The 2020 COVID-19 Crisis Will Stun US Marketing

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The 2020 COVID-19 Crisis Will Stun US Marketing

CMOs: Apply An Adaptive Approach To Manage The Downturn

May 6, 2020

By Shar VanBoskirk, Tina Moffett, Rick Parrish, Brandon Verblow with  Keith Johnston Jim Nail Collin Colburn Bret Sanford-Chung Lori Wizdo Nick Monroe Sam Karpinski Lexie Lawhon , Rachel Birrell 

Why Read This Report

The next two years will be difficult, no matter how quickly the COVID-19 crisis ends. In our most optimistic scenario, Forrester projects a 28% drop in US marketing spend — including media, services, technology, and internal headcount — by the end of 2021. Offline media, agency services, and staff payroll will suffer most. But today’s dire situation will also force the pivot to more adaptive planning and operations that many CMOs had delayed during better days. Read this report to understand the expected marketing budget cuts and how to remain agile as the situation unfolds.

Key Takeaways

A Mid-2021 Recovery Is Most Likely 

Forrester used three scenarios to model US marketing spend: a late-2020 recovery, a mid-2021 recovery, and a late-2021 recovery. 

Marketing Technology Will See Slight Growth 

A mid-2021 recovery predicts a 3% increase for marketing automation tools by year-end 2021. 

CMOs Will Adapt To Survive 

Leaders who embrace a “sense and respond” approach to communications and daringly adjust their product, placement, and price will weather the storm. 

MARKETING PRIORITIES SHIFT AS THE COVID-19 CRISIS UNFOLDS

The world turned upside down for all of us in March 2020. And with COVID-19 still spreading, shutdowns expanding, unemployment rocketing, business spending curtailed, and consumers staying at home buying essentials only, everything feels uncertain. CMOs can’t help but ask: What in the world do I plan for now? To develop guidance in response to this question, we considered how US marketing budgets and priorities will change under three possible scenarios that Forrester developed to anticipate changes to enterprise technology spend ( see Figure 1 ). (see endnote 1)

  • Late-2020 recovery: a best-case scenario. With a 30% probability at present, this scenario expects the incidence of COVID-19 infections in the US to peak in Q2 2020 and economic recovery to begin in Q4 2020. Businesses will reopen in late May to June, beginning with coastal cities that have the highest number of cases but will be the furthest along in leveling out the occurrence of the virus. 
  • Mid-2021 recovery: a more damaging scenario. With a 60% probability, this scenario sees the pandemic continue to grow throughout 2020. Consumer confidence, which declined sharply in March 2020, will be in free fall for the remainder of the year. (see endnote 2) An extended — or repeated — shutdown will continue the economic downturn, leading to deeper, longer-lasting budget cuts. Recovery will likely not begin until late Q2 2021. 
  • Late-2021 recovery: an even more severe scenario. If the pandemic persists, health concerns and the descending economy will extend well into 2021. Having suffered through months of pandemic-induced stress and lost wages, consumers will prioritize saving and only cautiously begin spending, slowing the recovery. We consider this a 10% possibility, but we have not yet modeled this out. 

Figure 1: Two Scenarios For US Spend On Media, Marketing Services, Martech, And Internal Marketer Headcount 

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US CMO Budgets Will Lose $222 Billion, Even With A Late-2020 Recovery

Our most optimistic scenario expects economic resurrection within nine months. But even if recovery happens this fast, spend on media, marketing technology, marketing services, and internal headcount will decline well into 2021, as marketing trails macro trends by three to four months. As Anthony Fauci reminds us, rebounding from a shutdown of this scale will happen slowly, market by market: “[The economy] isn’t like a light switch, on and off.” (see endnote 3) Marketing regrowth, when it does come, will be conservative, leaving overall marketing spend starting 2022 nearly 30% behind 2019, when unemployment was at an all-time low and the economy was booming. In this scenario: 

  • Media money will move to branding in the short term. Already, 81% of large advertisers are deferring or cutting campaigns because of the COVID-19 pandemic. (see endnote 4) We translate this into a 23% decline in media spend in 2020, reflecting the rapid drop in GDP expected in this scenario ( see Figure 2 ). (see endnote 5) Promotions and offline media will be the hardest hit, with offline media falling 30% this year. Even with more people at home, brands won’t commit to advanced media buys or to drive sales when demand and supply chains are so volatile. Retailer 4X400 expects to pull 25% to 50% of spend due to declining conversions. (see endnote 6) Comparatively, social media will dip just 12% as marketers redirect promotions or events budgets into support-oriented branding campaigns, gaining share of voice and goodwill. 
  • Tech budgets will hold for essential tools. In this scenario, the combined categories of data and analytics, advertising technology, and marketing automation will grow 2% by the end of 2021 ( see Figure 3 ). (see endnote 7) Unlike media, which can be immediately shut off, multiyear campaign management contracts lock CMOs into paying terms negotiated in 2019, even if they need to consolidate. For this reason, adtech — which is tied to online media volume — will falter by 15% in 2020 as programmatic ad investments plunge. Demand-side platform (DSP) MediaMath laid off 8% of its staff in early April 2020. Data and analytics tools will see a 2% lift over the next two years as CMOs maintain market mix models, churn, and ROI analytics but cut nice-to-haves like visualizations or virtual reality analytics. (see endnote 8) Marketing automation — which counts for more than half of all martech spend — will grow 7% through 2021 while it supports vital brand and retention emails. 
  • Agency and strategy contracts will be sacrificed to save internal headcount. Agency, strategy, and operations services will tumble 12% by the end of 2021 in this scenario, with agencies suffering the most because their business depends on advertising ( see Figure 4). In its Q1 2020 earnings release, Publicis announced €500 million in cost-saving measures in response to pandemic-related revenue declines. Other holding companies are making similar reductions through layoffs, cuts in executive pay, or deferred dividends to shareholders. Strategy services spend will also dip over the next two years to the tune of 3% as brands delay payment or move projects to in-house resources. In contrast, database, customer insights, and campaign management service providers will grow 1% before 2022, as they measure marketing efficiency and analyze customers to prevent churn. (see endnote 9)
  • Headcount spend will dive, even with the federal stimulus. The remaining months of 2020 will see the loss of 469,000 marketer jobs, subtracting $162 billion from CMOs’ payrolls. Through 2021, we expect the number of businesses with marketing staff to drop as nearly 20% of midmarket firms and 1% of enterprise companies never reopen. We estimate that surviving enterprises will cut staff by 10% and salaries by 25%, based on what big brands have done so far. In April 2020, Sotheby’s furloughed 12% of staff; Class Pass laid off 22% and furloughed 31%; and Condé Nast, Coty, and Tailored Brands implemented 10% to 50% pay cuts. (see endnote 10) Midsize businesses will cut teams by 7% with similar salary declines. The short shutdown expected in this scenario should allow for some reimbursement against this immediate cost conservation by year-end 2021. GM ambitiously expects to repay salary cuts for furloughed and paycheck-reduced employees by March 2021. (see endnote 11)

Figure 2: US Spend On Digital And Offline Media In A Late-2020-Recovery Scenario 

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Figure 3: US Spend On Data/Analytics, Adtech, And Marketing Automation In A Late-2020-Recovery Scenario 

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Figure 4: US Spend On Marketing Operations, Agency, And Strategy Services In A Late-2020-Recovery Scenario 

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Budget Cuts Will Deepen In A Mid-2021 Recovery Scenario

Recessions create a vicious cycle: Limited business in one sector reduces workforce income, which decreases consumer and business spending and forces cutbacks in other areas. This means that even if the pandemic and associated shutdown ends by December 2020, high unemployment, small-business failures, and lower confidence will delay recovery in consumer spending and business investment. Broader economic recovery will start in mid-2021, but CMOs will deepen budget cuts throughout 2021 in response to months of near-zero revenues for many industries. In this scenario: 

  • Radio, print, and out-of-home will collapse. Offline media has been ceding share of ad budgets to digital media for two decades. After the nearly 12 months of no commuters, stunted foot traffic, and empty airplanes likely in this mid-2021-recovery scenario, remaining investments in these media will plunge 34% from 2019 ( see Figure 5 ). This will increase the share of search, social, banner ads, and display video to 61% of all advertising by 2022. Major publishers like The Wall Street Journal and Meredith are already guaranteeing outcomes to try to counter declining print ad revenue. (see endnote 12) When advertising does pick up in mid-year 2021, buys will be almost exclusively for digital media including digital out-of-home, because of its flexibility: Consider how the CDC is releasing location-specific virus announcements through digital billboards, retail kiosks, and truck displays as guidance changes. (see endnote 13)
  • Marketing automation will save martech from decline. In a mid-2021 recovery scenario, marketing technology will decline by 4% before 2021 ends. Already under threat because of third-party cookie depreciation, cuts to demand-side platforms and data management platforms will accelerate. Marketing performance management, customer analytics, and customer feedback platforms won’t lose as much ground as CMOs seek efficiency and optimization. And marketing automation will grow 3% as marketers use these applications to offload work previously done by people ( see Figure 6 ). Automation tends to advance in economic shocks, when people become relatively more expensive as firms’ revenues decline. (see endnote 14)
  • Services will lose 22% in two years. By year-end 2021 in this scenario, $15 billion will have fallen out of the marketing services space ( see Figure 7 ). Prolonged strain on supply chains and negligible discretionary travel and retail will cut entire sectors from agency rosters. Multiyear contracts will terminate and not renew. Analytics tools will replace operational services partners to automate customer modeling. And strategy projects will stall. Bain and LEK Consulting have halted internships or reneged MBA offers already. (see endnote 15) The turnaround will start in Q3 2021 when strategy shops start seeing RFPs for business model innovations to help surviving CMOs rebuild their firms. 
  • Organizations will run skeleton teams. In this scenario, marketing headcount will fall 30% over the next two years and salaries will decline 30% in 2020 and an additional 5% in 2021 as CMOs have no choice but to cut deeper to stay afloat. These steep cutbacks will test customer experience (CX) and marketing program quality; consistently demonstrating brand promise at scale could be difficult with smaller teams. One bright spot: Constrained resources and drastically different customer habits will force innovations that will push marketing beyond where it was in 2019. For example, the UK’s Nationwide Building Society has shifted to agile methods. Paul Hibbs, the director of advertising and media there, explains, “We are literally planning week to week at the moment, but with a view that we want to come out of this stronger than we went into it.” (see endnote 16)

Figure 5: US Offline Media Spend In A Mid-2021-Recovery Scenario 

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Figure 6: US Spend On Data/Analytics, Adtech, And Marketing Automation In A Mid-2021-Recovery Scenario 

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Figure 7: US Spend On Marketing Operations, Agency, And Strategy Services In A Mid-2021-Recovery Scenario 

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RECOMMENDATIONS

Adopt An Adaptive Approach Now

You’ve long needed to shift to a people-led planning approach that is continuous, relies on ongoing measurement, and has flexible budgets. (see endnote 17) Well, facing down a pandemic requires assuming this approach immediately, as conditions are evolving so quickly. (see endnote 18) CMOs who make this pivot will: 

  • Shift to a sense-and-respond mode. A modern marketing organization owns customer understanding: listening for what individual customers value. (see endnote 19) In crisis circumstances, you must listen as granularly as possible. Field personnel, distribution partners, consumer sentiment monitoring, and third-party data at the DMA level can help monitor how quickly business picks up — or gets shut down again — as stay-home orders are lifted. (see endnote 20) From this information, commit media in select markets but for no more than two weeks at a time. IRI informs real-time CPG category trends, stock availability, and consumer sentiment, while Nielsen’s Total Audience Report provides media insights and technology usage. (see endnote 21) Both can help you sense immediate results in order to revise your marketing mix and multitouch attribution models. 
  • Model possible outcomes on a rolling basis. The marketing optimization models you have in place that integrate media allocation, content, and audience targeting can help you understand how current circumstances are affecting your customers from one location and family situation to the next, if you apply them in a more dynamic way. Do small tests, regularly varying customer needs, routes to market, and product availability, in order to find what works for your budget and delivers against customers’ changing needs. ANZ, a financial services company based in Australia, found that involving its data scientists in its marketing planning made this type of agile scenario planning easier. (see endnote 22)
  • Prioritize CX improvements to drive loyalty. Fixing common customer problems yields three strong returns in a time of crisis. First, it provides critical insight into customers’ needs, which are likely different now than in non-crisis circumstances. The CX team at Australia Post specifically looks for points of value destruction to correct. (see endnote 23)Secondly, prioritizing CX now also cuts costs: Call centers are pricey, as is the cost of losing a customer due to a disappointing experience. CMOs who do root-cause analysis on the list of problems that customers frequently call about will find ways to create new value. This will reduce inbound calls and accomplish a third benefit: keeping customers from cancelling, a big risk when market demand stalls. Customers who believed that a business solved their problems quickly were seven times more likely to stay with the business. (see endnote 24)
  • Align actions and communications. Authentically demonstrating your brand promise always matters. (see endnote 25) But customers in a fragile emotional state will be even more sensitive to a brand’s reliability. (see endnote 26) This means matching messaging to the current climate: In response to CDC guidance to avoid touching your face, KFC paused a campaign showing people licking their fingers. (see endnote 27) Commit only to what you can deliver: A major pizza chain turned off customers by touting contactless delivery when some franchisees still required signatures on paper receipts. Stay up on government guidance: United Airlines faces a class-action lawsuit for offering vouchers instead of cash refunds per requisite shelter-at-home regulations. (see endnote 28) And market based on what your supply chain can bear: Reese Witherspoon’s fashion label Draper James damaged its brand when it registered 1 million teachers for a free dress offer when it only had 250 available to offer. (see endnote 29)
  • Not stop marketing. The counterintuitive advice in a report analyzing difficult budget cuts is that increasing marketing efforts during a recession will actually return you to growth faster. (see endnote 30) This doesn’t mean continuing with a media plan that isn’t affordable or relevant; it does mean considering if you should revise your pre-crisis products, placements, or prices in order to create the value customers need now. Lena Roland, managing editor for WARC knowledge, explains: “Brands that provide solutions [that] help alleviate people’s anxiety . . . in hard times will have an advantage when the recovery begins. This can be done without an ad campaign — the best approach is to just get on with it.” (see endnote 31) Peleton now offers “family fit” programming for customers’ new routine with kids at home. (see endnote 32) Aman Home Services, a cleaning business, pivoted to sterilizing commercial building lobbies when its demand for household cleaning dried up. (see endnote 33) And even local YMCAs are offering hundreds of online exercise classes for free to YMCA members. 

SUPPLEMENTAL MATERIAL

Online Resource

Click the link in the download box at the beginning of this report on Forrester.com for an Excel spreadsheet detailing the model behind the forecasts in this report. 

Forecast Methodology

This model predicts spend in US media, marketing technology, marketing services, and internal marketing headcount in two different economic scenarios that are possible because of the recession caused by the 2020 global shutdown due to the COVID-19 pandemic. The first scenario represents a recovery beginning at the end of 2020. In the second scenario, recovery begins in mid-2021. The model is an aggregate of three different models. 

ENDNOTES 

  1. See the Forrester report ” US Tech Budget Outlooks In A COVID-19 Recession. ” 

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  1. Following an increase in February, the Consumer Confidence Index declined sharply in March. Source: “Consumer Confidence Survey®,” The Conference Board, April 28, 2020 (https://www.conference-board.org/data/consumerconfidence.cfm). 

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  1. Source: “Dr. Anthony Fauci on How Life Returns to Normal,” The Journal Podcast, The Wall Street Journal, April 7, 2020 (https://www.wsj.com/articles/dr-anthony-fauci-on-how-life-returns-to-normal-11586298725). 

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  1. Source: Lucy Handley, “Major multinationals are postponing ad campaigns and slashing marketing budgets, new report finds,” CNBC, April 7, 2020 (https://www.cnbc.com/2020/04/07/multinationals-postpone-marketing-and-reduce-budgets-due-to-coronavirus.html). 

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  1. Looking at recessions over the past 50 years, we found that advertising spend decelerated by one time to five times the rate of deceleration in GDP. 

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  1. Source: Anna Hensel, “DTC brands are tightening up how much they spend on digital advertising,” Digiday, March 23, 2020 (https://digiday.com/marketing/dtc-brands-tightening-much-spend-digital-advertising/). 

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  1. See the Forrester report ” The US Marketing Technology And Services Outlook, 2017 To 2022. ” 

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  1. Data visualization company DOMO announced a $30 million cost reduction plan on April 9 due to the economic slowdown because of COVID-19. Source: Eric Avidon, “Economic slowdown due to COVID-19 leads to DOMO layoffs,” SearchBusinessAnalytics, TechTarget, April 13, 2020 (https://searchbusinessanalytics.techtarget.com/news/252481536/Economic-slowdown-due-to-COVID-19-leads-to-Domo-layoffs). 

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  1. Source: “Deloitte buys 20-strong data analytics consultancy Bistech,” Consultancy.com.au, March 25, 2020 (https://www.consultancy.com.au/news/1808/deloitte-buys-20-strong-data-analytics-consultancy-bistech). 

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  1. Source: Marianne Wilson, “Tailored Brands furloughs all U.S. store workers, extends closures, cuts exec pay,” Chain Store Age, March 26, 2020 (https://chainstoreage.com/tailored-brands-furloughs-all-us-store-workers-extends-closures-cuts-exec-pay). Source: Taylor Borden, “The coronavirus outbreak has triggered unprecedented mass layoffs and furloughs. Here are the major companies that have announced they are downsizing their workforces.” Business Insider, April 30, 2020 (https://www.businessinsider.com/coronavirus-layoffs-furloughs-hospitality-service-travel-unemployment-2020). Source: “LA Times Furloughs Non-Editorial Employees,” Ad Exchanger, April 16, 2020 (https://www.adexchanger.com/ad-exchange-news/live-industry-updates/) and “Fortune Lays Off 10% Of Staff,” Ad Exchanger, April 15, 2020 (https://www.adexchanger.com/ad-exchange-news/live-industry-updates/). Source: Allison Collins, “Coty Cuts Executive Salaries by 25%, as Coronavirus Impacts Business,” WWD, April 14, 2020 (https://wwd.com/beauty-industry-news/beauty-features/coronavirus-coty-cuts-executive-salaries-1203560401/). 

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  1. Source: Hannah Lutz, “GM cuts white-collar salaries 20%, furloughs 6,500 in U.S.,” Automotive News, March 26, 2020 (https://www.autonews.com/automakers-suppliers/gm-cuts-white-collar-salaries-20-furloughs-6500-us). 

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  1. Meredith has seen its competitors significantly decrease prices to lure more advertisers. In response, they are guaranteeing advertisers outcomes like product purchases and website visits. Source: Max Willens, “‘Focus on singles and doubles’: Publishers’ revenue heads emphasize short term as coronavirus drags on,” Digiday, April 13, 2020 (https://digiday.com/media/focus-on-singles-and-doubles-publishers-revenue-heads-emphasize-short-term-as-coronavirus-drags-on/). The Wall Street Journal is leveraging increased user attention by offering ad recall guarantees to advertisers. Source: Sara Jerde, “The Wall Street Journal Offers Ad Recall Guarantee to Print Advertisers,” Adweek, March 31, 2020 (https://www.adweek.com/digital/the-wall-street-journal-offers-ad-recall-guarantee-to-print-advertisers/). 

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  1. Source: Ian Dallimore, “How DOOH is Helping Handle the COVID-19 Pandemic,” Digital Signage Connection, March 25, 2020 (https://www.digitalsignageconnection.com/how-dooh-is-helping-handle-the-covid-19-pandemic). 

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  1. Source: Mark Muro, Robert Maxim, and Jacob Whiton, “The robots are ready as the COVID-19 recession spreads,” Brookings Blogs, March 24, 2020 (https://www.brookings.edu/blog/the-avenue/2020/03/24/the-robots-are-ready-as-the-covid-19-recession-spreads/). 

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  1. Source: Nathan Allen, “Companies Begin To Freeze And Rescind MBA Internship & Job Offers,” Poets&Quants, March 27, 2020 (https://poetsandquants.com/2020/03/27/companies-begin-to-freeze-and-rescind-mba-internship-job-offers/). 

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  1. Source: Sarah Vizard, “Nationwide: We want our brand to come out of this stronger than it went in,” Marketing Week, April 14, 2020 (https://www.marketingweek.com/nationwide-marketing-coronavirus-brand-strength/?cmpid=em~newsletter~breaking_news~n~n&utm_medium=em&utm_source=newsletter&utm_campaign=breaking_news&eid=13104296&sid=MW0001&adg=E605E061-E2C0-45B1-B987-60B4F04C3668). 

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  1. See the Forrester report ” Forget Everything You Think You Know About Marketing Planning. ” 

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  1. See the Forrester report ” Build Your Adaptive IT Operating Model Iteratively. ” 

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  1. See the Forrester report ” The Model For Modern Marketing. ” 

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  1. DMA: designated market area. 

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  1. Source: “Nielsen Total Audience Report,” Nielsen, February 2020 (https://www.nielsen.com/us/en/client-learning/tv/nielsen-total-audience-report-february-2020/). 

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  1. See the Forrester report ” How To Apply Agile Methodology To Marketing. ” 

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  1. See the Forrester report ” Value For Customers: The Four Dimensions That Matter. ” 

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  1. See the Forrester report ” CX NYC 2019 Day One Highlights: Your Guide To Radical CX Innovation.” 

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  1. See the Forrester report ” Marketers Versus Customers: Opposing Forces Erupt. ” 

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  1. Source: Rick Parrish, “Getting Digital CX Right Amid The Pandemic,” Forrester Blogs, March 20, 2020 (https://go.forrester.com/blogs/getting-digital-cx-right-amid-the-pandemic/). 

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  1. Source: Lucy Handley, “Major multinationals are postponing ad campaigns and slashing marketing budgets, new report finds,” CNBC, April 7, 2020 (https://www.cnbc.com/2020/04/07/multinationals-postpone-marketing-and-reduce-budgets-due-to-coronavirus.html). 

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  1. Source: “United Airlines is sued by passenger for refusing to refund fare,” Crain’s Chicago Business, April 6, 2020 (https://www.chicagobusiness.com/airlines-airports/united-airlines-sued-passenger-refusing-refund-fare). 

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  1. Source: Vanessa Friedman, “Reese Witherspoon’s Fashion Line Offered Free Dresses to Teachers. They Didn’t Mean Every Teacher,” The New York Times, April 15, 2020 (https://www.nytimes.com/2020/04/15/fashion/reese-witherspoon-draper-james-coronavirus.html). 

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  1. Source: Mark Ritson, “The best marketers will be upping, not cutting, their budgets,” Marketing Week, April 6, 2020 (https://www.marketingweek.com/mark-ritson-marketing-spend-recession-coronavirus/?utm_campaign=Weekly%20Newsletter&utm_source=hs_email&utm_medium=email&utm_content=85962550&_hsenc=p2ANqtz-8nNs8Hsfjbfdsl1HvgEICMg4RX3Mh2ZTWTV1J7FKd-SA9TabKoOry70jKKRlxISzs2eq74nvNlOdmXSkGPql7qM1xglQ&_hsmi=85962657). 

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  1. Source: Lena Roland, “Responding to COVID-19 and preparing for the global recession,” WARC, March 30, 2020 (https://www.warc.com/newsandopinion/opinion/responding-to-covid-19-and-preparing-for-the-global-recession/3492). 

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  1. Source: Chris L, “Peloton Adds New Peloton Family Classes,” Peloton Buddy, April 3, 2020 (https://www.pelobuddy.com/peloton-adds-new-peloton-family-classes/). 

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  1. Source: Deborah Tennen-Zapier, “5 creative ways small businesses are succeeding during the COVID-19 quarantine,” Fast Company, April 12, 2020 (https://www.fastcompany.com/90489203/5-creative-ways-small-businesses-are-succeeding-during-the-covid-19-quarantine). 

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