Don’t Cut Your Marketing Budget During a Recession

Companies tend to reduce their marketing in times of recession. But companies that maintain their marketing spend while reallocating it based on context – whether in product development, advertising and communication, or pricing – generally do better than companies that reduce their marketing investment. .

Most companies cut spending during a recession, especially on marketing items that may be easier to cut (certainly relative to payroll). Right now, ad agencies are struggling to stay afloat, and Google and Facebook are seeing significantly lower ad revenue as marketing spend plummets with the business cycle (cyclical marketing). But today it is the equivalent of a hemorrhage – an old-fashioned but once widespread treatment that actually reduces the patient’s ability to fight off the disease.

The companies that have rebounded the strongest from previous recessions have not reduced their marketing spend, and in many cases even increased it. But they changed what they spent their marketing dollars on and when to reflect the new context in which they operated. Let’s start by looking at the different categories of marketing fees.

R&D and new product launches

New product launches are risky, even in boom times, and there is always considerable debate within any company as to which of the many new products in development should actually hit the market. In this context, putting an end to new product development projects during a recession seems obvious.

Corn research in contexts as different as the rapidly changing UK consumer goods and US automotive markets show that products launched during a recession have both higher long-term survival chances and higher revenue higher sales. This is partly because there are fewer new products to compete with, but it is also due to the fact that the companies that maintain R&D have focused their investments on their best prospects – which may explain why the products introduced during the recessions have proven to be better.

Timing, of course, matters: our research shows that the best time to launch a new product is right after the middle of a recession. This is when consumers start thinking about unnecessary products, even expensive products they don’t want to buy yet (like cars). A new and innovative product gives hope that the economy is better and that the consumer will soon be able to afford it.

Even if they don’t have new products ready to go to market at the right time, smart companies continue to invest in R&D during recessions, which has proven to have a stronger impact on long-term performance than other categories of marketing expenses, such as advertising and price promotion. Indeed, maintaining R&D means that companies emerge from the recession with a relatively stronger pipeline, especially in cyclical industries such as automotive, cement and steel.

Rates and promotions

Faced with the decline in sales volume, managers are tempted to raise prices in hopes of maintaining revenue and margins. It’s not hard to see why this is a bad idea: because recessions make consumers more price sensitive, any price increase will further reduce the likelihood of making a sale, which is why companies that have increased their prices are quickly turning to price promotions to reverse the trend. effect. But research shows that this price swing backfires: Companies that engage in it lose more market share than those who do not.

Communication

During recessions, when most companies reduce brand advertising, a company’s share of voice increases if it can maintain or increase its advertising budget. Take the case of Reckitt Benckiser: during the recession that followed the financial crash of 2008, the company launched a marketing campaign aimed at persuading its consumers to continue buying its more expensive and better-performing brands, despite the economic climate. difficult. Raising its ad spend by 25% in the face of competitors’ marketing cuts, Reckitt Benckiser increased revenues by 8% and profits by 14%, while most of its rivals were reporting profit declines of 10% or more. They viewed advertising as an investment rather than an expense.

Advertising content during recessions must reflect the challenges consumers face. Consumers in crisis want to see solidarity brands. Successful brand advertising during a recession not only injects humor and emotion, but also answers consumers’ question: how can we help?

Take the case of Coca-Cola. In 2020, the company used its advertising budget to highlight the work of frontline workers, create mini-stories about unsung heroes. The Coca Cola brand appears subtly in the background of these messages, reminding consumers that Coca Cola has always been and always will be there for you, through good times and bad.

A similar tactic has seen Singapore Airlines demonstrate how its ground crew has been redeployed to help the community deal with the outbreak. The cabin crew used their skills as ambassadors of care. Some assisted nurses by taking patients’ vital signs, writing down meal orders and serving them. Others have worked at transportation hubs to help with crowd control and ensure safe distancing guidelines are followed.

Adapt the response to the context

We all know that a company’s existing brand image and scale are major factors in its ability to weather and even profit from a recession. Strong brands are often better able to hold down prices during recessions. At the same time, big companies and smart negotiators can often extract price concessions from suppliers during a downturn. But how a company’s positioning and capabilities evolve – and what needs to change – will depend on the dynamics of the industry and country in question, which means that companies operating in multiple markets must choose different strategies for different parts of the business.

Take the case of a large Russian conglomerate that we advised during and after the 2008 global financial crisis. It operates in six countries and six industries, ranging from consumer apparel to specialty banking. For its mainstream clothing brand in Russia, the company maintained its advertising budget, while other (mostly foreign) brands simply reduced the amount of messaging and hardly changed the content of what they published. . This worked well for the company, as its existing positioning as a value-for-money local brand appealed to consumers at a time when spending on foreign luxury goods felt and looked bad. As the recession receded, many new customers, who had ditched the more expensive foreign clothes, stuck with the local brand.

The conglomerate has applied a very different approach to its banking operation in Romania. Unlike most of its competitors, our client expected a deep recession and a slow recovery. In this scenario, prospects for new business were poor, and so the company cut its previously large retail advertising budget and closed a large number of retail branches. This freed up resources to better support existing customers. All customer acquisition efforts, meanwhile, have focused on high net worth individuals. Her focus on helping existing customers and careful targeting of new customers helped the bank grow in the post-recession recovery period.

Marketing in a recession will never be easy, in large part because it often involves going against instincts and standard operating norms. Clients’ behavior undergoes profound changes – reflecting changes in their circumstances and needs, which can even be traumatic. In this environment, you need to accompany your customers on their new, different journey, shifting your message and even rethinking your value proposition. This is the time not to stop spending money, but the time to change the way you spend it. It’s also an opportunity, because businesses that want to be what customers need in a recession can retain many of the new customers they get and retain those they already had.