Up Recessionary Ad Spend to Win Customers
In the current economic climate marketers can’t help but have noticed the wealth of information suddenly deluging them about how to manage the tough times. Unfortunately, the fact that the well-meaning advisors tend to have a vested interest in their advice being followed only serves to cloud the integrity of the advice. So who are marketers to believe, when all their advisors are claiming that to spend money with them will be the answer to their recessionary concerns?
Alternatively, there are the marketers who do believe in investing to survive the recession, but who have trouble convincing the purse-holders of the same. When it can be difficult at the best of times to prove the effectiveness of advertising, it can only be harder when the revenue is already drying up.
Some relief, then, from the World Advertising Research Centre, who have collated and reviewed a large number and range of studies into advertising during recessions, concluding clearly that it is the companies who continue advertising that clearly succeed.
A review of the key learnings follows:
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There is a major US database called PIMS (Profit Impact of Marketing Strategy) which includes both marketing data and financial information for a wide range of businesses (ref. SPI of Cambridge, Massachusetts). Analysis of this database by Biel & King (1999) shows that member companies which decreased their ad spending in recessionary periods grew share by only 0.2% compared to a 0.5% increase by those who increased spending moderately, and 0.9% by those who increased spending aggressively. (In bouyant times, those cutting spending lost share by -0.1% while those increasing spending aggressively gained less +0.5%).
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An earlier 1982 analysis of the PIMS database, based on nearly 2000 businesses producing industrial product or services (ref. Cahners & SPI) showed that companies that decrease their spending in recession gain on average 0.2%, but that the gains for increasing aggressively were even higher at 1.5% market share.
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As far back as 1927 the Harvard Business Review reported that the companies that recorded the biggest sales increases were those that advertised the most (ref. Vaile, based on 200 companies through the 1923 recession).
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Buchen Advertising Inc. tracked business to business advertisers through successive recessions in 1949, 1954, 1958 and 1961. It found that companies that cut back on advertising experienced drops in sales and profit, whereas those not cutting back did not, or at least experienced smaller drops. Also, after the recession had ended, those companies continued to lag behind the ones that maintained their advertising budgets.
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Market researchers TNS Sofres analysed 127 brands on its Superpanel in 1991/2, and found that the top brands increased advertising spend by +7% with a share increase of +1.1%. Bottom brands decreased advertising spend by -8% and experienced a share loss of -1.6%.
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And in a fantastic case study, AdMap reviewed how Barclaycard dumped a longstanding and much beloved ad campaign, replacing it with something quite outrageous, in the middle of the 1991 recession. Barclaycard more than doubled their ad spend, while Access (then the market leader) reduced spending. By the end of the first year, Barclaycard advertising awareness more than tripled, while that of Access halved. But more importantly, Access’s share of cards fell from 38% to 26% from 1990 to 1995, while Barclaycard grew share from 30% to 32% to become the leading brand.
Other recent research from a different angle further supports the need to continue, and ideally, increase advertising during a recession. For the last seven years an annual “Most Memorable New Product Launch” survey has been conducted in the United States by Schneider Associates, Mintel International and Information Resources, Inc. (IRI). When asked about new products from 2008, 69% of survey respondents could not remember a single new product launched during the year. Even the most memorable new product of 2008—the Wii Fit—was recalled by only 22% of respondents even when prompted.
The researchers involved put the blame for this notable deterioration in new product awareness on the recession, for two main reasons. Firstly, there is the distraction caused by both the media and people’s home lives becoming dominated by recessionary pressures such as rising prices and unemployment. Secondly, there is the well-known and logical mental process that sees people noticing and recalling things that they are interested in more than things in which they have little interest or involvement. Therefore, when the proportion of people who have decided to curtail their retail therapy increases, the proportion of people on the lookout for the next item to buy decreases – resulting in reduced per-person advertising effectiveness. But this only applies if competitors also maintain their advertising levels, making for the same advertising levels, but fewer receptive consumers. Given that most business’ competitors will be unlikely to bravely increase their advertising, increasing one’s own advertising levels wins twice over – from the simple increase in marketing, coupled with competitors’ decreased share of voice.
So the lessons are clear. If you can afford to spend aggressively and take the short term impact on profitability, now is the time to gain significant market share, and it’s share that is likely to be retained as the economy improves.