A global pandemic hits, forcing the economy into a deep recession. Time to increase your marketing budget.
What, am I crazy? Isn’t a recessionary period time to slash your expenses, preserve cash, batten down the hatches and ride out the storm?
That seems to be the conventional wisdom. And certainly the Covid economy we’re experiencing today is no ordinary economic retrenchment. It’s an entire economy in gridlock, virtual economic cessation in many sectors. It’s predicted that once the worst of the health crisis passes we’ll be left with massive unemployment and an economy struggling to regain its footing.
As we hunker down and shelter in place in the face of this daunting viral threat, it’s tempting to do the same in business. The future is uncertain and the economy is already taking a big hit. It would certainly seem prudent to turtle up and focus on self-preservation.
But history provides plenty of data about how companies can fare better in difficult times and come out stronger in the long run. This is the time to share that information and use the lessons learned from other historic moments such as the 2008-2009 recession, 9/11, the World Wars and The Great Depression.
Down economies produce both winners and losers, marked by significantly different business behaviors. A recent talk by Rick Carlson, CEO of SaaS marketing automation company Sharpspring, painted a picture of these divergent behaviors:
Companies that remain engaged with their clients, stay the course, innovate and most importantly communicate see positive business results that last for years. As the chart below from our most recent recession illustrates, winners grew through the down economy and following, while their loser brethren failed to grow at all in the decade following that dark period.
As tempting as it may be, slashing marketing during a recession is a disastrous strategy. History shows that for the confident, forward-thinking company, a recession is not a storm from which to hide but a crucible in which to grab market share and position for a much more profitable future.
Since World War II, we’ve experienced 10 recessions, each averaging about a year in duration. That means we’ve had six expansionary years for every recessionary one. At the end of these recessions, consumer spending was actually about 9% higher than when it started. How’s that possible? “Recession” is a reflection of total GDP, and is formally defined as “a decline in real gross domestic product in two or more successive quarters.” So even in a shrinking economy, consumer spending can grow — and obviously tends to do so.
Smart, savvy companies have seized this opportunity. While competitors retrench, slash budgets indiscriminately and wait for the economic indicators to refuel their confidence, the leader swims against the tide and bids for greater market share.
A McGraw-Hill study of 600 industrial companies following the 1981-82 recession showed that those companies investing against the trend posted average gains 40% greater than non-investors within the first year. The longer view was even starker: from 1980 to 1985 investor companies grew revenues 275%, while firms that cut their ad spending grew sales only 19% for the same period. In the severe 1974-75 recession, the comparative sales index was 13% higher for marketers than non-marketers in the first year — and rose to 30% higher four years later. This data corroborates the facts illustrated in the above graph regarding The Great Recession.
A 1990 study examining 339 consumer marketers found that those who aggressively increased ad spending (by 20% to 100%) gained 0.9% market share while those that moderately increased spending (1% to 19%) gained an average share of 0.5%. Those that reduced spending gained 0.2%. (Of course that last figure may encourage the budget-cutters—“Hey, if the averages hold, we can cut spending and still grow share.”)
Even way back in the 1930s, Goldman Sachs noted that Kellogg maintained its advertising through the Great Depression while Post did not — leading to Kellogg’s domination of the dry cereal market for the next half-century. So much for waiting “until things pick up again.”
Can we prove a cause-and-effect relationship between recessionary marketing and market share growth? Not necessarily. But at least six studies investigating recessions between 1960 and 1990 indicate a strong correlation.
Marketing is a long-term discipline that requires an investor’s mentality and fortitude. History is clear: a recession is an opportunity for the strong to get stronger and the weak to get eaten. It certainly sounds contrarian at first, but with storm clouds looming, it might be time to increase your budget!