Right now, we find ourselves in a pandemic-induced economic downturn. All around us we see SMB’s closing due to declining revenues and other hardships. During recessions, firms fearfully tend to cut back on marketing, and advertising activities to lower their expenses. Contradictory to this, it is well documented that maintaining or increasing advertising spending during a recession can be very beneficial for business firms. Let us explore several reasons businesses should advertise during recessions.
Advertising costs can decrease in recessions and create a “buyer’s market” for products and brands. When this happens, marketing activities like direct mail advertising result in faster returns on investments.
Since ad costs are low, this is also a good time to launch a new product. Many advertisers believe that because consumer prices are sensitive during recessions, a product launch would be very risky. However, there is a significant amount of research that show that product launches during recession have higher long-term survival as well as higher sales revenue. This is because competition is low during downturns, and companies who do launch new products focus on R&D as well as good timing.
The key time to launch a new product is directly after the “midpoint” of a recession. This is because the economy has just started it’s healing process, and consumers are beginning to think about spending on new products.
Along with many firms that cut back on advertising during a slowdown, your competition will probably reduce their ad spending as well. The noise level of different brands promoting their products will dip and give you an opportunity to get stronger consumer responses to your brand and advertising.
The same is true if you cut back on ad spending for your competition. Competitors that continue to advertise can take away your market share because their voice and brand will prevail in consumer minds. Remember, increased market share equals increased profits so when times get tough it could be vital for your business to continue to advertise.
In a study of 600 companies by McGraw-Hill for U.S. Recessions, business firms that were relatively even before the recession that maintained or increased ad spending had on average enormous sales growths in comparison to those who decreased ad spending.
This is significant and goes hand in hand with increased market share and ROI. Although the instinct of business firms is usually to cut down on advertising, brands that increase their advertising have very positive improvements in sales.
Materials compiled from several sources, including McGraw-Hill, Harvard Business Review and Forbes Magazine.