Co-written by Ben Lloyd
Whether we are technically in a recession or not, the financial outlook is gloomy. The tech sector is cutting jobs and reducing costs to manage the current period of uncertainty.
And if new sales orders take a hit, the advertising and marketing budget is an obvious choice for reduction.
It makes good business sense to reduce marketing spend…
As budgets tighten, everyone is spending less. Nervous shareholders and volatile share prices simply add to the uncertainty – and unwillingness to invest.
A 2020 survey by Marketing Week found that 60% of marketers were delaying ad spend commitments because of the Covid-19 pandemic. Subsequent issues, (geopolitical instability, supply chain delays, energy security concerns, cost of living crises) have served to make the situation even worse. Research by Ebiquity that suggested marketing spend may reduce by as much as 20% now seems quite conservative.
So if no one is buying, it makes perfect sense to stop throwing money at advertising.
Or does it?
In his classic The Ultimate Secrets of Advertising, Professor John Philip Jones assessed the three ways that businesses could approach marketing during a recession; reduce, maintain or increase spend. Ultimately, his study found that businesses who sustain marketing spend throughout a financial crisis are better placed to capitalise as normality is restored.
The same research found that businesses who reduced marketing budgets ran into problems. Yes, they experience some growth as market normality returns – but only as a result of their weakest competitors going bust. Worse still, growth averaged just 0.7% - which is hardly likely to excite shareholders.
In fact, Jones’ evidence shows that improving short term profitability by cutting costs has little to no effect at all. And that is assuming the company in question does not go bust during the recession. A follow-up report published in the Financial Times found that it takes up to five years to recover from mid-recession marketing budget cuts.
Professor Jones’ research also generated an interesting – and seemingly illogical finding. Brands which increase marketing spend during a recession are best placed to take advantage of the eventual recovery. In fact, they saw an average market share growth of +1.6% for at least two years - double that of their more cautious competitors. Investors consolidate their position and better position themselves against other recession survivors.
These findings actually make perfect sense. When competitors scale back their spending, any business that expands marketing will experience an increase in share of voice (SOV). As the economy recovers, SOV translates directly into increased market share.
One important caveat
Professor Jones’ research has been confirmed by many other studies which resulted in similar findings. It is undeniable that businesses investing in marketing during a recession will realise the benefits afterwards.
But there is a caveat.
The majority of the promised benefits will only be realised after the recession has ended. This means that there is no guarantee that increased marketing spend will result in more sales during the economic downturn.
Marketing spend does reward the brave, but it requires a strategy that looks at profitability beyond the current quarter. No matter how desperate the economic outlook, history proves that those businesses willing to increase their marketing and advertising budgets during a recession are those best placed to thrive on the other side.
Which means that increased ad spend is not really a gamble at all.
So, what should you be doing marketing-wise in the middle of a recession?
While CMOs face internal pressure to reduce (or stop) spend, their focus should instead shift towards achieving maximum value from their campaigns. There are a few things you can do to make that a reality:
A recession can be worrying – but it also provides an important opportunity to assess what you do, how you do it, and where you can make improvements.
Want to know more? Get in touch to see how our Hive of experts here at The Marketing Bee can help you maximise your mid-recession investments.