Many companies are torn on the best advertising strategy during a recession. In this blog I’ll take a brief look at the history of recessions, how companies can amplify a competitive advantage during a recession, how to successfully allocate ad dollars, and finally taking a look at consumer needs during a recession applying these tactics to case studies.
From 1902 to 2011 we’ve had 23 recessions occurring about every 5-6 years and lasting on average 8-16 months. History shows that recessions are always followed by expansions and prosperity in the economy. Following recession periods, less than 30% of those companies that stopped advertising during the recession will never regain the market share and profitability they lost during the economic slump.
Harvard Business Review’s study on “Advertising as an Anti-Recession Tool” states that the companies courageous enough to stay in the fight when everybody is playing it safe could bring about a dramatic change in market position. A recession provides companies the perfect opportunity to outdo their competition by growing their marketing strategies when their competitors are hibernating.
McGraw-Hill Research Laboratory of Advertising Performance followed the performance of 600 industrial companies for 6 years from 1980 to 1985. B2B firms that maintained or increased their advertising through the 1981-82 recession averaged sales growth between 16 and 80% during the recession years compared to those that eliminated or decreased advertising. By 1985, sales of companies that were aggressive recession advertisers had risen 256% over those that didn’t keep up their advertising.
General accounting principles treat advertising as an operating expense rather than an investment. This practice should continue during an economic downfall. Those companies that reduce advertising budgets during a recession put the long-term future of their company at risk. The justification that a company can afford to cut back in advertising because everybody else is cutting back is false. Advertising should not be regarded as a drain on profits but as a contributor to profits – a means of achieving objectives. Ad budgets should be related to the company’s goals instead of last year’s sales. Rather than wait for business to return to normal, executives should cash in on the opportunity that rival companies are creating for them.
Cutting advertising budgets during a recession causes a company to lose top of mind awareness, brand preference, and market share to more aggressive competitors while a strong marketing program enables a company to solidify a customer base, take business away form less aggressive competitors, and position itself for future growth. The cost to regain share of voice in the market once the economy turns around may cost 4-5 times as much as the maintenance of aggressive marketing programs during a recession.
When developing a marketing plan, it is crucial to take into account customers’ needs and during a recession this becomes a driving factor in the marketing message. During a decline in the economy, customers want offers that provide reassurance and confidence. They are more willing to purchase products or services that minimize risk or that are associated with familiar brands that reduce uncertainty. They are in search for brands that offer extra value. Ways to add value for customers are: coupons, discounts or special recession prices and sales events. For example, two years ago Hyundai was offering “economic peace” by letting customers return their new car if they lose their job within one year of buying it.
During the Great Depression, both Kellogg’s and Post were tied for market share in dominating the breakfast cereal category in the 1920s. Post cut their ad budget while Kellogg’s increased theirs by 1 million dollars. After the recession, Kellogg’s profits improved from $4.3 million a year in the 1920s to $5.7 million in the early 1930s, beating out Post.
In 1990, Nike and Reebok were nearly tied for first place in sales. If you have caught on to the trend, you’ll know that during the 1990-91 depression Nike tripled advertising spending while Reebok cut back.
During that same recession, Pizza Hut sales rose 61% and Taco Bell’s increased 40% with strong advertising, while McDonald’s reduced advertising and their volume decreased 28%.
History displays that the best strategy for coping with a recession is balanced ad spending for long-term consumer motivation plus promotion for short-term sales boosts. Advertising during an economic collapse will produce a stronger brand when consumers eventually have more money to spend. Entrepreneur Magazine sums it up nicely when they wrote this in January 2009: “When times are good, you should advertise. When times are bad, you must.”
1. McGraw-Hill Research. Laboratory of Advertising Performance Report 5262 New York: McGraw-Hill, 1986.
2. Dhalla, Nairman K. “Advertising as an anti recession tool,” Harvard Business Review, Jan.-Feb. 1980 Advertising Marketing