The ongoing Coronavirus Pandemic is likely going to usher the global economy into the deepest downturn ever recorded since the Great Depression, according to the IMF.
‘A massive economic contraction’ and a ‘soaring rate of unemployment to the highest levels’ are the words used by the Central Bank Governor of Australia, Philip Lowe to describe the impending event.
One strategy that most business proprietors always adopt is cutting back on different areas of their businesses. That looks like the most reasonable thing to do anyway.
But here are some salient questions!
Should marketers cut back on ad spend? Should I cut back on ad spend even as I cut back on different areas as a business proprietor?
Let's take a cue from the 2008 recession while examining the US as a case study.
In the United States, spending on ads dropped by 13%. When broken down into channels, newspaper ad spend recorded the most significant dropped at 27%, followed by radio, 22%. Magazines ad spend declined by 18%, television ads recorded a 5% decline, and online advertisement dropped by 2%.
A lot of researches conducted in the past century also looked at the benefits of sustaining or boosting your ad budgets in an economic downturn.
Amazon recorded a 28% growth in sales during the 2009 recession. While other companies were cutting back on their advertising budget, Amazon introduced new products in that slumping economy and positioned itself as an innovative company.
A research conducted by MarketSense revealed the best approach to cope during an economic recession is to establish a balance between promotion for short-term sales and long-term branding. Jif and Kraft Salad Dressing were notable brands that recorded significant growth in sales- about 57 per cent and 70 per cent, respectively, after boosting their ad budget during the recession according to the Study.
McGraw-Hill studied 600 B2B enterprises and discovered that companies who sustained or increased their advertising budget experienced significant growth. Not only during the recession but for the next three years.
Those companies sales had surged 275% by 1985 over those that failed to increase their ad budget.
A study conducted by an American Business Press revealed that companies who engaged in aggressive marketing could sustain and boost sales during an economic recession and in subsequent years.
Buchen Advertising Inc. tracked ad dollars versus sales trends for the recessions that occur in 1949, 1954, 1958, as well as 1961.
Their findings revealed that enterprises who cut back on marketing and advertising had a drop in sales after the end of the recession. Those enterprises could not compete with others who sustained their advertising budgets.
Roland S. Vaile, an advertising executive, surveyed 200 companies through the economic recession of 1923. According to his report published in the Harvard Business Review issue of April of 1927, only companies that sustained aggressive advertising leapfrogged their businesses by 20 per cent ahead of their previous positions in the market. On the other hand, those enterprises that cut back on their ad budget continued in the recession, 7 per cent below their 1920 positions.
J. Welesy Rosberg, a Senior VP at MELDRUM AND FEWSMITH, in his words, captioned it this way:
'I am yet to come across any study that established timidity as the route to success. Studies have consistently demonstrated that businesses who possess the guts and knack to sustain and scale their overall advertising and marketing efforts during economic recessions will outperform their timid competitors.'
While it may look reasonable to cut back on different areas of your business during an economic downturn, the same strategy does not work for advertising costs.
It is usual for leaders in other divisions to complain about how marketing gulps a lot of money while they receive cuts. But the truth is, marketing embodies everything that keeps the business profitable.
You can leverage on the drop in the noise level in your brand's product category. The more your competitors reduce their ad spend, the less the noise level. You can introduce a new solution or product like Amazon or activate ‘brand repositioning’.
Post led in the Dry Cereal product category during the 1920s Great Depression. Meanwhile, it reduced its ad spend significantly while Kellogg, a closer rival doubled its advertising budget. Kellogg invested aggressively in radio and also introduced a new product called 'Rice Krispies'.This new product also featured 'Snap', 'Crackle' and 'Pop'.
Guess the outcome!
Kellogg grew its profit by 30% and led the product category. It maintained that lead for decades.
When you sustain or increase your ad spend in an economic recession, you are communicating a sense of corporate stability and innovativeness to consumers and investors.
That was exactly what Amazon did during the 2009 recession.
Amazon recorded a 28% growth in sales that year. The tech company leapfrogged by introducing new products in a slumping economy. Its Kindle products helped the company to grow its share of the market. Do you know that on Christmas Day 2009 alone, its customer purchased more ebooks than paperbacks or printed books? Thus, Amazon was seen as an innovative company that introduced a lower-cost option to cash-strapped customers.
Marketing costs usually drop during economic downturns.
This reduction in rates paves the way for a buyer's market only for dogged brands. Different studies brought to fore the effectiveness of increasing your advertising expenditure in producing both short-term and long-term growth in sales during a business downturn.
Taco Bell and Pizza Hut leveraged McDonald's decision to cut back on its advertising expenditure during the 1990-91 recession. Consequently, Taco Bell grew its sales by 40%, Hut's sale went up by 61% while McDonald recorded a 28% sales decline
The 17-month long recession that occurred between 1973 to 1975 was led by the Energy crisis. As of late 1973, The US Government had released the first miles-per-gallon report where Toyota Corolla came second to Honda Civic in terms of fuel efficiency. While Toyota was recording significant sales, it had to resist the temptation of dropping their ad budget during the economic recession. By sticking to its long-term strategy, the company was able to outperform Volkswagen as the leading imported carmaker in the United States by 1976.
Marketers who reduce their advertising expenditure in a recession will lose their share of mind with their customers. This alone can guarantee a loss in the present and future sales.
An increment in your share of voice will result in an increased market share. This increase in market share is what guarantees profitability in a recession
It is more reasonable to maintain your share of voice (SOV) at or beyond your share of the market (SOM) during an economic recession. The profitability you will experience in the long-term will surpass the short-term reduction. This was also reaffirmed in a 2008 report by IPA.
'If other businesses are reducing their budgets, the longer-term advantage of sustaining your SOV at or beyond the SOM will be greater.'
Another approach you can engage is to change your ad message by utilizing short-term incentives on price, which align with the economic situation of customers searching for good deals. You can revert to standard pricing when the recession is over. You can as well project the value your brand is offering.
While it is a norm for marketers to reduce their advertising budget during an economic downturn, those brands that sustain or even increase their budget can experience a sustainable boost in their sales, as well as market share.
Probably the suitable quote for marketing in an economic downturn will be the thought of Sam Walton. The founder of Walmart was asked what he thought about a recession.
' I gave it a thought and decided not to participate.'