COVID-19 has placed the global economy on the precipice of a recession... or worse. When the full impact on the economy will be felt is still anybody’s guess, but a significant business slowdown seems inevitable. Frequently when there is an economic crisis, businesses cut back on their marketing budget. However, it's been shown time and time again, that a downturn can provide a great opportunity to promote and claim additional market share.
In the aftermath of the last recession in 2008, spending on advertisements in the US dropped by 13%. However numerous studies over the last 100 years point to the advantages of maintaining or even increasing marketing budgets during a weaker economy.
As a the popular saying goes: “When times are good you should advertise. When times are bad you must advertise.”
There are several reasons to continue marketing during an economic slowdown
- The “level of noise” in a brand’s product category can drop when competitors cut back on their ad spend. It also allows for advertisers to re-position a brand or introduce a new product.
- Brands can project to consumers the image of corporate stability during challenging times.
- The cost of advertising drops during recessions. The lower rates create a “buyer’s market” for brands.
- When marketers cut back on their ad spending, the brand loses its “share of mind” with consumers, with the potential of losing current – and possibly future – sales. An increase in “share of voice” typically leads to in an increase in “share of market.” An increase in market share results, with an increase in profits.
There are also plenty of famous examples of brands that grew by maintaining or increasing their marketing budgets during an economic crisis. Here are just a few:
Kellogg’s: In the 1920’s, Post was the category leader in the ready-to-eat cereal category. During the Great Depression, Post cut back significantly its advertising budget and rival Kellogg’s doubled its advertising spend, investing heavily in radio and introducing a new cereal called Rice Krispies, featuring “Snap,” “Crackle” and “Pop.” Kellogg’s profits grew by 30% and that campaign was the catalyst that allowed Kellogg’s to become the category leader, a position it has maintained for decades.
Toyota: The 17-month recession of 1973-75 was triggered by the energy crisis. In late 1973, the US government issued its first miles-per-gallon report in which Toyota Corolla was second to Honda Civic in fuel efficiency. Since Toyota was experiencing strong sales, when the economic downturn hit, the temptation was to drop their ad budget, which they resisted. By adhering to its long-term strategy, Toyota surpassed Volkswagen as the top imported carmaker in the U.S. by 1976.
Pizza Hut: In the 1990-91 recession, Pizza Hut and Taco Bell took advantage of McDonald’s decision to drop its advertising and promotion budget. As a result, Pizza Hut increased sales by 61%, Taco Bell sales grew by 40% and McDonald’s sales declined by 28%.
Amazon: More recently, Amazon sales grew by 28% in 2009 during the “great recession.” The tech company continued to innovate with new products during the slumping economy, most notably with new Kindle products which helped to grow market share. In a first, on Christmas Day 2009, Amazon customers bought more e-books than printed books. As a result, in the minds of consumers, Amazon became an innovative company by introducing a lower cost alternative to cash-strapped consumers.
What are good strategies for marketing in a downturn?
Another strategy used by marketers is changing the ad message and using short-term price incentives to match the economic climate with consumers who are seeking a good deal. Some advertisers will offer interest-free loans, coupons or special promotions to boost sales and market share. When the economy bounces back, regular pricing can return. For some advertisers that don’t give cost incentives, they can change the ad message to being expensive but worth it. Another creative strategy is pointing out the value the brand provides.
In tough times, discounts that require little effort from consumers and give cash back at the point of sale are more effective than delayed-value promotions such as competitions or long-term discounts. Many marketers will need to increase the frequency and depth of temporary price promotions. At the same time, they must carefully monitor consumers’ perceptions of “normal” price levels: Excessive promotions lead consumers to revise their expectations about prices downward and can threaten profitability in the recovery period because people will resist the steep increases as prices return to “normal.” Extreme price deals can also lead to costly price wars.
While premium-brand market leaders shouldn’t move their brands down-market, they can introduce a “fighter brand,” a lower-priced version of the premium offering sold under a different name.
Although the natural inclination for advertisers and markets is to cut back on promotions during a recession, those brands that maintain their ad and marketing budgets and/or change their messaging can get a long-lasting boost in sales and market share.
Perhaps the best quote about advertising in a recession came from Sam Walton, the founder of Wal-Mart. When asked, “What do you think about a recession?” he responded: “I thought about it and decided not to participate.”