I know anxiety is building for many of you as the economy falters. I know it’s tempting to start the process of reducing your expenses. And I know that marketing is one of those areas that usually takes the brunt of those budget cuts. I understand… but you must resist!
Sure, you should always do your best to maximize your marketing resources. That’s true, even in a good economy. But history shows us that now is not the time to slow down your marketing efforts.
Here are some of the facts from past recessions:
1970 recession year – The American Business Press (ABP) and Meldrum & Fewsmith study showed that “sales and profits can be maintained and increased in recession years and [in the years] followed immediately by those who are willing to maintain an aggressive marketing stance, while others adopt the philosophy of cutting back on promotional efforts when sales seem harder to come by.”1
1974-1975 recession years – The 1979 ABP/Meldurm & Fewsmith study covering 1974/1975 and the post-recession years found that “companies that did not reduce marketing expenses experienced higher sales and net income during those two years and the following two years than those companies that reduced one or both years of recession”. two
1981-1982 recession years The Advertising Performance Laboratory at McGraw-Hill Research studied recessions in the United States. Following the recessions of 1981-1982, he analyzed the performance of some 600 industrial companies during that economic downturn. It found that “business-to-business companies that maintained or increased their marketing spending during the 1981-1982 recession averaged significantly higher sales growth both during the recession and over the following three years than those that eliminated or reduced marketing. 3
Cahners and the Strategic Planning Institute (SPI) produced their report, “Media Advertising When Your Market Is in a Downturn.” It revealed: “During a recessionary period, average businesses experience a slightly lower rate of return relative to normal times. However, expansion times do not generate a higher level of profit than normal periods, as might be expected.” “. This phenomenon was explained by an analysis of changes in market share.
“During periods of recession,” said the Cahners/SPI report, “these companies tended to gain a greater share of the market. The underlying reason is that competitors, especially smaller marginal ones, are less willing or able to to defend against aggressive companies”. The study then noted that companies that increased media ad spending during the recession period “gained an average of 1.5 points of market share.” 4
1990-1991 recession years – Management Review asked AMA member firms about spending during the 1990-1991 recession. “Fortune follows the brave,” he announced, noting that the data showed that most companies that increased their marketing budgets enjoyed gains in market share. Among the magazine sample, 15 percent reported “very low” advertising budgets. Advertising was “somewhat cut” by 29 percent. “The keys to gaining market share in a recession,” Management Review concluded, “seem to be spending money and adding staff. Companies that increased their budgets and hired new people were twice as likely to gain market share.”5
Beyond the statistics, why might it be more important than ever to market despite the economic downturn? The idea that marketing plays a more critical role now than during previous recessions should be seriously considered. While the role of marketing was once more informative than creating brand identity, and the clutter factor has never been greater, relationships between customers and brands are critical. Relationship marketing has risen to the top of effective marketing campaigns as a means of maintaining an appropriate level of mental engagement for purchase loyalty. Marketing serves to foster and maintain consumer-brand relationships. 6
The effect on profits. From the Harvard Business Review, “Advertising as a tool against the recession”, the effect of reducing advertising on the bottom line emerges. “The logic that one company can afford to cut advertising because everyone else is cutting [is fallacious]. Instead of waiting for business to return to normal, top executives should take advantage of the opportunity that rival companies are creating for them. The company brave enough to stay in the fight when everyone else is safe can bring about a dramatic change in market position.” Not as an unavoidable expense but as a means to achieve objectives. Advertising budgets must be related to company goals rather than last year’s sales or next year’s promises. 7
REFERENCES:
“How Advertising in Recessions Affects Sales”, American Business Press, Inc., 1979
ABP Study/Meldrum & Fewsmith, 1979
McGraw-Hill Research. Advertising Performance Laboratory Report 5262 New York: McGraw-Hill, 1986.
Kijewski, Dr. Valerie. “Media Advertising When Your Market Is In Downturn”, Cahners Advertising Research Report. Strategic Planning Institute, 1982
Greenburg, Eric Rolfe. “Fortune Follows the Brave”, Management Review, January 1993
Khermouch, Gerry. “Why Advertising Is More Important Than Ever”, Business Week, August 2001
Dhalla, Nairman K. “Advertising as a Tool Against Recession,” Harvard Business Review, January-February. 1980
