Should a Business Continue to Advertise During a Recession?
Data Driven Advice for Small and Large Companies
If you are a business owner, news of a potential recession on the horizon is concerning. Many of the businesses that survived the economic impact of COVID 19 are still recovering. Pile on supply chain shortages, lack of labor, and record-breaking inflation, and the strain is evident.
So, what is the smart move for businesses regarding advertising during tough financial times? The data-driven answer might surprise you.
Recessions lead to slashing budgets
When businesses see a decline in profits during a recession, expenses get cut. This could include streamlining personnel and processes, slashing overhead and giving up underused real estate. Often, marketing and advertising budgets are some of the first line items to hit the chopping block, as they are viewed as a discretionary cost.
This may seem like a smart move while consumers are spending less money and businesses struggle to keep the doors open. Is there any benefit to advertising your brand under these circumstances?
Research says a resounding “YES”.
Publishing company McGraw Hill studied 600 companies from 16 varied industries during the Great Recession, from 1980 to 1985. Some of these companies maintained or increased their advertising budgets, others reduced or significantly slashed their overall marketing.
Findings overwhelmingly support continued marketing. Those businesses that continued to advertise through the recession saw their post-recession sales climb by 256%. Companies who did not advertise rose only 18% after the recession, gaining zero market share.
In essence, businesses that succumb to the lure of eliminating advertising put the long-term future of their companies at risk, according to Wharton School of Business faculty.
Data makes the difference
McGraw Hill is not the only company studying marketing spend during a recession. Global data analytics firm, Kantar, is another. Kantar closely examined not only how brands could survive the 2008 recession, and the more recent COVID-19 economic crisis, but also how to prevent a downturn in business. This takes investigating what your brand means to customers in the marketplace. What are the strengths of your products or services? How can you capitalize on that or shift to a more effective strategy? Kantar provides some examples:
Delta Airlines emerged from the ashes of bankruptcy in 2007 to rebuild a successful business model in a highly competitive industry. They did this by discovering what customers wanted that was lacking among other carriers, and focusing on growth opportunities.
In addition to price sensitivity, customer service satisfaction was low across the board among domestic airlines. There were also untapped opportunities in business travel. By focusing on a better customer experience, and selling seat upgrades to business travelers, the company had its best year ever in 2019, and was able to weather the 8% decline in business when COVID-19 affected air travel.
Household brands Unilever and Proctor and Gamble found success building their brand’s value, but in different ways. When one company’s market share of laundry detergent slipped badly, research showed focusing on “sensory delight” was key to improving product adoption. The other company’s dishwashing liquid was already enjoying a 60% market share, even at a significantly higher price point than store brands. As the clouds of recession loomed, research by the company’s marketing partners revealed the appeal of the strong heritage of the brand, leading to a concept of “enduring care”. Campaigns were reframed to emphasize the brand’s longstanding association with value.
Time and again research shows these findings:
In times of prosperity, you should advertise. In times of hardship, you must advertise.
An economic crisis reveals opportunities
Companies need to examine the drivers of each economic downturn, as they could be different. There are definitely brands and whole industries that have expanded significantly during COVID 19. Grocery stores, home improvement centers and pharmacies are some that saw exponential growth, along with brands like Amazon, Walmart and Zoom.
There are clear parallel links between consumer psychology and their adjusted spending habits. Eating out was limited, but people still sought comfort and security in food. Gathering in groups indoors was discouraged. People were sent to work from home, where home office and other improvements were undertaken. People engaged more in online shopping.
Other businesses hunkered down to wait it out. Kantar’s analysis reveals that after six months of severe cuts to advertising, overall brand awareness to an average consumer decreases by 24%. Competitors cutting back offers an opportunity for brands that keep advertising to rise to the top and gain market share.
Panera Bread took advantage of lower costs during the 1980s recession to expand its footprint and customer base. Ron Shaich, CEO of Panera for 36 years, explained in an NPR interview: “Our concept was still strong. People were still visiting us. We decided to invest our resources in growing even more quickly during the recession. Real estate costs were down 20 percent. Construction costs were down 20 percent. Simultaneously, most of our competitors were ripping costs out of their P&L, trying to chase their costs down as their sales were descending. It was a vicious cycle. We said this is a time to build competitive advantage. And ultimately, we tripled the stock through the recession.”
Trackable media opportunities
In the past, advertising on mediums such as radio, TV was more linear. Effectiveness was virtually impossible to accurately measure, and narrowing audience selections to deliver messages was difficult.
Today, digital advertising can specify customers on an individual or household basis. We can even adjust to hobbies, interests and specific consumer behaviors, such as those that reduce spending when the economy slows down, or more well-off people that continue to spend, and create different campaigns accordingly. Data analytics also provides more immediate information on ROI (return on investment). For example, tracking whether a website click resulted in a completed sale. When ad spend is positively supported by ROI, it becomes easier to justify maintaining or increasing marketing budgets.
As an Amazon Associate, Arvig earns from qualifying purchases.
Should small businesses advertise during a recession?
Even though we have been reviewing examples from large corporations, even the smallest businesses can benefit from the same concepts discussed here. Many can even grow in tough economic times if their competitors stop advertising. This creates opportunities to reach new customers. The key is learning the best approach- what do these potential customers want?
The best way to gain information on your potential customers is by listening and asking. Consider these strategies:
Employ strategic listening- ask front line employees, those that deal with customers every day, what customers are saying about the business. Establish or focus on your customer comment box (including a form on your website). Categorize and input all information into a spreadsheet to see patterns. If you are not on social media, get on it now. Look at the comments on your posts, and also check your competitor’s social media posts and comments.
It’s hard to hear honest feedback. Put personal feelings aside and consider any negativity as potential valuable information to move forward. Identify the problems you are trying to solve before asking questions. Perhaps lower cost widgets are selling well, but a higher end product line is not moving. Reach out to a sampling of customers, ask specific questions, and listen. Do your customers know about the product line? Have they tried it? What did they like or not like? What would encourage them to try the product line for the first time? Do they feel the price points are reasonable?
Polls can also be effective, sometimes more so when conducted by an outside marketing entity. The reason? It makes the survey more objective. Non-customers that are loyal to another brand should be a key target audience for a poll. Why they don’t buy from you is just as important as why they are loyal to another brand. The only way to grow your customer base is by appealing to the customers you don’t yet have.
Hiring marketing support, even temporarily, can help small businesses interpret data and make an action plan. Social media advertising is one of the most affordable ways to create tailored messaging, optimized to reach specific consumers.
Companies who are able to continue advertising during a recession will keep their brand on the minds of the consumer. However, be flexible to pivot messaging to match the crisis. Do customers need reassurance of a stable brand? Would regularly scheduled specials or coupons address price sensitivity? Identify your customers’ needs and wants and how to reach them. Use data and digital marketing to deliver the right messages to the right audience. Continue to promote your brand through slow times, and you may be well ahead when the market recovers.