During an economic downturn, many businesses look for ways to cut spending because the thinking is that saving money is more prudent. Often the first expenses a company seeks to cut is in the marketing and advertising budget. However, that could actually be a big mistake. Advertising during a crisis or recession can actually increase sales and build market share.
A century’s worth of research on advertising trends shows that companies who maintain or increase their advertising budgets during an economic downturn actually see an increase in sales and market share during the recession and afterward. For example, companies that continued to advertise during the 1923 recession 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.
As a popular adage says,“When times are good, you should advertise. When times are bad, you must advertise.”
There are several reasons why increasing advertising budgets during a recession result in increased sales and market share.
- Advertising is cheaper during a recession, creating a “buyer’s market” for brands. U.S. ad spending plummeted 12% in 2009, the last year of the Great Recession. Advertising in newspapers took the biggest hit, with a 27% reduction. Radio spending dropped 22%, magazines declined 18%, out-of-home by 11%, television by 5% and online by 2%. Companies who maintain or increase their advertising budgets during a recession, when advertising is less expensive overall, can see a greater return on the investment.
- Less savvy businesses will cut back advertising, freeing 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, businesses who advertise when others are pulling back are more likely to be noticed than the competition because there are fewer ads in the marketplace.
- Advertising during a weak economy allows a business to reposition their brand 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 it’s 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.
- Brands who advertise during economic uncertainty project an image of corporate stability.
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.
- Businesses who advertise during a recession are more likely to be remembered. When businesses cut back on their ad spending, the brand loses its “share of mind” with consumers. In the 1990-1991 recession, Pizza Hut and Taco Bell took advantage of McDonald’s decision to reduce its advertising and marketing budget. As a result, Pizza Hut sales increased by 61%, Taco Bell sales grew by 40% and McDonald’s sales declined by 28%. Worried consumers see familiar, trusted brands and products as a safe and comfortable choice during trying times. Reassuring messages that reinforce an emotional connection with the brand and demonstrate empathy are vital. Back up the empathetic message with actions that demonstrate you are on the customer’s side while reinforcing trust by reminding customers that buying your brand is a solid decision.
While it seems like common sense, businesses who cut back on their advertising budgets during a recession are missing out on a huge opportunity to solidify their brand, increase sales and expand market share. Businesses who maintain or increase their advertising when everyone else stops marketing are more likely to be noticed due to fewer ads in the market and more likely to be remembered when everyone else starts advertising again. The result is likely an increase in sales and market share during the recession and for years after.
One of the best quotes about advertising in a recession comes from Sam Walton, the founder of Wal-Mart. When asked, “What do you think about a recession?” he responded, “I thought about it and decided not to participate.” Remember those words the next time you’re facing a recession and deciding which areas to cut. Those businesses who don’t reduce their advertising budgets are more likely to get out of the recession stronger than before.