Cutting back on advertising during a recession is often seen as a short-term cost-saving measure, but the truth is that marketing during economic uncertainty can actually cost less and reap bigger rewards. Within the last 100 years alone, our global and regional economies have seen and survived the Great Depression in the 30s, the energy crisis of the 70s and 80s, and most recently, the Great Recession of 2008. The COVID-19 pandemic has caused long-lasting instability in financial markets and the entire world seems to be braced for yet another recession. That means companies everywhere are deciding whether or not to slash their advertising budgets.
The practice of cutting back on marketing during a recession stems from the beliefs that marketing is a cost center and that turning it off has little impact on long-term sales.
It turns out, though, that research tells a different story.
Recessions slash ad budgets
When businesses begin to see declines in sales and revenue, expenses are cut. Personnel, real estate, overhead, and future investments are streamlined. And, often, marketing and advertising budgets are first to be slashed, as they are viewed as a discretionary cost.
On its surface, this makes sense. While businesses struggle to keep the lights on, little focus and energy is spent on advertising. During slow economic periods, consumers set stricter spending priorities and often reduce non-essential purchases. So why continue to advertise your brand?
Because it is the perfect time to capture attention and increase market share.
Numerous studies have been conducted on the short and long-term impacts of advertising during declining economic conditions. McGraw Hill studied 600 companies from 16 different industries, some of which maintained or increased their advertising spend, and others who cut or reduced it from 1980 to 1985.
Their findings were clear: companies who continued to advertise during the two-year recession saw 256% higher sales than their counterparts post-recession. Those who chose not to advertise during the economic slump saw virtually 0% market share increase and a rise in sales of only 18% once the economy regained traction.
The adage that comes from their findings is:
In times of prosperity, you should advertise. In times of hardship, you must advertise. Now is the time to differentiate.
Now is the time to differentiate.
Data makes the difference when advertising during a recession
The truth is, if you are able to continue spending on advertising as a business, there are huge opportunities created by recessions. While competitors hit the brakes on advertising dollars, uncertain economic times are key opportunities to gain share of voice – after six months, overall brand awareness to an average consumer decreases by 24%. And with today’s advertising technology, advertising investment can be smart and calculated, resulting in both short and long-term gains.
After the collapse of the stock market during the recession of 2008, ad spending saw a reduction of over 27% across all channels. But, in 2008, advertising was still largely dominated by linear advertising (radio, TV commercials, site homepage takeovers, etc.) and virtually nothing was measurable or addressable to the user. The same message and branding was going to every user.
Over a decade later, advertising technology has experienced a quantum leap. Programmatic, social, and search advertising (among others) now can address users on an individual or household basis. And, because we know that all consumers are not created equal, it’s easy to segment consumers into a few distinguishable groups (for instance, slam-on-the-brake spenders, reduced spenders, and well-off/luxury spenders).
Each of these groups will respond to different kinds of advert, even within the same category. For example, a reduced spender who needs to buy an automobile might respond positively to messaging around fuel efficiency, tax savings, and discounted prices. A luxury spender, on the other hand, might react more favorably to messaging around status and brand prestige. It is important to tailor the messaging to each group for maximized return on investment.
This is the first time in an economic slowdown that we have had the ability to get this level of granularity on an audience level. And, because of this, advertising budgets can be optimized to reach the right target audience.
It makes it easier for marketing leaders to justify spending to the rest of the business. Brands now have access to data points that illustrate “if we spend x, our return on investment is y, and our sales increase by z%”. We can now quantitatively measure the impact that advertising is having on a company’s bottom line.
Targeted advertising now will reap long-term value
With advertisers having more advanced technology to reach their target users and determine the impact on revenue, the long-term problem of brand recognition is virtually erased. Those companies who are able to continue advertising during this period will keep their brand on the forefront of the minds of the consumer, likely setting them up for success when the economy rebounds.
And in today’s data-driven world, where granular, tailored messaging is possible, it’s possible to optimize ad spend to reach exactly the right consumers in the right ways.
For example, we know that, right now, most US consumers are at home and watching ever-more content through connected TVs (ie TVs that are online and addressable). Users who used to be reachable on laptops and smartphones are now to be found in a non-skippable, targeted OTT environment. This provides a unique opportunity to drive brand awareness to a user whose undivided attention is given to the program they are watching.
In times of crisis and uncertainty, there is always a light at the end of the tunnel. The data shows us that many advertisers will cut media spend across all channels during downward economic cycles. And the data also shows us that increasing marketing spend during these cycles can pay off handsomely in the future with increased market share and sales. The conclusion is clear: if you’re able to continue spending on advertising, right now is the best time to do it.
Make your programmatic advertising work harder and smarter during economic uncertainty. Put our experts to work for you.
