By investing in advertising, brands can induce consumers to spend some of the cash they are sitting on rather than postponing purchases. The faster brands act, the shorter the recession, only this is counter to how most companies operate with an advertising philosophy that you spend in economic boons and cut back in downturns.
Here are the top reasons businesses cut advertising budgets during tough economic times.
1.) They don’t believe consumers are buying due to lack of funds, so why bother.
2.) Competitors have ceased spending.
3.) Every dollar saved can be applied to keeping the lights on.
The first premise can be refuted by looking at trends in past recessions. Most saw little negative impact on total employment and disposable income. It wasn’t that consumers didn’t have funds; they simply chose not to spend them. Consumer pessimism is often more psychological than fact-based requiring more – not less – advertising to loosen the proverbial purse strings.
Regarding the second premise, look at this as a gift from your competitors. They are throwing in the towel, making their share of the market vulnerable. Now is the time to cash in on these opportunities being handed to you by rival companies. The courageous can win big which is why forward-thinking companies expand advertising during economic slowdowns.
History most certainly refutes the third argument. It takes enormous capital and time to gain a strong customer following and a matter of weeks for all of that brand capital to erode. Step out of the advertising space and you’re essentially sending an engraved invitation to your competitors to grow their customer base and dominate the market. Once these customers have chosen your competitors, you’ll have one heck of a time wooing them away as unbreakable brand loyalty is formed in times of crisis. This hill is often too steep and expensive to climb.
History has shown us that it’s consumption that brings a nation out of a recession, and advertising drives consumption by stimulating demand. So, I’m looking to my fellow marketers, as this, in many ways, is on us to get things moving.
A study published in the Harvard Business Review in 1980, and still just as relevant today, looked at the performance of similar companies across four different recessions. It compared their ad spend to their revenue growth during and after the recession. Without question, companies that maintained or increased their advertising spend during the throes of the recession were far better equipped to hold down the fort when the economy worsened and to recover far more quickly than their under-spending counterparts.
The bottom line is that great companies leverage cash reserves during times of economic uncertainty in order to cash in on opportunities that competitors are creating by pressing pause on their sales and marketing efforts and stepping out of the market. They’re able to do so at a much lower cost relative to strong economic times. In fact, companies would be well positioned to intentionally set aside cash reserves during good times to be used exclusively for advertising during periods of economic uncertainty.
Advertising should not be viewed as a drain on profits but instead as a driver of them. Companies that have the fortitude to swim against the current, when everyone else is getting out of the water, will see a tremendous payoff as the market recovers. No, the payoff may not be immediate, but it will be exponential in time if done right.
Big Brand Response During Economic Crisis and the Results.
Ford lacked innovation and efficiency like many American auto manufacturers in 2006 – at least until Alan Mulally took over as CEO. The company was in shambles with stock trading at just over $1 per share making 2006 its worst year ever with more than a $12 billion loss. With the great recession just two years ahead, this could have been the end for Ford. Through the worst of the recession, Mulally invested heavily in rebranding, manufacturing upgrades and R&D. Ford achieved an astonishing turnaround with stocks trading at roughly $17 per share at the time of Mulally’s announcement to retire in 2014.
Domino’s was having major quality issues when the economy tanked in 2008. Customers thought their crust tasted like cardboard and their sauce like basic ketchup. In the throes of a terrible economy with a subpar product, this brand elected to lean in on product development and recreate its recipes. They also built and deployed an app for ordering and tracking of orders to the door, and they invested heavily in marketing around both product and tech improvements. The result? This brand grew 9 percent in 2010 to $3.3B in annual revenue.
Just 10 days after 9/11, GM launched a gutsy ad campaign called “Keep America Rolling,” combining a pro-America pitch with a zero-percent financing offer. Just before the campaign launched, GM’s President of North American Operations said “We know this is a difficult time to talk about an incentive program, but GM has a responsibility to help stimulate the economy by encouraging Americans to purchase vehicles, to support our dealers and suppliers, and to keep our plants operating and our employees working.” Boy did it work. The auto maker broke sales records in October of that year and closed out the second best year on record for the company to date.
Amazon got ultra-aggressive with advertising in the middle of the 2008/2009 recession and grew sales by 29 percent in 2008 and 28 percent in 2009 when competitors were losing money. Now, it’s stock declined by 8 percent from December 2007 to June 2009, the official period of the great recession, but it outperformed the S&P 500 which dropped a whopping 36 percent during this same period. Amazon also dominated Google and Microsoft, which each faired far worse than the S&P 500. What was the cause of Amazon’s stellar performance? The e-tailing giant invested heavily in marketing its Prime subscription service.
Netflix certainly knows a thing or two about growing through a recession, having increased its stock value by more than 150 percent from January 2008 to January 2010. How did they do it? By listening to customers, delivering a product that they actually wanted, and investing heavily in marketing when fledgling competitor Blockbuster wasn’t. Fast forward to this current economic crisis, and the brand is again investing heavily in advertising – promoting its original content through a series of attention-getting spoilers.
During the 1990-1991 recession, Pizza Hut and Taco Bell ate McDonald’s lunch by increasing their marketing investments at a time when McDonald’s notably decreased spend. During this period, Pizza Hut increased sales by 61percent, Taco Bell increased sales by 40 percent and McDonald’s saw a sales decrease of 28 percent.
During the great depression – 1929 to 1933 – Post reduced its marketing budget while Kellogg’s doubled its marketing investment. The result? Kellogg’s realized a 30 percent increase in profit and market dominance during the recovery.
Even my own company, RedRover, grew 495 percent through 2008 and 2009. We were just two years young when the great recession changed business as we knew it, and we were still financially vulnerable. Bucking the trend of many of our counterparts to cut marketing investment until the economy stabilized, we leaned in hard to our marketing investment – increasing it notably.
In the 1980s, McGraw-Hill Research analyzed 600 B2B companies and found that those which maintained or increased marketing investment during the recession grew by an average of 275 percent more in the three years following the recession than those companies that didn’t maintain or increase marketing spend.
Think about advertising as being counter-cyclical to the economy. It’s the lever you pull to generate a stronger, quicker recovery and to take market share.
Best Practices for Marketing in a Recession
With it so crystal clear that this is the time to amplify your marketing, we’re left with the question of how. How, in a time when consumers are anxious about parting with their funds, do you effectively drive purchase decisions? Here are several quick-hit best practices for marketing in a recession.
• Leverage a “we can get through this together” concept. Ignoring the crisis only leaves your brand looking tone-deaf and out of touch.
• Market your more practical, value-based products and services. Brands like Wal-Mart do well during economic downturns.
• Now, more than ever, know thy customer. Conduct market research to quickly uncover how your customers are redefining value. Think Netflix versus Blockbuster.
• Understand that family values are first and foremost in the minds of consumers when the going gets tough – especially when family safety is a concern as it is in this global pandemic. Does your product or service offering align? If it does, invest big.
• Authenticity generally wins out over zany humor. In fact, the world is understandably sensitive at the moment. Review your advertising through that lens. Truth and candor speak volumes.
• This crisis has certainly taught us that connecting with others matters. So if you have a product or service offering that supports that, lean in.
• Rethink your pricing tactics. Deal shopping will become the norm for a while. So, consider offering more temporary price promotions and reducing requirements for quantity discounts. Also consider extending credit to long-standing customers. In fact, this is the time to move your emphasis to gaining market share even if it means your margins are reduced temporarily. If you are in the luxury or high-end space, market your core values vs. price.
• Take advantage of the greatly increased media consumption and lower costs by advertising where your customers are spending their time, online.
• If you’re in tourism or hospitality, market for a day when travel returns and offer deals to those willing to go ahead and make those long-range commitments.
Just remember change brings opportunity. Historical evidence shows that if you have cash and the fortitude to continue aggressively marketing during a recession, your company will benefit in the long run, often exponentially so. Not only is it less expensive to market in tough times, but your competitors are often absent, paving the way for clarity around your message.
Over the next several weeks, I’ll be sharing the most effective sales and marketing strategies, like these, that forward-thinking companies are executing during this crisis. My hope is that you’ll find additional inspiration to advance your vision forward with a full-on marketing offensive.
We are all in this together. If you would like to partner, please give us a call. RedRover is deeply committed to Memphis and any business working to support our great city. Let us know if you need help getting the word out about your business. Knowing what to do next can be hard. There are resources and partners all across our city ready to help. RedRover is here for all Memphians working to save their businesses.