People in the advertising business like to say, “Advertising doesn’t cost you money, it makes you money.” The recent economic events may have caused an adjustment in this adage, “Advertising doesn’t cost you money, it saves your customer base.”
The threat of recession is triggering many questions. Recently I was approached with the question on advertising’s role during an economic decline. A look at the early 1980s economic slowdown and the resulting impact advertising had for many companies offers a tangible answer.
In 1982, Cahners Publishing Company asked the Strategic Planning Institute of Cambridge, Mass., to gather information on whether a business should increase or reduce advertising expenditures during a recession. The resulting study, “Media Advertising When Your Market is in a Recession,” uncovered some jarring insights.
The study revealed that those companies that increased advertising during the recession-ary period experienced market share climbs nearly 2-1/2 times better than the average gain.
McGraw-Hill went a step further. It explored how advertising during a recession affected businesses once the economy returned to normal. The study found that of 600 companies, those that increased ad spending during the recession enjoyed a 275 percent average increase in volume while those that cut advertising saw only a 19 percent increase.
During economic decline, it’s sometimes necessary to cut corners and often tempting to slice the advertising budget. Before doing so, keep two points in mind: 1) consumes are uneasy; and 2) competitors are cutting their advertising budgets.
Financial reports from September 1990 show that although consumers say they are concerned about the economy and its effect on their lifestyles, consumer spending increased. At a time when consumer confidence is low, advertising not only promotes a company’s goods and services, but reassures them that a business is alive and well.
The Cahner’s study reported that only 25% of the companies increased ad spending during the recessed economy, while 80% did so during a market upturn. This spells less advertising competition for consumer attention during the down period. Those companies that are less aggressive with their advertising spending often assume that the entire market is unaggressive. Once the economy stabilizes, those companies may find themselves playing “catch up” to those that maintained or increased their ad spending.
The studies provide statistical support for advertising during such a period. The final decision can only be made once each business examines its market and its standing in the marketplace. Keep in mind, a more aggressive approach during this period may establish a firm position for the future.