The Importance of Advertising in Tough Economic Conditions

Donna MacDonald

Marketing a product to a consumer necessitates getting the word out to the public – buy our product and you will get the best bang for your buck. In today’s economy, consumers are not handing out their bucks so quickly. People are being more thoughtful and cautious before parting with their dollars.

Many economists have declared a recession is already here, thus fueling a critical change in thinking for millions of consumers. We have witnessed gas prices across the nation climbing toward or over the $4.00 a gallon mark, the volatility of the stock market, and the soaring number of home foreclosures due to the subprime mortgage financing crisis. With all these conditions preying on us, we are forced to take a more introspective and analytic approach when it comes to personal buying habits.

How does this translate to companies and their own in-house budgets? Companies, just like a typical household, are implementing stricter cost cutting measures more and more. One trend has been for businesses to cut into their marketing budget, for the short term effect of propping up profits. Why do marketing dollars become an easy target? Perhaps because return-on-investment analysis for marketing dollars spent is hardest to measure in the long term. Econometric studies, for the most part, measure the short term effect of marketing quite well. With long term effects of advertising, not all quantifiable factors can be measured speedily or straightforwardly. Companies have to believe its full value will pay off in the long run.

Historically, there are cases to flaunt regarding companies who have kept their marketing wits about them during tough economic times. When you talk long-term thinking, IBM comes to mind. Competing against numerous new-comers to the high-tech industry, in the 90’s and the 21st century, IBM stuck with its generous media budget through good times and bad. The payoff was there when you compare IBM’s loss of brand value in the market –a mere single digit shortfall in 2000 – to much bigger declines in other competing high-tech companies. In examining the setbacks in sales Hershey Foods and Avon Products experienced in 1975, Wall Street analysts attributed some lost sales to the companies’ advertising cuts. Comparatively, during the same timeframe, companies such as Revlon and Phillip Morris invested heavily in advertising and experienced surges in sales. During the 1974 to 1975 recession, Stanley Works, one of the largest manufacturers of hand tools, experienced a softening of profits. The company, in the middle of one of the sharpest recessions, decided to launch a notably large advertising campaign of magazine and TV ads. While Stanley’s sales in its heavy industrial tools division took a hefty hit, its consumer hand tool sales took off. Stanley’s campaign worked. What the company lost in industrial tool sales, they more than made up for in their consumer tool profits as Stanley quickly became a familiar, household name.

A stagnate market is not an indicator of stagnate ideas. Creativity in marketing initiatives can be traced to strategic reactions to economic slumps. In the midst of the 1980 to 1982 recession, we saw airlines initiate frequent flyer mile programs to secure loyalty. More than 20 years later, these programs are still popular and continue to secure market share. During this same timeframe, in the pharmaceutical arena, generic drugs were peddled as cost saving measures and maintain their strong foothold today.

During downturns, many businesses find themselves with excess inventory. Mediums such as newspapers, magazines, and broadcasting are no different.  When companies take the route of dropping their advertising commitment, you can use this as a leverage to grab some market shares at your competition’s expense. Instead of becoming invisible in the marketplace, you can end up the frontrunner.

Most of all, connection with the consumer is important – this means keeping up contact even when consumers are spending less. Since marketing to existing customers is more cost effective than marketing to new customers, don’t ignore the relationships you’ve already established. When economic recovery begins, customers will remember you, too.

Longevity is the goal of any business. Immediate, short term responses to troubling company profits, such as slashing marketing budgets, appear as such – a short sighted approach. View advertising as the proven investment it is, one which protects your shares in the market. After all, if you don’t continue to get the word out on your product, who will?

Five Good Reasons Not to Trim Your Advertising and Promotion Budget in an Economic Downturn¹

1. You’ll find a bargain (on advertising media).
2. You need to keep your customers and prospects informed of changes in your business.
3. Your competitors are probably trimming their budgets, so you will stand out and gain market share at their expense.
4. If your competitors don’t trim their advertising budget, you could lose market share to them.
5. Your customers and prospects will remember you when the economy picks up again.

Sources:
WARC Online Exclusive, March 2008, Paul Dyson
Business Week, August 6, 2001, Gerry Khermouch
Advertising During a Recession, Direct Marketing, September 1991, Victoria Horstmann
Ad Spending During a Recession, Sales and Marketing Management, March 3, 2008, Robert Grede

Footnotes:
1 Ad Spending During a Recession, Sales and Marketing Management,
   March 3, 2008, Robert Grede

Donna MacDonald is a freelance writer based in the metro Detroit area. For more than 20 years, she's written on subjects ranging from software to celebrities.