GROWTH MARKETING

Should brands cut their ad spend during a recession?.

Jill Robb

Jill Robb

Digital Marketing Director
Strategy, Growth and Stylish Analytics

12th May 2020Growth Marketing

Nobody saw Covid-19 coming.

Businesses are clouded by uncertainty. Demand for services has collapsed. Companies are operating significantly reduced operations or have closed altogether.

This pandemic will lead to a recession that is forecast to be worse than 2009 and the most severe since 1900.

Marketing budgets are usually the first to go as business owners try to save money, and it might work in the short-term.

But what are the long-term effects? Should brands really cut their advertising spend?

Learn from previous recessions 

As unexpected (and unwelcome) as recessions are, they aren’t new. There are things we can learn from previous downturns to get through this one.

With the right planning, there are opportunities to not only survive the recession, but gain market share and profitability afterwards.

I recently read an article in the Harvard Business Review that looked at the recessions of 1980, 1990 and 2000. Many companies struggled, and those that cut costs faster were less likely to come out stronger. However, a small number of companies actually flourished.

Consultancy firm Bain’s analysis of the 2008-09 recession pulled up similar results.

Often the first instinct of many business owners during a downturn is to go on the defensive, slash budgets and focus on short-term solutions.

But that’s exactly what opportunistic rivals are hoping for. With a contingency plan in place, they can focus on both short- and long-term strategies and maintain (or even improve) their share of voice. That’s the key to recovery.

Gain excess share of voice

Some companies will actually increase their ad spend during a recession. But opportunities exist even without extra investment.

Rival companies are pulling back on their marketing spend which drives the cost of media down. PPC keywords that are usually expensive suddenly become more affordable.

Savvy companies will take advantage. They’ll increase their exposure and improve their share of voice. Crucially, this can result in an excess share of voice (ESOV).

A business has an ESOV when their share of voice is greater than their market share.

ESOV equals growth. Brands that grow their market share during a recession position themselves in the optimal way for recovery.

On the flip side, rebuilding lost share of voice is expensive. There’s more competition and brands are likely to be less profitable as consumer spending drops.

Basically, money invested now will go further than money invested in a year’s time.

How can brands stay front and centre?

92% of people think brands should keep advertising during the current climate.

The audience is still there and it’s about identifying what they want to see. Right now, for example, people are being bombarded with ads advising us to stay at home or assuring us that brands are here in our time of need.

Companies will get lost among the crowd if they use the same old messaging. This video by Mark Ritson sums it up.

Consumers still aren’t interested in hard selling. Adding value to the customer experience is key. Brands should decide which of their services are most aligned with customer needs and strike the right tone with their messaging.

Companies also need to know where to reach their audience. Brands are prioritising their digital transformation roadmaps and accelerating a shift to mobile because people are spending more time online. That’s where the audience is.

That same audience trusts brands. That means companies have a level of corporate responsibility. If they’re innovative and strike the right chord on the right platform, they can turn that responsibility into ongoing engagement.

They have an opportunity to seize the ESOV and put themselves in the best possible position to rebound.

Long-term gains

Cutting ad spend is the go-to (and understandable) response for many companies during a downturn. It might help in the short-term but leaves the brand vulnerable to savvy rivals.

Evidence shows that companies that maintain or increase ad spend gain ESOV and position themselves to recover quickly. In fact, IPA data shows brands that sustain exposure during a downturn increase their market share by three times on average.

Customers expect brands to engage with them even in the current climate.

Taking action now allows brands who are clever enough to strategise to create new opportunities in the future and come out of the downturn stronger.

Change starts here

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