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“I thought about the recession and decided not to participate.”

That quote by Sam Walton pretty much sums up an article last year in Forbes Magazine where author Brad Adgate  stressed that the last thing you want to do in an economic downturn is cut back on advertising. You can read it here. Its main points are:

  • The “noise level” in a brand’s product category can drop when competitors cut back on their ad spend. It also allows for advertisers to re-position a brand or introduce a new product.
  • Brands can project to consumers the image of corporate stability during challenging times.
  • The cost of advertising drops during recessions. The lower rates create a “buyer’s market” for brands. Studies have shown that direct mail advertising, which can provide greater short-term sales growth, increases during a recession.
  • When marketers cut back on their ad spending, the brand loses its “share of mind” with consumers, with the potential of losing current – and possibly future – sales. An increase in “share of voice” typically leads to in an increase in “share of market.” An increase in market share results, with an increase in profits.

The article commented on four areas of the economy that flourished during recessions –

Dry Cereal – Post, the cereal leader, cut back its advertising during the great depressions, Kellogg’s doubled its ad spend. Kellogg’s profits grew by 30% . It out sold Post and remained the industry leader for decades.

Imported Automobiles – The energy crisis got people thinking about gas mileage. Toyota was second to Honda in fuel efficiency but when others cut, they resisted dropping their ad budget. By 1976 the Japanese car company surpassed Volkswagen as the top imported carmaker in the US.

Fast Food: In the 1990-91 recession, Pizza Hut and Taco Bell took advantage of McDonald’s decision to drop its advertising and promotion budget. As a result, Pizza Hut increased sales by 61%, Taco Bell sales grew by 40% and McDonald’s sales declined by 28%.

Technology: Amazon sales grew by 28% in 2009 during the “great recession.” The tech company continued to innovate with new products during the slumping economy, most notably with new Kindle products which helped to grow market share. As a result, in the minds of consumers, Amazon became an innovative company by introducing a lower cost alternative to cash-strapped consumers.

To quote the article’s author:

Although the natural inclination for advertisers is to cut back on advertising during a recession, those brands that maintain their ad budget and/or change their messaging can get a long-lasting boost in sales and market share.

JVH

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