Right now, one of the biggest challenges for businesses and marketers is holding onto their marketing and advertising budgets when the economy is slowing. We've learned from past economic downturns that the worst thing you can do is stop promoting your business. Lucky for you, we've done the hard work and gathered some research to help you keep your marketing spend intact and keep your business afloat. Here's what we've found...
Learning 01: In a downturn, cut ad spend at your peril
- If you stop advertising, sales will go down. Research by the Ehrenberg-Bass Institute proves that an advertising hiatus not only leads to notable sales declines but cannot easily be recovered from. Brands who stop advertising can experience up to 58%drop in revenue after 5 years.
- Revenue will decline. During an economic downturn, brands that boosted their investment in paid advertising experienced a notable 17% surge in additional sales. In contrast, marketers who reduced their advertising budget faced the potential risk of a 15% decline in revenue.
- The smaller you are, the faster the drop. The effect of stopping advertising is greater for smaller brands. Smaller brands will drop 50% of their mean sales index in two years without advertising, which is 3.5x faster than large brands.
- You will sacrifice the value of your brand, and it will take years to regain it. As per the findings of Nielsen Marketing Mix Models, companies that advertise on television can anticipate a quarterly decline of 2% in their overall revenue. However, reducing your marketing expenditure not only impacts your financial performance but also affects your brand’s value, which is estimated to be between 10% and 35% of its worth. It typically takes around 3-5 years to regain these losses and restore the previous level of financial success.
Learning 02: If you continue to invest in advertising or increase your ad spend during a period of economic decline, you will experience significant benefits, particularly when the economy starts to recover.
- Your sales will grow much faster during the downturn. A study by Harvard Business Review, “The Use ofAdvertising During Depression,” was published in 1927 and tracked the advertising investment and annual revenues of 250 companies through the depression and into the growth period following it. The study found that companies that increased their ad budgets during the recession grew sales much faster than those that did not, both during the recession and after it.
- Your sales will grow much faster in the upturn. Research on 600 companies during the 1981/82 recession showed that brands who maintained or increased their ad spend during the recession grew sales 375% over the three years after the recession vs 19% amongst those who decreased their ad spend. A whopping difference of 256%.
- Your market share will grow much faster. Companies who increased ad spend during a recession by less than 20% saw market share grow 2.5x faster than those who decreased their ad spend. Companies who increased ad spend by more than 20% saw market share grow more than 4x faster.
- Your ROI will improve. Of the brands who maintained or increased spend in the last recession, 54% saw ROI improve, with 52% recording an uptick over a two-year period.
- Your profits will improve in the short-term. Companies who increased spending during a recession actually saw a 4.3% increase in profits compared to those that cut spending(who saw an 0.8% increase).
- Your profits will improve in the long-term. Investing in Share Of Voice growth during a recession drives long-term profit growth - over 38% of cases on the IPA database who had experienced very large profit growth had increased their ESOV (ESOV = SOV -SOM) by over 8%.
Learning 03: Why does investing in advertising through a downturn pay off?
- Advertising becomes more effective. Most firms tend to cut back on advertising during a recession. “This behaviour reduces (advertising) noise and increases the effectiveness of advertising of any single firm that (still) advertises, therefore, the firm that increases advertising in this environment can enjoy higher sales and market share”. In a follow up report, Biel found that during recessions, consumers tended to stay home more and, as a result, their consumption of media, be it print or electronic, increased.
- It’s easier to increase your Share of Voice (sov) vs Share of market (som) (and therefore grow market share)
Learning 04: Not all advertising is created equal
- Brand is the first defence against rising prices. As inflation grows, the role of branding justifying pricing becomes ever more fundamental. Strong brands are less price elastic so can better support prices in a crisis. Mapping brand equity vs current price helps to identify whether the brand’s price point is a risk or an opportunity in a crisis.
- Brand is the first defence against rising prices. Airbnb inc. said its strategy of slashing advertising spending, investing in brand marketing and lessening its reliance on search-engine marketing is continuing to pay off. Its marketing spending is now low enough that it doesn’t anticipate drastic reductions even if economic headwinds worsen next year. Airbnb has made major changes to its marketing strategy in recent years. The company in 2019 began trying to depend less on search advertising and to lean more on broad marketing campaigns and public relations designed to build its brand. The company has focused on public relations practices to drive news coverage of its business, along with advertising campaigns running on channels such as television. It has also made deep cuts to its overall marketing spending. In the first quarter of2021, sales and marketing expenses fell 28% from the quarter a year earlier to$229 million, citing a decrease in performance marketing expenses—which refers to campaigns that directly generate consumer action—and an intention to use the strength of its brand to attract guests.
Let there be no doubt, stronger brands recover faster. Share price of strong brands recovered 9x faster following the financial crisis of 2008.
Brand building campaigns can also drive short-term effects. A sample of 18,230 ads tested by System 1 found that ads with a strong likelihood to build long-term effects are also above average likelihood to drive short-term effects.