Brands have historically reaped the rewards of increasing marketing spend during economic downturns. Here, we reflect on why it’s a winning strategy.
Having already been trying to come to terms with a quickly fragmenting landscape, brands now have some big decisions to make in the face of further uncertainty caused by the COVID-19 crisis and the likely global recession resulting from it.
Accepted wisdom says that brands should increase their spending during a downturn[1]. But is that what all successful brands do?
Resisting the urge to cut back
It’s wholly understandable that some leaders are tempted to cut back on marketing at times like a crisis or recession, when consumers are spending less because their incomes have been hit or they’re cautious about the future.
On the one hand, Procter & Gamble (P&G) and the powerful consumer goods under its banner are increasing spending to encourage people to stock up on products or remind them of their benefits for when the ongoing crisis is over.
Coca-Cola, meanwhile, have severely reduced advertising because out-of-home spending on its products in restaurants, cinemas, sports venues and other physical locations has inevitably been so massively impacted[2].
Coca-Cola is a brand with unique brand equity. So, while decreasing marketing spend is a risk that Coca-Cola has the luxury of being able to take, it’s arguably too risky a strategy for other brands to follow.
Why P&G increased spending in the first quarter
P&G – the world’s largest consumer goods manufacturer, with some of the best-known consumer brands under its umbrella – was very well-positioned for lockdown.
While some brand categories have suffered significantly reduced demand, P&G have actually increased advertising spending by 2 percent during the crisis to remind consumers how much they would need household staples like Head & Shoulders, Tampax, Tide, Charmin, Vicks, Oral-B, Pampers, Duracell and Gillette[3].
Consumers flooded into supermarkets to stock up just as lockdown was beginning, and online spending on these and other P&G products has skyrocketed during quarantine.
The result of this strategy is that P&G has experienced its best sales growth in a decade, with organic sales up 6 percent in the first quarter, according to results published by Bloomberg[4].
Lessons from history
History has shown that brands will reap the benefits of increasing marketing spend during a recession[5].
Kellogg’s famously decimated rival cereal maker, Post, by doubling its advertising during the Great Depression while Post did the opposite[6].
McDonald’s experienced a 28 per cent reduction in sales when it cut its advertising and promotion spend in the face of the 1990-91 global recession. Pizza Hut and Taco Bell took full advantage by ramping up their marketing spend, resulting in increases in sales of 61 percent and 40 percent, respectively.
During the 2009 downturn, Amazon increased their sales by 28 percent by continuing to innovate and push new products[7].
Why increasing marketing spend works during a recession
Noise levels in brand product categories can drop significantly when some brands cut back on their ad spend. Therefore, brands that are bold often reap the rewards while more circumspect competitors suffer.
When marketing spend is reduced, brands lose ‘share of voice’ with consumers, often leading to a potential loss of short-term and even long-term sales. On the flipside, an increase in share of voice usually results in increased market share results and, in turn, increased profits.
Recessions also force advertising platforms to lower their rates, creating a ‘buyer’s market’ for brands.
For instance, Google and Facebook are reportedly set to experience a combined $44 billion reduction in worldwide ad revenue during 2020, meaning that there will be opportunities for brands to negotiate with them and increase market share through greater visibility[8].
In conclusion – spend smartly during a recession
TV, radio, out-of-home and other traditional forms of advertising may be hit during the downturn due to the prohibitive expense associated with them.
But the modern fragmented landscape created by advancing technologies and changing consumer behaviours has opened up great opportunities for Modern Marketers to take advantage of newer, smart forms of advertising such as Retail Digital Media (RDM) on eRetailer websites, Retail Search and, of course, broader search and social media.
Please contact us if you would like to learn about our Modern Marketer series of interactive webinars that will give your marketing teams the capabilities they need to help you make the very best use of your marketing spend during the downturn.
This article was written and created by the eBusiness Institute team.
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Sources
[1] https://www.forbes.com/sites/bradadgate/2019/09/05/when-a-recession-comes-dont-stop-advertising/#1f7584914608
[2] https://digiday.com/marketing/how-the-worlds-biggest-advertisers-are-spending-or-not/
[3] https://digiday.com/marketing/how-the-worlds-biggest-advertisers-are-spending-or-not/
[4] https://www.bloomberg.com/news/articles/2020-04-17/procter-gamble-s-sales-gain-on-increased-consumer-demand
[5] https://www.ocreativedesign.com/when-times-are-good-you-should-advertise-when-times-are-bad-you-must-advertise/
[6] https://www.bandt.com.au/five-reasons-why-brands-should-increase-their-marketing-spend-in-a-recession/
[7] https://www.forbes.com/sites/bradadgate/2019/09/05/when-a-recession-comes-dont-stop-advertising/#1f7584914608
[8] https://variety.com/2020/digital/news/facebook-google-ad-revenue-loss-coronavirus-1203544502
