During tough times, is it appropriate to continue advertising? Is it smart? Do our customers want to hear from us? Can we afford to keep talking?
As advertisers, we have all asked ourselves these questions during times of immediate crisis.
But what about those periods of prolonged upheaval or economic downturn? As our revenues slide and customers slash their budgets, can we afford to continue advertising? Would it be prudent to take a break until the war is over or the economy recovers?
Surprisingly, when the economy slows it pays to keep talking. In fact, studies cited in the AAAAs booklet, "Advertising in a Recession," show that those companies maintaining or increasing their ad spending will emerge from a downturn ahead of their competition. That gain, measured in sales, net income or market share, will continue to grow in the years following the recession.
Following the 1981-1982 recession, McGraw-Hill evaluated the performance of 600 industrial companies. Their study found that business-to-business firms that maintained or increased their advertising expenditures during the recession grew their sales 275% from 1980-1985. Sales of those firms that cut their ad spending averaged only 19% growth during the same period
Another study in 1990 examined 339 consumer businesses to determine the relationship between advertising spending and market share during a recession. The study found that those companies that aggressively increased their ad spending (20-100%) gained 0.9% share of market. Those that moderately increased ad spending (1-19%) gained an average of 0.5%. Those that reduced ad spending gained 0.2%.
An earlier study was conducted with industrial product and service companies. It yielded similar results. During recession, company market share increased with ad spending. Businesses increasing their ad spending "gained an average of 1.5% market share."
Can advertisers count on immediate increased ROI as a reward for their advertising aggressiveness? No, not always. But capturing market share from their more timid competition is very likely. That increased share is likely to pay out in greater profitability over the long term.
These studies do not prove a causal relationship between ad spending and market performance. However, at least six studies conducted during recessionary periods from 1960-1990 demonstrate the same apparent correlation.
So, what does that mean for advertisers today?
It was found that those businesses which chose to maintain or raise their level of advertising expenditures during the 1981 and 1982 recession had significantly higher sales after the economy recovered. Specifically, companies that advertised aggressively during the recession had sales 256% higher than those that did not continue to advertise.
For companies that do stay the course and continue to advertise into a recession or increase their promotional activities, the key is to craft messages that reflect the times and describe how their product or service benefits the consumer. For example, companies might be tempted to emphasize price in a recession, but that only works for companies that are built around a core strategy of providing low prices year after year, says Lodish. He points to campaignes with slogans such as, "Save Money. Live Better," are much more successful.