One of the first expenses businesses mistakenly seek to cut during an economic downturn is in the marketing and advertising budget. While it seems reasonable for companies to save money and be more prudent in uncertain times, spending more money on advertising during a crisis or recession can have a significant impact on driving up sales and increasing market share.
Several studies over the past century have proven that companies who are smart and have the guts to maintain or increase their marketing and advertising spending will get an edge on their more timid competitors during and after economic downturns. For example, during the 1923 recession, companies that continued to advertise were 20% ahead of where they were before the recession, while companies that decreased advertising were 7% behind their 1920 levels. A McGraw-Hill Research study of 600 businesses during the recession in 1980 showed that companies who maintained or increased their advertising budgets grew significantly during and after the recession. By 1985, the companies who advertised aggressively between 1981 and 1982 grew 275% more than companies who didn’t.
In short, you should advertise when times are good but you must advertise when times are bad.
Here are five reasons why increasing advertising budgets during a recession will result in increased business sales and market share.
1. Advertising is Cheaper, Giving Brands a “Buyer’s Market” and Greater ROI
In 2009, which was the last year of the Great Recession, U.S. spending on advertising dropped 12% overall. The biggest hit to advertising was with newspapers, which saw a 27% drop that year. Radio spending reduced by 22%, magazines declined by 18%, out-of-home by 11%, television by 5%, and online by 2%. Companies who increase their advertising budgets during a recession, when advertising is less expensive overall, can see a greater return on the investment.
2. When Other Businesses Cut Back on Advertising, It Frees Up Space for Your Message
Most small businesses have a limited advertising budget, even in a thriving economy. When many companies are looking for ways to cut costs to thwart a loss in revenue during a recession, they try to make up some of those dollars by cutting back on advertising. However, all that really does is open up the marketplace for that company’s more savvy competitors. Therefore, smart businesses that advertise when others are pulling back are more likely to be noticed than the competition because there are fewer ads in the marketplace.
3. A Weaker Economy Gives Businesses an Opportunity to Advertise a New Brand Image or Introduce a New Product
In the late 1920s, two companies, Kellogg and Post, dominated the dry cereal market. But when the Great Depression hit, Post significantly cut back on its advertising budget while its rival Kellogg doubled its advertising spend and introduced a new product called Rice Krispies, featuring the infamous “Snap,” “Crackle,” and “Pop.” As a result, Kellogg’s profits grew 30% and it has maintained its position as a leader in the marketplace ever since.
Amazon sales grew 28% during the 2009 recession because it appropriately responded to the slumping economy by continuing to innovate. It introduced Kindle products to provide a lower-cost alternative to cash-strapped consumers. By Christmas Day in 2009, Amazon customers purchased more eBooks than printed books, which gave the company an advantage because it grew the market share and stuck in the minds of consumers.
4. Brands Project an Image of Corporate Stability When They Advertise During Economic Uncertainty
Before the 17-month recession caused by the energy crisis in 1973-1975, Toyota Corolla trailed only Honda Civic in the U.S. government’s first miles-per-gallon report. Toyota was selling anything it could produce, so when the economy took a downturn, the company resisted the temptation to reduce their advertising budget. Toyota stuck to the plan to build its brand and products for the long haul. As a result, it projected an image of corporate stability and surpassed Volkswagen in 1976 as the top imported car and never looked back.
5. Consumers are More Likely to Remember Businesses Who Advertise During a Recession
When a business reduces its ad spending, the brand loses its “share of mind” with consumers. Pizza Hut and Taco Bell took advantage of McDonald’s decision to reduce its advertising and marketing budget during the 1990-1991 recession. As a result, Pizza Hut sales increased by 61%, Taco Bell sales grew by 40% while McDonald’s sales declined by 28%. Trusted brands and products that advertise during trying times give worried consumers a safe and familiar choice, and when those brands use reassuring messages that reinforce an emotional connection it demonstrates empathy. Back up the empathetic message with actions that demonstrate your business is on the customer’s side while reminding customers that buying your product is a solid decision.
Businesses are missing out on a huge opportunity to solidify their brand, increase sales, and expand market share when they cut back on their advertising during a recession. However, the wisest businesses that maintain or increase their advertising are more likely to be noticed when everyone else stops marketing and there are fewer ads in the market. The result is likely an increase in sales and market share during the recession and for years after.
Sam Walton, the founder of Wal-Mart was once asked, “What do you think about a recession?” He responded, “I thought about it and decided not to participate.” Businesses who don’t reduce their advertising budgets are more likely to get out of the recession stronger than before. So the next time your business is deciding which areas to cut during a recession, remember these words: Don’t participate.