There’s no longer any question that it’s not “business as usual” these days with states ordering people to stay home, schools shutting down, and restaurants switching exclusively to curbside pickup.
Four weeks ago, we had never heard the term “social distancing.” Not only does everyone know what it means, almost everybody is practicing it. I’ve washed my hands so often I don’t know how there are any skin cells left.
The coronavirus has separated families, created hardships, and created a new class of unemployed.
We’ll get through this at some point. The health effects will diminish. Medicine will catch up and conquer. What’s left behind, however, will be the economic impact that will last for a whole lot longer. If the predictions about unemployment and recession come true, we’ll be dealing with a whole different set of problems.
You may not be thinking about advertising right now, but it may be smart to give it some thought.
Advertising in an Economic Downturn
During the last major economic downturn, ad spending dropped 13%.
2008 Advertising Spend Decline (Compared to Previous Year)
SOURCE: The Drum
- -22% Newspaper
- -28% Magazines
- -11% Outdoor
- -5% Television
- -2% Online
Altogether, ad spending fell by 27%. For some businesses, they felt they had no choice. They were forced to cut expenses to stay in business. Others, however, went against the tide and increased their advertising spend.
A Harris Interactive/Yankelovich survey asked what people thought when companies advertise in an economic downturn, here’s what they found:
- 86% report the advertiser was Top of Mind when they were ready to purchase
- 86% feel better about the company’s commitments to products and services
Research: Maintain or Increase Ad Spending During a Downturn
The research has borne this out. Studies done in the 1920s, 1940s, 1950s, and 1960s showed that during recessions, sales and profits dropped off at companies that cut back on their advertising. When the economy recovered, those companies continued to suffer. While their competitors prospered, those cutting back on advertising during the downturn lagged behind the ones that maintain their ad budgets.
An examination of the downturn in the mid-70s, done in 1979 by ABP/Meldrum & Fewsmith, echoed the findings.
“Companies which did not cut advertising expenditures during the recession years (1974-1975), experienced higher sales and net income during those two years and the two years following than companies which cut ad budgets in either or both recession years,” the study found.
A MarketSense study during the 1989-1991 recession demonstrated that companies and products that increased ad spending during the downturn saw strong sales growth.
- Kraft salad dressing: Sales growth of 70%
- Jif peanut butter: Sales growth of 50%
- Coors Light: Sales growth of 15%
- Bud Light: Sales growth of 16%
- Pizza Hut: Sales growth of 61%
- Taco Bell: Sales growth of 40%
McDonald’s opted to cut back during the recession. Their same-store sales dropped 28% while Pizza Hut and Taco Bell grew.
“The best strategy for coping with a recession is balanced exploitation of ad spending for long-term consumer motivation, plus promotion for short term sales boosts,” the study concluded.
Other studies done in the 1980s, 1990s, and 2000s had the same results. Taken together, companies that remained aggressive with their advertising during downturns had overall sales 2.5X the average of others.
Best Strategies for Advertising in a Downturn
This is not normal. I get it. You have to take care of yourself, your family, your employees, and your business first. There’s too much at stake not to take things seriously. However, it’s too easy to get caught up in the short term and sacrifice the long-term. If you have the financial ability, don’t cut your advertising. It can make the short-term worse and make recovery dramatically more difficult.
If you have the means, an investment now can mitigate damage and set you up for long-term prosperity.
Maintain or increase your advertising budget
As competitors are cutting theirs, your messaging becomes even more prominent. There’s less clutter in general and less noise in your category. When you increase your spending while your competitors cut back, you can dramatically improve your share of voice and top of mind awareness.
Evaluate Your Strategic Plan
Every one of us has had moments of reflection about what’s important. We’ve found new ways to do business and live. Take a look at your marketing and evolve. Don’t waste money advertising the wrong messaging. If restaurant dining rooms are closed down, advertise your curbside pickup.
Strike the right tone in your messaging. Implement strategies that demonstrate to buyer that you understand what they are going through. Minimize risk.
GM is giving vehicle owners free OnStar crisis-assist services. Dealers are encouraging shoppers to avoid showrooms by bringing vehicles to their homes to limit contact. To minimize fear over finances, several brand lines have introduced long-term 0% financing – as much as 84 months.
Take Advantage of Price Volatility
Media companies are working through this situation as well. The best ones are doing what they can to help support local businesses. After all, we depend on each other for long-term success. There’s likely greater advertising efficiency due to special promotions and more flexibility in rates during this time.
Continuity = Awareness
Advertising works best cumulatively. The more you remind people who you are and what you do, the more top of mind awareness they have when it comes time to buy. If you stop, you may have to start over on the bottom rung of the ladder.
Advertising works when the right message is delivered with the right reach and right frequency.
Economic Downturns Can Reshuffle the Deck
There are risks and rewards during economic downturns. There will be winners and losers.
In the 1920s, Kellogg’s and Post dominated cereal sales. The two companies had nearly identical market shares. During the downtown, Post cut back their marketing while Kellogg’s maintained. Kellogg’s dramatically overperformed Post during the depression and immediately thereafter. It reshuffled the deck. Kellogg’s has been the dominant cereal brand for more than 9 decades now.
How companies deal with crises, such as economic downturns, often sets up the competitive landscape for years to come. A study by Bain & Company done after a recession showed some stark results:
- More than 20% of companies that were previously in the bottom quartile in their industries moved to the top quartile.
- More than 20% of companies considered “leadership companies” in the top quartile of financial performance moved to the bottom quartile.
Poor performers and High performers literally swapped places because of what they did during recessions.
Companies Can Grow Market Share in a Downturn
A study published in the Harvard Business Review of post-recession companies showed that two-thirds made major gains during a recession. Their gains didn’t come before the downturn or after, but rather during.
“Many managers tolerate sub-par results during a recession, believing that their firms will accelerate past competitors once the economy recovers. This rarely happens,” the study concluded. “More than two-thirds of the companies that made major gains in our study period did so during a recession, not before or after.”
Growth in Recessionary Periods Continue Long-Term
This may be the bigger story: Of the companies that made major gains in revenue or profitability during the last recession, the Harvard Business Review reports that 70% sustained those gains. Of the companies that lost ground, less than a third were able to regain market share.
That’s what happened to Kmart in the last recession and they’ve never recovered. Wal-Mart continued to advertise and launched its “price rollback” strategy to dominate a market in which it already had a significant advantage.
An economic downturn is hard on all of us. There will be winners and losers. There’s also a significant opportunity to better serve our customers and re-position our businesses for long-term success.
As researchers at Bain & Company concluded: “These findings show that recessions are not so much ‘slowdowns’ as they are intense crucibles of opportunity.”
Stay safe. If I can help you with your business strategy or advertising, I’m here to help.