Businesses often choose to pull back on advertising and marketing during times of economic uncertainty. But this approach is actually not the right one.
Instead, businesses should double down on marketing in a recession. This article shows why marketing matters in a recession, with case studies of businesses that benefitted from leaning in to advertising.
Economic Downturns Lead to Historic Business Failures
Economic uncertainty has persisted in recent years, fueled by a spike in inflation and the ongoing threats of the COVID-19 pandemic.
The U.S. government invested billions to keep businesses afloat during the height of the pandemic. However, those programs were not enough. The Federal Reserve reported that there were likely to be 200,000 more business deaths due to COVID-19. In a typical year, pre-pandemic, about 600,000 businesses, or 8.5 percent, closed annually.
The recent crisis has been exacerbated by the health risks that have caused many workers to shy away from in-person work. Many industries are facing massive employee shortages, which has only worsened the financial viability of many businesses.
During the last major economic downturn in the late aughts, the numbers were even worse. Between December 2008 and December 2010, approximately 1.8 million businesses shuttered.
A 2018 study at the University of South Australia’s Ehrenberg-Bass Institute for Marketing Science shows the longitudinal impact of a failure to advertise. Among its findings:
- Brands that stop advertising for a year or more showed that sales declined year-over-year by an average of 16 percent in the first year and 25 percent after two years
- Small brands suffer worse declines than larger brands
- For businesses that have already seen a decline, the rate of decline is steeper when advertising stops
- Larger brands can see growth for 1-2 years after stopping advertising but the reverse is true4 for smaller brands
When faced with fewer customers and sales, businesses often need to adjust their spending. Employees are often the first to go, with the inherent costs of salaries, employee benefits and payroll taxes weighing heavily on corporate budgets.
Among the next to go? Non-revenue-generating expenses. That’s where businesses often look to cut marketing and advertising budgets.
However, that is often a short-sighted decision for businesses.
Why Advertising in a Recession Matters
There are many reasons why cutting your advertising and marketing budgets may seem like a prudent decision. However, there are multiple compelling cases to be made to support and enhance marketing during these trying times.
Here are some of the core reasons not to cut your advertising budget during a recession.
Stay Top of Mind
Just as your business is making difficult choices during a recession, so too are your customers and potential customers. Budgets are tightening for buyers and sellers alike.
Keeping your marketing present in the hearts and minds of your current and future customers is imperative. You want to keep your brand present in their mind when they’re making choices. The last thing you want is to lose a customer because they’ve forgotten about you.
Hold Your Audience
Your customer base is increasingly invaluable during a recession. Acquiring new leads can be far more complex and expensive during this time. So, holding on to your existing audience is a priority. Keep your most loyal customers happy and express how much you value their business when times get tough.
Holding your audience also means speaking to them about where you and they are. Speak the truth about the economic challenges they are feeling. Be resonant and relevant to reinforce the authenticity of your brand.
Reach Out to New Audiences
Your customer base is always changing. What’s more, in an economic downturn, your customers are changing, too. A down-facing economy is an ideal time to reach out to new customers, explore new markets and consider new solutions. Successful businesses are able to provide a product or service that serves a pressing customer need. Consider what needs your business can fulfill for new customers by expanding outreach.
Another factor to consider is the opportunity to fine-tune your audiences, existing or new. By targeting your marketing dollars more precisely, you can preserve valuable resources while still reaching out to new audiences.
Increase Your Share of Voice
In a recession, there will be companies that do reduce their advertising. That means there’s less collective marketing across channels.
By keeping your foot on the advertising pedal, you’re better able to capture a bigger share of the marketing voice. It also means you don’t need to “shout” as loudly to have your message noticed and heard. Keep the momentum going in the right direction and engage your audience with a messaging plan that can be an oversized portion of the marketing footprint that customers experience.
Gain ROI in a Less-Competitive Market
Some of your competitors will likely reduce their advertising. In addition, ad rates may fall with reduced demand. That means you may be paying less for more in print, broadcast and digital advertising. Gain positioning and improve your return on marketing investment during a recession while boosting your presence.
Case Study 1: Kellogg’s Doubles Down
Kellogg’s has long been a staple of households and breakfasts worldwide. In the 1920s, it was a rival company, Post, that had the most market share in ready-to-eat cereals.
However, during the Great Depression, Post cut its advertising budget significantly. At the same time, Kellogg’s doubled its advertising, with large investments in radio ads and positioning of its new product, Rice Krispies. The investment in snap, crackle and pop paid off, with Kellogg’s profits increasing 30 percent and the company becoming the market leader.
Case Study 2: Toyota Addresses Energy Crisis
Skyrocketing fuel prices and inflation plagued the U.S. economy for several years in the mid-1970s. The energy crisis meant long lines at gas stations and concerns about the high costs of driving. Auto loan rates also rose sharply, as high as 17.5 percent. Into this fray, Toyota debated what to do about marketing, including considering cuts to the advertising budget.
Instead, the company chose to lean in to its advertising, emphasizing its line of fuel-efficient vehicles and smaller cars. The gamble paid off as Toyota surpassed Volkswagen as the top import carmaker in the United States in 1976.
Case Study 3: A Fast-Food Shift
In the 1990-91 recession, McDonald’s chose to slash its marketing and promotions budget. At the same time, Pizza Hut and Taco Bell chose to pivot. The latter two companies instead added and marketed new products, such as a stuffed-crust pizza and a taco value menu. The gambit paid off, with Pizza Hut and Taco Bell seeing a sales increases of 61 percent and 40 percent, respectively. Conversely. McDonald’s sales dropped by 20 percent.
Case Study 4: Amazon Changes How We Shop
Amazon has been on the cutting edge of innovation and messaging for years. During the Great Recession of 2009, the company actually saw its sales grow by 28 percent. How? By focusing on new products, especially e-books. The3 company advertising digital books as a less-expensive, more convenient option and consumers bought in. Introducing its new Kindle reader led to a spike in digital book sales and in on Christmas Day in that year, as those new devices were opened, the company saw more sales of electronic books than printed books for the first time.
Recessions are scary times and force businesses to make difficult financial decisions. Think twice about whether the advertising budget should be diminished in the times it may be more effective than ever.