A look at marketing budgets during recessions
However one might define a recession, we can all agree that such economic slowdowns are difficult. Negative GDP, rising prices, eroding purchasing power – not fun for companies or consumers. But something to remember: a recession is a natural part of the business cycle. A nation’s economy experiences a cadence of peaks and troughs, expansion and contraction, the latter of which many would argue we are in today. Another thing to remember: this too shall pass (and it will eventually come again).
Unfortunately, for many companies, among their initial instincts during periods of contraction is to reduce marketing spending, particularly discretionary spending on such tactics as PR, advertising, and events.
This response is misguided and could be detrimental to a brand’s ability to weather the storm and prosper later. Reducing marketing spend is short-term thinking and has the potential to undermine longer term success.
Three reasons why marketing budgets should remain intact (or even increase) during a recession:
1. Stay ahead of the competition
A report by Analytic Partners found that during the last recession, brands that cut paid advertising risked 15 percent of their business, losing to competitors that chose to increase their own spend.
The smart brands look at this period as an opportunity – a time to strengthen their brand and get ahead of the competition. Pulling back on marketing budgets means you are less visible to your current and potential customers – and less relevant. This can make it harder to retain customers and even harder to bring them back once the economic pendulum begins to swing. And guess who is taking advantage of that?
Big brands have navigated these choppy waters many times and have established best practices to respond. Even Coca Cola’s CMO Manolo Arroyo stated that the name of the game right now is to manage business outcomes and “ensure we maintain our customer base.”
This should be a priority for all brands, not just the big ones.
2. Invest in your brand by connecting with your customers
Brands go far beyond the simple utility of a product or service. Brands are the very foundation of your relationship with your customers. And right now, many customers are struggling. Research by Vericast found that inflation and spending decisions are negatively impacting the mental health of a large portion of consumers.
Brands that continue to engage with customers during this period will remain top of mind, having an opportunity to connect with customers at a deeper level and cement loyalty. Financial pressures? Stress? Uncertainty? Vulnerability? Yep, your customers are probably feeling all of it. Brands need to listen, monitor customer behavior, and pivot accordingly. You may need to adjust your message and consider new channels, as Harvard Business Review explains, but you must continue to invest in that connection. There is great value in building and maintaining brand equity during difficult times, and that’s much tougher to do if you reduce or eliminate marketing spend.
The Analytics Partners research found that a focus on brand messaging as opposed to performance marketing (the focus on which is a sale, lead or click) led to greater ROI. Those dollars invested in your brand keep you in front of your audience, and that is a distinct advantage during economic downturns.
3. Focus on the long-term
Panic can prevent us from seeing the big picture. Reducing marketing spending is a panic-induced, short-term reaction to current circumstances. Smart brands are playing the game for the long haul.
Studies show that those companies that protect their spending during downturns do better in the recoveries that follow. The Analytics Partners research found that 60 percent of brands that increased their paid advertising investment during the last recession saw improvements in their return and a 17 percent rise in incremental sales. The research also shows that this positive impact was not a one and done, as more than half of those who increased their media investment saw ROI improvements over a two-year period.
Marketing during a recession is certainly not easy. But don’t make short-term decisions at the expense of long-term success. Clearly evaluate your position and options before you pull the plug – or even pull back – on marketing. Maintaining (or increasing) marketing budgets during a recession can help you stay ready to capitalize on the rebound – and there will be a rebound.
If your brand is looking for ways to maximize spending and adjust your marketing strategy to align with your customers’ needs and market changes, FUEL can help. Contact us today.