Over the last few months, the COVID-19 global pandemic has drastically changed the social, physical and economic landscape. The scale and pace of the change is unprecedented in modern times, and there is no question that we have entered a Volatile, Uncertain, Complex and Ambiguous (VUCA) environment.
VUCA was initially introduced by the U.S. Army War College after the end of the Cold War to explain the dynamic forces of change and assess the organizational ability to adapt to these situations and environments. Over the years, the application of VUCA has expanded to the business world (including marketing) and has become a practical code for situational awareness and readiness.
Since the 1990s, the U.S. has faced several major VUCA events including September 11, Hurricane Katrina, the Great Recession, and now COVID-19. COVID-19 is a health crisis, but it has also had significant economic effects on both key demand side (consumption and investment).and supply side (production of goods and services) factors.
In times of VUCA, companies look to reduce or eliminate discretionary expenses (like marketing) and become very intentional with their budgets to help protect short-term profits. However, this defensive, short-sighted approach may not be the correct one for long-term business growth.
Over the past few decades, there have been numerous empirical research studies that have examined the strategies of thousands of brands across a wide variety of previous business cycles (1920–2010) and viral outbreaks (2001-2019) by using short-term and long-term econometric modeling. The studies can be classified into two broad groups: (1) sensitivity of advertising expenditures to economic cycles (expansions and contractions) and (2) impact of advertising in a recession to sales, market share, or profitability before, during and after a recession.
The pattern of findings are broadly the same.
A VUCA environment is dynamic and situational. It is not something to be solved, but it is something that must be effectively managed. VUCA conflates four distinct types of challenges that demand four distinct types of responses, which allows a brand to reframe their interpretation. In order to better navigate and respond to the challenges inherent in this current environment, brands need to quickly shift from volatility to vision, from uncertainty to understanding, from complexity to clarity and from ambiguity to agility. This shift in mindset is about building understanding (ie: market conditions and consumer behaviors), identifying operational challenges (ie: service, delivery, and product), shaping choices (ie: “what-if” scenario planning), making decisions (ie: audience, message, channels), and understanding consequences (ie: action or inaction).
There are two different way of thinking about marketing investment and risk tolerance: the financial risk of investing and the competitive risk of not investing. From a practical perspective, the VUCA analysis provides an intentional framework for marketing investment decision-making that addresses the needs of the now while preparing for what comes next. This framework is an incredibly useful tool for a brand to reorient itself, plan for the future, and move forward.
The COVID-19 pandemic is what economists call a ‘Black Swan’ phenomenon – a rare, unexpected and unpredictable event that has a major impact and carries severe consequences. In the current economic downturn, brands have an opportunity to seize the space between now and next to gain share, accelerate growth and profit, and gain competitive advantages. In the space between now and next is how. How a brand seizes that space will determine everything.
While the causes, severity, and duration of economic downturns vary, there are sound principles from the VUCA framework and past learnings that are broadly applicable. By applying these fundamental universal truths, brands and marketers can develop a much more informed perspective and strategy to perform during a recessionary period, and the activity period that follows a recession.
There are no easy answers, playbooks or “one size fits all” solutions. The path of the pandemic and its economic consequences on the U.S. economy are highly uncertain, and a challenging landscape is to be expected for the remainder of 2020.