct a set of alternative marketing plans that are based on a range of possible future conditions. The objective of scenario planning is not to predict the future, but to identify all the “futures” that are possible, and to define how to respond to each plausible future. Scenario planning also includes identifying the triggers that will be used to decide which of the possible futures is actually unfolding.
When marketers share these scenarios and plans with their marketing procurement colleagues, procurement can begin preliminary sourcing work for the products and services needed for all the alternative plans. Having this preliminary work completed in advance will enable whichever plan is ultimately selected to be executed more quickly. So, the use of scenario planning, combined with close collaboration between marketing and procurement, will enable greater marketing agility.
About the author
Sarah is the youngest executive to ever serve on the board for the Print Services and Distribution Association (PSDA). Sarah also hosts thought leadership ProcuremenTalks around the USA and coordinates events for the Global Women Procurement Professionals (GWPP). Sarah speaks at several annual sourcing industry events and hosts multiple webinars.
Sarah is co-author of a column for the Sourcing Industry Group (SIG)’s Future of Sourcing publication and Institute of Supply Management (ISM)’s “Inside Supply Management” newsletter.
The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of Producers & Procurers iQ or imply endorsement from the publisher