I know anxiety is mounting for many of you as the economy falters. I know it’s tempting to start the process of reducing your expenses. And I know that marketing is one of those areas that typically takes the brunt of those budget cuts. I understand… but you have to resist!

Sure, you should always do everything you can to maximize your marketing resources. That is true, even in a good economy. But history shows us that now is not the time to slow down your marketing efforts.

Here are some of the facts from past recessions:

1970 year of recession – The study by American Business Press (ABP) and Meldrum & Fewsmith showed that “sales and profits can be sustained and increased in recession years and [in the years] immediately followed by those willing to maintain an aggressive marketing stance, while others embrace the philosophy of cutting back on promotional efforts when sales seem harder to come by.”1

1974-1975 years of recession – The 1979 ABP/Meldurm & Fewsmith study covering the 1974/1975 and post-recession years found that “companies that did not reduce marketing expenditures experienced higher sales and net income during those two years and the following two years than those companies that reduced one or both years of recession”. 2

1981-1982 years of recession McGraw-Hill Research’s Advertising Performance Laboratory studied recessions in the United States. After the recessions of 1981-1982, he analyzed the performance of some 600 industrial companies during that economic downturn. It found that “business-to-business companies that maintained or increased their marketing spending during the 1981-1982 recession averaged significantly higher sales growth both during the recession and over the next three years than those that eliminated or reduced marketing. 3

Cahners and the Strategic Planning Institute (SPI) produced their report, “Media Advertising When Your Market Is In Recession.” It revealed: “During a recessionary period, average companies experience a slightly lower rate of return relative to normal times. However, times of expansion do not generate a higher level of profit than normal periods as might be expected.” . This phenomenon was explained by an analysis of changes in market share.

“During recessionary periods,” the Cahners/SPI report said, “these companies tended to gain larger market shares. The underlying reason is that competitors, especially smaller fringes, are less willing or able to defend against aggressive companies. The study then noted that companies that increased media advertising spending during the recession period “gained an average of 1.5 market share points.” 4

1990-1991 years of recession – Management Review asked AMA member firms about spending during the 1990-1991 recession. “Fortune follows the brave,” he announced, noting that the data showed that most companies that increased their marketing budgets enjoyed gains in market share. Among the magazine’s sample, 15 percent reported “very small” ad budgets. Advertising was “somewhat cut” by 29 percent. “The keys to gaining market share in a recession,” Management Review concluded, “seem to be spending money and increasing staff. Companies that increased their budgets and hired new people were twice as likely to gain market share. 5

Beyond the statistics, why might it be more important than ever to trade despite the economic downturn? The idea that marketing plays a more critical role now than during previous recessions should be seriously considered. While the role of marketing was once more informative than the creation of brand identity, and considering that never before has the clutter factor been so great, the relationships between customers and brands are essential. Relationship marketing has risen to the pinnacle of effective marketing campaigns as a means of maintaining an appropriate level of mental engagement for purchasing loyalty. Marketing serves to foster and maintain consumer-brand relationships. 6

The effect on profits. From the Harvard Business Review, “Advertising as a tool against the recession”, the effect of reducing advertising on the bottom line emerges. “The logic that one company can afford to cut advertising because everyone else is cutting [is fallacious]. Instead of waiting for business to return to normal, top executives should take advantage of the opportunity that rival companies are creating for them. The company brave enough to stay in the fight when everyone else is safe can achieve a dramatic change in market position, not as an unavoidable expense but as a means to achieve goals. Advertising budgets should be related to company goals rather than last year’s sales or next year’s promises. 7

REFERENCES:

“How Advertising in Recession Times Affects Sales”, American Business Press, Inc., 1979
ABP/Meldrum & Fewsmith study, 1979
McGraw-Hill research. Advertising Performance Laboratory Report 5262 New York: McGraw-Hill, 1986.
Kijewski, Dr. Valerie. “Media Advertising When Your Market Is In A Downturn”, Cahners Advertising Research Report. Strategic Planning Institute, 1982
Greenburg, Eric Rolfe. “Fortune Follows the Brave,” Management Review, January 1993
Khermouch, Gerry. “Why Advertising Is More Important Than Ever”, Business Week, August 2001
Dhalla, Nairman K. “Advertising as a Recession Fighter,” Harvard Business Review, Jan-Feb. 1980