Published: January 5, 2023
Author: Nick Herff
The economic challenges that arose in 2022 don’t seem to be going away any time soon. Many companies have had to take a hard look at their books, and are laying off employees and reducing budgets across the board. As a result, it’s likely that brand managers are being asked by company leadership to axe ad spending to save money. But at such a delicate time, nothing could be worse for your brand. We’re going to discuss why you should at the very least maintain – or even increase – marketing spend during times of economic uncertainty.
Lessons from the Past
This isn’t the first recession in history, so we have some real-world evidence to draw on. A key element of success is learning from prior mistakes. To understand the long-term ramifications of pulling marketing spend during a recession, all you need to do is look at the past.
Following the 2008 recession, research firm Kantar Millward Brown discovered that many companies that stopped advertising during the crisis saw negative impacts to their brand in the following years. Additionally, a McGraw-Hill Research examination of the early 1980s recession uncovered that the brands that kept advertising saw sales increase 256% over those that didn’t.
During the recession of the early 1990s, McDonald’s decided to reduce its ad budget and saw sales decline by 28%. On the other hand, Pizza Hut and Taco Bell put even more money in, and saw sales increases of 61% and 40%, respectively.
Throughout the economic difficulties of 2022, one of our own eCommerce clients decided to remain bold in the face of intense competition and grew their overall advertising spend. So far their choice has paid off, resulting in a 132% increase in paid media impressions, 45% increase in website visits, and 8% increase in revenue. And another brand that chose to add to their budget has enjoyed 21% revenue growth and a 15% improvement in return on ad spend.
Gain on the Competition
As with all recessions, the economy WILL bounce back. Consumers WILL spend again. This is a guarantee. No one can be sure exactly when that will happen but it will, and the smartest brand managers will be planning for the long run.
Think about it from a competitive standpoint. It’s more likely than not that at least some of the businesses in your space will make the mistake of reducing their marketing budget. This creates an advertising vacuum, and the perfect opportunity to stand out. With fewer of your competitors speaking to consumers, you can grow share of voice, increase brand awareness, and improve market share. But if you choose not to advertise, you’re going to spend even more money earning those three critical components of your business back once a recession is over.
If you want a particularly vintage example of this, let’s go back 100 years to the Great Depression. Kellogg and Post, the two biggest cereal brands at the time, pursued very different approaches to appeal to consumers. Post did what they thought was prudent and reduced advertising. Kellogg, on the other hand, doubled down on its marketing efforts and saw profits increase nearly 30%, even throughout the worst recession in modern history. As you can see the times are very different, but some aspects of consumer behavior remain constant.
Don’t look at marketing as just another line-item you can cut during a recession. Instead, view it as an investment that will pay dividends well into the future. As Warren Buffet has stated, “the best chance to deploy capital is when things are going down.” Taking the right approach will set you up for long-term success – and who’s going to argue investment philosophy with the Oracle of Omaha?
If your brand is ready to turn this time of economic challenge into a growth opportunity, reach out to 3Q/DEPT’s experts today – we’re here to help you weather the storm and come out stronger on the other end.