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SHOULD I CONTINUE SPENDING ON ADVERTISING AND MARKETING DURING THE COVID-19 ECONOMIC RECESSION?

When times are good, you should advertise. When times are bad, you must advertise.

This is a question that will be on a lot of people’s minds. Whether you own a business, head up a marketing department or have input on your company’s marketing strategy, you may be considering ways you can cut costs and ultimately survive the impending economic downturn.

Yet, while it is important to look at ways to spend less while you have less money coming in, it’s also important to understand why you should keep spending, or even increase spending, on marketing and advertising during a recession.

Study after study over the last 40 years have shown that reducing spending on advertising and marketing is perhaps the worst decision a business can make during a recession. While cutting spending may seem like the most logical thing to do in the short term, the long term impact is devastating.

ADVERTISING IS AN INFINITE GAME

Cutting budgets provides a short-term fix, but a severe long-term decline in profits.

Between 1980-1985, McGraw-Hill Research analysed the sales and profits of 600 companies across 16 industries. They found that, during the 1981-1982 recession, those that maintained or increased their advertising and marketing expenditure averaged significantly higher sales growth, both during the recession and for the following three years, than those that eliminated or decreased their ad spending. At the end of the study, those who had aggressively marketed during the recession had 256% more sales over those that didn’t.

More recently, at a seminar in 2008 by the Institute of Practitioners in Advertising, marketing consultant Peter Field outlined that the short-term improvement in profitability from cutting spending is rapidly overtaken by a severe decline in profitability in the medium and long term. Put simply, cutting spending in marketing and advertising during a recession is detrimental to long term growth and sales.

The data to support this extends far beyond just these two studies. From 1991 to 2001 to 2008, every downturn in the economy has brought more research that supports the notion that cutting marketing budgets during a recession is detrimental to growth. We can even look back further to a study authored by Roland Vaile between 1920-1924 to find the same results.

Vaile tracked advertisement spending and annual revenue across 250 companies during the post-war recession. He found, as we might expect, that those who maintained or increased their advertising and marketing spending during this period outperformed those who cut back or eliminated their spending altogether.

We can look at specific examples to further support this. In 1973, the Toyota Carolla was the second most fuel efficient car behind the Honda Civic, according to the first US Miles-Per-Gallon report at the time. Toyota’s sales were strong when the 1973-75 recession hit. Due to high demand for the car, the company considered cutting the advertising budget to catch up with demand and ensure short term profitability. They did the opposite, however, instead focusing on their long-term plan. As a result, they surpassed Volkswagen as the number one import in 1976.

What this tells us is that spending more on advertising and marketing during a recession is the most beneficial approach to driving sales, beating competition and generating long term growth. While it could impact short term profitability, it is a smart long-term strategy. Yet, why is this the case?

INCREASE MARKET SHARE

When times are bad, there’s fewer players in the game.

When times are good, businesses across the board are less averse to spending money, often happy to pump cash into advertising and marketing budgets. This means there are a greater number of companies competing for a slice of the market. During this time, it can be difficult to increase market share (i.e. the amount of the market that you control) as there is more competition. Where one company cannot meet demand, another can come in and fill the space.

When times are bad, however, most businesses begin to tightly control their money, limiting advertising spending and cutting costs where possible. Some competitors are not willing or able to compete as a result. In these times, there are fewer players in the game, and less noise to compete with.

This presents a brilliant opportunity for those who maintain or increase their advertising spending. Not only are they competing with fewer companies, they are able to eat up the market share of those competitors who believe their sales have dwindled simply because everyone has been hit hard by the downturn. The reality, however, is that their market share has just been eviscerated.

This is precisely what the Strategic Planning Institute of Cambridge, Massachusetts found in their research. While studying the impact spending on marketing strategies has on profits, they found that a 28-80% increase in advertising spending equated to a market share increase of 1.5 points. This increase in market share is almost impossible to attain during the “good” times when more companies are in the game.

In short, maintaining spending allows you to grow your market share in a space that has become less filled with competition. Increasing advertising and marketing during a recession also has the benefit of improving your brand’s perception with the public.

PERCEPTION IS EVERYTHING

When you see a company advertising in a down economy, it makes you feel more positive about their commitment to their products and services.

If you’re seen, you’re more likely to be remembered. If you are able to keep your brand in people’s minds, whether in a recession or out of it, they will likely come to you to make a purchase in the future. This is harder when more companies are vying for your attention, but during a recession when companies slash their advertising budgets, this becomes slightly easier.

As Peter Fader from the Wharton school, the business school at the University of Pennsylvania explained “As companies slash advertising in a downturn, they leave empty space in consumers’ minds for aggressive marketers to make strong inroads.” In other words, a company that increases their spending during a recession is more likely to be remembered as they have a greater chance of being seen.

In addition, a company that is seen to be advertising during a recession is more likely to be seen in a positive light by other decision makers and customers. A study in 2001 asked a cohort of business decision makers a number of questions about their attitudes at times of recession and found this to be the case.

86% of decision makers agreed that when you see a company advertising in a down economy, it makes you feel more positive about that company’s commitment to its products and services, as well as keeping them at the top of-mind when you make purchase decisions.

It would seem, then, that reducing advertising expenditure during a recession can severely harm your brand’s perception amongst the public and can, as a result, reduce your market share. If you go dark, you will suffer.

WHAT DOES ALL THIS MEAN?

Managing risk doesn’t mean avoiding it.

What we can learn from these studies is that reducing advertising and marketing expenditure during a recession can have a detrimental impact on your brand’s long term performance. The numbers tell a clear story: do not cut. If anything, spend more (if you’re able to).

It is worth noting here that throwing money at a weak strategy won’t deliver results. While it is important to maintain your advertising/marketing spending, it’s also important to ensure that your content and the strategy behind it is strong. In other words, you need to ensure your content and marketing strategy will engage and target the right people, speaking to their interests and motivations and drawing them into your funnel.

Essentially, your content needs to be engaging and needs to stand out; you need to have a clear content and marketing strategy that will convert new leads to sales, being clear on who you’re targeting and how you will convince them to buy. You need beautiful content that delivers results.

At McGill Productions, we produce exactly that. We take time to get to know your brand; to understand your target audience and what motivates them; to develop clear content strategies and to produce content that is beautiful and that you are proud of; content that delivers real results. Click here to learn more about how we can help you and what we can do to drive those results during the upcoming recession.

The future is uncertain. COVID-19 has decimated economies across the world and has put almost every business into a tough position. Only those who stand up to that challenge and are aggressive with their response will survive.

Managing risk doesn’t mean avoiding it. Study after study has shown that reducing advertising expenditure, while a short term fix, can destroy your brand in the long run. To ensure long term growth and to reap the benefits of an economic downturn when the economy bounces back, business should take the risk to maintain their spending, or increase it (if they can). As the marketing adage goes:

“When times are good, you should advertise. When times are bad, you must advertise.”

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