Rethink Marketing, Don't Cut It
Studies say marketing in recession has positive impacts
Typically when companies see rough economic waters ahead, marketing and advertising are often the first budgets cut. However, the Association of National Advertisers and other researchers encourage business owners to think through the ramifications of blocking yourself off from the rest of the world.
Research doesn’t always support beliefs that reducing spend improves company profits. “…Disappearing from the market while competitors continue to communicate with customers can undermine sales, putting a dent in the revenue that offsets expenses,” the Association reported.
Cutting back on promotional communications is likely to reduce any added sales, introduce competitive risk, and undercut the ability to protect price premiums, ANA said. That results in fewer new customers and limited ability to engage existing customers.
If you depend on generating new customers to keep sales going and you cut marketing, you basically limit yourself to new business from existing customers. If you sell products or services, that may not be as detrimental as when you sell things with limited transaction opportunities, such as homes or insurance policies.
To assess how marketing cuts might affect your business and undercut incremental growth, review your sales data and projections. What do baseline sales over the past one or two years look like if you remove incremental sales?
This can help you understand how much revenue you may be risking by cutting ad spend, and it can reveal whether cutting paid advertising will actually increase your profits during a downturn.
Customers Still Spend
Even during hard times customers still spend, even though many of them may spend at lower levels. When marketers cut budgets drastically, they leave this spend on the table and give up more to competitors who continue to promote their business. In one ANA study, researchers found that during past recessions advertisers achieved higher ad ROI by spending more.
Stay in the Ring
When you stay in the ring fighting, prospects and customers are going to see you. That’s an opportunity to improve competitive advantage. In one study, advertisers who continued and increased advertising also increased market share by a full percentage point. Additionally, the study found that increased ad spending increased sales quicker both during and immediately after the economic downturn.
That study also found that those who retreated from the marketplace during the recession found sales declined not only during the recession but also after the recession subsided.
Recessions can be an opportunity to either claim or lose market share, researchers concluded. Reducing spend is like handing more of your market share over to your competition.
A Harvard Business Review article reported that one company studied increased advertising and actually grew revenues by 8% and profits by 14% in the 2008 downturn, when rivals reported 10% profit declines.
Cutting prices and margin during a recession to attract price conscious customers is a dangerous path to travel, studies show. When you raise prices again, it will irk your customers and you could lose them altogether. It usually is better to maintain pricing as much as possible during recessions and use promotional discounts for new-product launches, one analyst found.
During a recession is a good time to reassess your total marketing spending and identify your most valuable channels. Which channels are giving you the most leads and sales?
Comparing ad spend for reach and exposure as opposed to leads and sales are critical comparatives. You want to spend where you receive highest and most profitable leads. The total numbers to focus on are sales and profits.
Direct mail continues to be a high performer when you focus on response, sales, and profits.
The bigger challenge for marketers is to use messaging and promotion that is sensitive to where your specific customers are in the recession – not just geographically, but emotionally and financially. Understanding how your customer segments are dealing with the recession and how you can help them has more impact that retreating or discounting.
Advertising content during recessions must reflect the challenges that consumers are encountering, according to the Harvard Business Review because consumers want to see brands show solidarity with them.
“Successful brand advertising during a recession not only injects humor and emotion, but also answers for consumers the question: How can we help?”
Marketing during hard times often reflects community and looking out for each other, both in the marketplace and in the company itself. These are emotional dynamics that people relate to, associate with your brand, and give them confidence to purchase from you.
Marketing in a recession is never easy and often goes against instincts and standard operating norms, Harvard Business Review said. This is a time not to stop spending money but a time to change how you spend it and be what customers need from a business.