This guest post is written by Dr Benjamin Lucas, Managing Director of the University of Nottingham’s Data-Driven Discovery Initiative (3DI).
In the wake of the COVID-19 crisis, the UK government now juggles an ambitious domestic levelling-up agenda with urgent geopolitical and global human rights priorities.
This is set against the backdrop of the important work from the Department for Levelling Up, Housing and Communities, and ambitious transformative policy instruments such as the UK National Data Strategy, which in Section 2, “The Data Opportunity”, states: “by embracing data and the benefits its use brings, the UK now faces tangible opportunities to improve our society and grow our economy. If we get this right, data and data-driven technologies like AI could provide a significant boost to the entire economy”.
Today, there are uncanny echoes of landscapes and challenges of the past. In the 1980s, the United Kingdom experienced severe inequality and recession, pursued policies to drive cutting-edge technological advancement (relatedly, note Information Technology Year 1982), and did so against a backdrop of the latter stages of the Cold War.
Balancing critical domestic priorities such as inequality, with domestic economic renewal ambitions, and global responsibilities to preserve and uphold democracy and human rights means a hugely complicated policy landscape in the UK right now – especially with the risk of recession looming.
Policy developments such as the UK Government’s Levelling Up white paper, which translates many of the levelling up goals into concrete innovation vectors are extremely positive domestic developments. However, to ensure success, investment within innovation ecosystems is also needed in domestic entrepreneurial mindset and economic and societal morale (according to one study, “the UK was most content during the 1880s”).
Investment in technological frontiers to drive economies forward is regarded as logical during times of prosperity and security, and essential during times of crisis and recession. Economies rise and fall, but technological progress maintains an exponential trend (i.e. even if you’re not investing for whatever reason – someone else is).
The translation of new technologies into marketable products and services also raises questions in the domain of realms of net economic benefit – where new offerings may provide increased convenience and quality of life to some at the expense of others.
A very brief history of marketing during recession
Cundiff’s 1975 Journal of Marketing piece “What Is the Role of Marketing in a Recession?” raises important points about price elasticity and value-maximising behaviours in times of recession versus times of prosperity and economic security.
The piece also highlights the importance of promotion during recession (albeit via, what in 2022, is a problematic tone):
“ [..] Promotion is more important during a recession. Consumers today, because of a lack of confidence in the economic future, are spending less and saving more of their income. Well-planned promotion can increase sales by helping to overcome this propensity to save”.
But, by 2009, in the wake of the GFC, Quelch and Jocz’s article in Harvard Business Review “How to Market in a Downturn” articulated a dramatically different narrative:
“In frothy periods of national prosperity, marketers may forget that rising sales aren’t caused by clever advertising and appealing products alone. Purchases depend on consumers’ having disposable income, feeling confident about their future, trusting in business and the economy, and embracing lifestyles and values that encourage consumption”.
More recently – and back in the UK – in 2021, Yorkshire Building Society reported that “around a fifth of UK adults have less than £100 in savings” and in the lead up to the COVID-19 pandemic, things were already looking gloomy for young adults. Non-discretionary spending among this cohort was hindered, and household incomes were down among those in their thirties, versus a decade before. Now, in early 2022, the war in Ukraine means dramatic increases in the cost of living in the UK as well as an enormous humanitarian cost to the world.
Moving forward, the required means of production underpinning the products and services of the future (i.e. with algorithms of varying levels of self-sufficiency both manufacturing and distributing goods and providing services), will also determine the future morphology of the labour market and the skills investment required to build it.
By extension, consumer demands for more empathy mean that marketers must think about selling products and services with a broader definition of profit in mind – one that maintains commercial viability and also contributes to societal well-being.
Marketers should also think about what metrics really mean in the age of automation-driven and data-driven offerings, and especially about the higher-level commercial and economic metrics that embody and represent the true status of the markets within which they operate.
This piece concludes by discussing three examples: reimagining basket metrics, total factor productivity and the human development index.
Recent research focuses on the harmful effects of problematic spending and social and life outcomes.
Simple basket size and spend metrics are common decision making and reporting measures in retail analytics. What is captured is the ‘how’ consumers spend, but often not ‘why’. Basket metrics (alongside conversion metrics) can be used to paint rose-coloured picture of profit-focused merchant success, whilst potentially neglecting the effects on society of what is sold.
This ranges from the real impacts of business models, such as those often seen in fast fashion to the marketing of gambling, which “is an ordinary pastime for some people, but is associated with addiction and harmful outcomes for others”, to the problematic advertising practises of alcohol vendors.
Basket metrics should be further broken down into ‘healthy spending’ metrics (e.g. by percentage of basket). This covers sectors such as retail (e.g. via healthy eating), as well as metrics used in financial services (e.g. what percentage of credit card spend is normal and sustainable for the consumer). Non-essential retailers should also employ this perspective in reimagining their sales and profit metrics (discretionary spend metrics) along the lines of net-zero purchase.
Key Marketing Takeaway: Sell for the right reasons and pursue a broader definition of profit that encompasses societal well-being.
Total factor productivity
Automation “enables capital to replace labor in tasks it was previously engaged in” and “recessions play a crucial role in promoting automation and the reallocation of productive resources”.
Automation technologies such as AI are often argued to present economies with opportunities to yield net-benefits based on the absorption of shorter term displacement costs being outweighed by longer term labour force mobility towards higher value-adding jobs in higher-profit sectors.
There remains however the risk that “in an automation scenario where low wage occupations are more likely to be automated than high wage occupations, the network effects are also more likely to increase the long-term unemployment of low-wage occupations”.
This is where economic measures such as Total Factor Productivity (TFP) or multi-factor productivity become very interesting, as they represent measures of economic efficiency – and which in the UK, “fell by up to 5% during 2020-21” (via “large reductions in ‘within-firm’ productivity, with an offsetting positive ‘between-firm’ effect as less productive sectors, and less productive firms within them, contracted”).
Essentially – despite initial sunk costs for firms in either off-the-shelf or proprietary automation technologies – TFP, measured as “the efficiency with which inputs are converted into outputs” should improve, and should do so, simultaneously, such as to “deliver the same revenue to the Exchequer but without the downward pressure on employment” and with a net gain for both consumers and the labour force.
Key Marketing Takeaway: Production efficiency and profit maximisation must be balanced with the creation of education opportunities and better jobs.
Human development index
HDI underscores the principle “that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone”.
By contrast: “gross domestic product (GDP) is the standard measure of the value added created through the production of goods and services in a country during a certain period”.
HDI encompasses life expectancy/longevity, knowledge (based on education level attained), and standard of living based on GNI and is important given that GDP “falls short of providing a suitable measure of people’s material well-being”. Our World in Data provides an overview of how countries around the world compare along the lines of this metric.
As developers and sellers of the goods and services that shape society – marketers should prioritise the deployment-to-market of innovations that achieve both financial and societal profitability. Rising to the challenge: Starling bank is a great example of future-proofed business model innovation and marketing with consumer financial welfare front and centre. Similarly, Sainsbury’s programme: “Help Everyone Eat Better” focuses on purpose, rather than the bottom line.
Key Marketing Takeaway: Develop and sell products and services that enable and support long, healthy and prosperous lives, and “tackling inequality starts with good measurement”.