Studies show that businesses who maintain or increase their marketing during a recession experience higher sales growth – both during the recession and immediately following.
During a recession, money gets tight and fewer people are buying. If both you and your competitors continue to advertise, you wind up competing even harder for the few customers that are left.
That’s the bad news. The good news is that, even though there are fewer customers, there are also fewer companies marketing to them, because many of your competitors will cut back their advertising. Advertising during a recession gives you a unique opportunity to win their customers and gain market share.
Here’s an actual example from our nation’s worst economic downturn. In 1929, rival cereal makers Kellogg and Post fought to dominate the packaged cereal market. When the Great Depression hit, Post did the predictable thing – they cut back on advertising. But Kellogg doubled their advertising spending and aggressively marketed their new cereal, Rice Krispies. By 1933, as the economy tanked, Kellogg’s profits had risen by nearly 30 percent. By the end of the Great Depression, Kellogg was the dominant player – and remains so to this day. Post never regained what it lost.
Don’t Base Your Advertising Budget On Last Month’s Sales – Or Lack Thereof
A research study by McGraw Hill/American Business Press revealed that companies who maintained or increased their marketing and advertising during the 1981-82 recession experienced an average of 256% higher sales than their competitors who reduced their marketing over the same period.¹
What’s more, these sales figures continued for the next three years after the recession had ended!
A similar study conducted over same period by research firm Meldrum & Fewsmith concluded that aggressive advertising did not only grow revenues; it even increased profits.²
In 2001, a study comparing marketing practices during the 2001 recession determined that aggressive recession advertisers increased market share 2½ times the average compared to all businesses in the post-recession.
Missing The Boat For Fear Of Sinking It
When hard times hit, however, most companies behave more like Post than Kellogg. They batten “down the hatches” and wait for better times to return:
Uncertainty is always a part of business, but in a recession it dominates everything else: no one’s sure how long the downturn will last, how shoppers will react, whether we’ll go back to the way things were before or see permanent changes in consumer behavior. So it’s natural to focus on what you can control: minimizing losses and improving short-term results. And cutting spending is a good way of doing this…
Unfortunately, you can become so focused on not “sinking the boat” by cutting spending that you end up “missing the boat” by not seeing the opportunities that a recession can bring – opportunities to:
- Experience higher-than-average sales
- Grow profits
- Increase market share
- Leap from the bottom of your industry to the top
Advertising during a recession provides a unique window of opportunity to…
…build equity, solidify your customer base, gain new customers; and make inroads on your competitors who have cut their advertising during the recession period. This window of opportunity is created by the understanding that advertising is an investment, not an expense.
Do you have the nerve to try? Most companies don’t.
To paraphrase the Harvard Business Review³, If you’re courageous enough to stay in the fight when everyone else is playing it safe, you can bring about dramatic changes your market position. Your advertising should not be regarded as a drain on profits, but as a contributor to profits. It’s not an unavoidable expense – it’s a means of achieving your objectives.
At the risk of being redundant, I’ll say it again: Your advertising budget should always be based on your company’s goals, not last month’s sales.
¹The McGraw-Hill Companies’ Laboratory of Performance Report 5262.1: “Business-to-Business Companies that Maintained or Increased Their Advertising Expenditures during the 1981-1982 Recessions Generated Higher Sales Growth than Firms which Eliminated or Decreased Advertising,” June, 1987.
²American Business Press, Inc. “How Advertising in Recession Periods Affects Sales,” ABP/Meldrum & Fewsmith Study, 1979.
³Dhalla, Nairman K. “Advertising as an Antirecession Tool,” Harvard Business Review, Jan/Feb 1980.