Advertising in a Recession

Maintaining advertising in a recession has been proven over time to increase market share and boost revenues over time.

In these uncertain times amidst the COVID-19 pandemic, there are likely two distinct pathways for businesses to follow — adapt or perish. Because none of you reading this would ever consider laying down your arms and not fighting for survival, I thought I’d share a couple of quotes from noteworthy types who chose the latter mindset, choosing to both adapt, and thrive, rather than survive.

“To improve is to change.  To be perfect is to change often.”  –Winston Churchill

“Skate to where the puck is going to be, not where it is.” – Wayne Gretsky

Of course, your survival instinct is just a starting point. What will it take to truly gird your organization for the post-pandemic economic recovery?

In this blog and the one to follow, I’d like to lay out some steps that might be worth taking. First, we’ll discuss why your advertising budget should be spared the ax. We’ll then discuss strategies to employ to prepare for an economic rebound.

Onward, ho!

Playing to Win the Ad Game

History is full of examples where businesses that maintained or increased advertising budgets during a recession were rewarded with more market share and higher sales and profits.

Examples cited by Brad Adgate in Forbes:

1. During the Great Depression, Post cereals reduced its advertising budget while Kellogg doubled its ad spend. The result? A catchy slogan — “Snap, Crackle and Pop” – for its new Rice Krispies cereal, and a 30 percent increase in post-depression profits. Oh, and they’ve been the market leader ever since.
2. During the 17-month recession in 1973 -75, Toyota maintained its ad spend and became the No. 1 import in 1976, surpassing Volkswagen.
3. In the 1990-91 recession, Taco Bell and Pizza Hut took advantage of McDonald’s decision to reduce its advertising spend. Pizza Hut sales increased 61 percent and Taco Bell,s jumped by 40 percent, while McDonald’s decreased 28%.

More than 40 studies over 93 years for Advertising in a Recession

In 2009, Gerard J. Tellis and Kethan Tellis compiled and synthesized 40 historical empirical and non-empirical studies on the topic of advertising in a recession.  What they found was a healthy dose of evidence that advertising during a recession is a good thing. Several studies found clear evidence the reduced recessional ad spending led to lower post-recession sales; still, other studies found that the inverse – higher spend led to higher sales – was true. And, some studies actually found that market share can actually increase more for some companies during a recession than in stable times. The likely reason is a combination of lost share by competitors and the entry of new, more nimble firms into the post-depression marketplace.

Advertising Drives Word of Mouth

In another example, researchers looked at the lessons learned from the automotive and financial industries during the 2008-2009 depression. Brad Fey and David Shiffman concluded that:

• Advertising plays a substantial role in driving positive word of mouth (WOM) for major brands.
• Even during a major crisis, ad-driven WOM continues to be nearly as positive as during normal times.
• Cutting back ad spend during a crisis diminished the impact of a valuable tool for offsetting negative news (though customer service, public relations, and social media also play a role).

From personal experience, I lived in the 2008-2010 recession. While a member of the executive team at Firehouse Subs, we used the downturn to reposition the brand and double our ad spend – actions that led to increased market share and exponential growth from 2010 to 2016, at a 20 percent year-over-year clip.

I want to share one final quote from Mark Ritson, who made the following observation in Marketing Week just a few weeks ago:

“The optimum response to the recession is to maintain, and ideally increase your advertising investment.

Unfortunately, to pull this off you require three things. You need to have some money available to spend on advertising. Then you need an executive team smart enough to know marketing is an investment or trusting enough to listen to your presentation that explains all of this to them. And, finally, you need to not be shit.”

How Does This Relate to Today?

Of course, we know that cash flow is critical, and maintaining ad spend during this crisis is easier said than done for many brands.  But, if you have the ability to communicate with your customers through email/SMS text and other owned channels like social media, do it.  As Fey and Shiffman learned from their work, the message is important, and this is the time to do all you can to maintain positive Word of Mouth with your customers.

If you are fortunate to have cash reserves and can maintain ad spend, especially by shifting to digital channels where “shelter in place” directives have increased usage, do it too.

Messaging Counts Too

Now, the message you convey during the COVID-19 crisis will vary slightly by industry. In some industries like restaurants and retail that are considered essential services, the advertising message could be similar to pre-COVID-19 messaging, since customers seem to be sympathetic to the struggles being experienced by their local merchants.

But striking the right balance is critical. If you are seen as putting profits before people, you may squander trust in a way that it cannot be recovered. A recent study by Edelman on brand trust confirmed this fact but also found that most brands are using their advertising powers for good rather that evil. Consumers in the survey responded as follows:

• 90 percent want brands to do everything they can to protect the well-being and financial security of their employees and suppliers, even if it means substantial financial losses until the pandemic ends.
• 89 percent believe brands should offer free or lower-priced products to health workers, people at high risk, and those whose jobs have been affected.
• 83 percent are seeking a compassionate connection, including brand messaging that communicates empathy and support with the struggles they face.
• 84 percent are turning to brand social channels to find a sense of community and offer support to those in need.
• 65 percent like hearing from brands they use about what they are doing in response to the pandemic because it is comforting and reassuring to them.

The takeaway?

Though it may be ok to advertise product or brand, as usual, it is advisable to change messaging, especially in owned channels like email, SMS/text, and social to a more humanistic tone and values.

“There is no doubt that the COVID-19 crisis is more than a recession.  It is much worse and physical distancing is a demand killer.  However, we at Edleman believe there will be much pent-up demand after the tide turns.  American consumers like to be mobile, to eat out and spend money shopping.  Don’t under-estimate the power of “Cabin Fever” and the “stir-craziness” for all Americans due to physical distancing.”

In our next blog, we’ll look at the importance of strategic go-to-market planning in being ready for the rebound.

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Jim Weber – Managing Partner, ITB Partners