One of our favorite quotes is from Sam Walton, the founder of Walmart. When asked, “What do you think about a recession?” he responded, “I thought about it and decided not to participate.”
Let’s go back in history to explain what that means. In the 1920s, Post was the category leader in ready-to-eat cereals. That is, until the Great Depression hit. Post became nervous about a possible drop in sales and majorly cut back its advertising budget while its rival Kellogg’s doubled its ad spend. They were investing heavily in radio ads and also introducing a new cereal called Rice Krispies. The surprising result? Kellogg’s profits grew by 30% and the company became the category leader, a position it has maintained for decades.
We know that when a recession hits, the first instinct of any—and most companies—is to cut costs. And among those costs, marketing is generally considered non-essential, so it’s one of the first things to go! It’s not uncommon to hear about marketing teams being let go and ad spends being reduced to little to non-existent when disaster strikes the economy.
This is actually NOT that ridiculous. In fact, it makes sense in some ways, because the initial assumption is that people have less disposable income to spend, so sales is likely to go down. At least, that’s what you’d think, but research shows otherwise. In different markets (automobile and FMCG), according to research done in the UK, products launched during a recession have both higher long-term survival chances and higher sales revenues.
Why do you think this is?
1. There’s less competition during a recession.
2. Companies that have continued with R&D spend their entire focus on investing in the most promising prospects, releasing products of higher quality.
Let’s take a look at history again for a minute. There was a recession from 1990 to 1991. During this downturn, McDonalds made the decision to eliminate its marketing budget, while Pizza Hut and Taco Bell saw an opportunity. Pizza Hut innovated and marketed new items, such as the stuffed crust and Taco Bell introduced its value menu. With McDonalds out of the picture, Pizza Hut increased sales by 61% and Taco Bell by 40%. Interestingly, McDonalds’ sales dropped by 28%.
Now, you probably want us to get to the point. Why is it beneficial to increase marketing spend during a recession?
- The ad cost and minimum spend required by media outlets is usually less(er than usual) so you can gain a captive audience right away, if you get your messaging right.
- Competitive advantage. You’ll get a larger share of voice as most companies are probably cutting back on marketing expenses, giving you the spotlight in the market.
- You can hit the ground running when the economy recovers. While competitors are trying to get back on their feet, hire their teams back and re-think strategy, you will already be ready.
There are two things to keep in mind in order to successfully come out of a recession:
According to the Harvard Business Review, the best period to launch a new product is just after a recession’s mid-point because consumers finally begin thinking about non-necessities, maybe even expensive products they don’t want to buy yet. Companies that come out with a new and innovative product provide hope that the economy is recovering, and that the consumer may soon be able to afford it.
As a company and an advertiser, you need to change with the times. We’re sure you’ve noticed that all the ads on TV relate to the current crisis we’re facing, COVID-19, and have also adapted accordingly, emphasizing on their social distancing policies and providing offers that make purchases easier during these tough times. As businesses, our responses and communication need to be tailored to current circumstances to remain relevant and relatable.
Having said that, we know that it’s not easy to consider increasing marketing spend when your instinct instructs you to take a defensive position and cut back on all spending. Companies that give hope and become what the customers need during a recession not only gain new customers, but also retain the loyalty of existing ones. So, the solution is not to stop spending, but changing how you spend the money.
If you’re a company with limited finances, but still need marketing support, we can help. Evolve’s business cultivation service provides a full-service marketing team to companies that need support (marketing, public relations, digital, social media, design etc.) for a fraction of the cost of hiring your own team. Don’t worry, we know times are tough. Just tell us your budget and we can work something out. Also, we’re pretty flexible, so you’re not tied to a contract—you can pay for what you want, when you want it.