Posted in Marketing & Strategy Articles, Total Reads: 1433
, Published on 16 July 2013
Paul Dyson of Data2Decisions while talking about recession once said, “If cuts have to be made, the question then becomes which expenditure adds the least value? This is probably what drives companies to reduce their advertising expenditure-simply because they do not understand its full value and especially, as it is usually the single biggest investment on the balance sheet”. His view epitomises the attitude of most businesses in the face of an economic downturn. This essay is about why and how they should do otherwise.
Pop Quiz: What connects Wal-Mart, Dell, Revlon, P&G, Levi’s & South-West Airlines?
Ans: They have all made more money than their competitors, increased their brand values and dominated their respective markets, but more importantly, while there was a recession.
Businesses are as much about the future as they are about the present, if not more. When those who lead businesses decide to juke numbers and indulge in quick profits they do so at their own peril. Neglecting brand promotion during a recession, will weaken the brand, thus making it less profitable post-recession. The idea should be to maintain pre-recession ‘share of voice’ (share of marketer’s promotional expenditure). If ‘share of voice’ is kept at or above market share in a recession, it is seen that the medium and long term gains of the business, in terms of profitability and market share, is large. This easily outweighs the short-term profits that managers set out to achieve, by cutting ad expenditure as pointed out by Mr. Dyson.
The rationale behind this is simple. Business decision makers feel positive about investment, in a company they see advertising in a down economy. It keeps the company top-of-the-mind when the purchase decisions are made. Secondly, in a recession the price of buying media space or time will fall. So, there will be opportunity to reach out to a wider base at a lower cost, for a longer duration of time and with limited competition. If this was baseball, it would be a Homerun! Thirdly, and most importantly, recession is the perfect time to expand businesses, at least in terms of market shares. This would be the ideal time to attack timid rivals, who are unsure about what to do with their ad budgets for the coming fiscal. This would be where brand values can be enhanced and rival territory be encroached on, once and for all.
An economy essentially consists of crests (economic growth) and troughs (economic recession). Now, in between adjacent troughs and crests there are two phases viz., the “Recovery Phase” starting from the bottom-most point of an economic cycle to the mean/base economic line. And the “Prosperity Phase” which continues from where the Recovery Phase ended to the peak of economic growth of that cycle. Before strategists realize that their business is losing money, the market is already heading for the trough in an economic cycle, so to say, a recession. So, they act in haste, to make up for their immediate loses. The result: what started due to their own lack of foresight, is addressed to, at the cost of the company’s brand value.
Statistics tell the same story. In the Recovery phase, 75% of companies, cut staff, advertising, customer service, R&D, product launches and acquisitions. Following the recession, less than 30% of these companies will never regain their market share and profitability, according to a survey published by Bain & Co. in the Fortune Magazine. 70% of the original 25%, who decided to invest in marketing and advertisement options continued their growth in the next 3 to 5 yrs, post recession and ultimately became market leaders.
Here are some cases in point:
Schlitz Vs Miller: During the early 1970s, Budweiser led the market share in the US beer market. Schlitz followed a close second while Miller was a lowly 7th. During the three recessions of ’70, ’75 and ’82, Schlitz cut its ad budget considerably. Miller kept increasing theirs. From ’70 to ’82, the beer market grew by 4%, while Miller grew by 31%, outpacing the market by a huge 27 percentage points. Coming out of the ’82 recession, Miller had a solid lock on the 2nd place behind Bud, where it still stands today. Schlitz is yet to recover fully from its revenue woes.
Ford Vs Chevrolet: During the 1920’s Fords were outselling Chevys 10 to 1. In spite of the Great Depression, Chevrolet continued to expand its ad budget. It merged with GM thus, for the first time gaining real potential to take a go at Ford. Chevrolets (under GM’s umbrella) ate into Ford’s pioneering and ubiquitous model T's market share throughout the 1920s. In 1927 Ford shut down for 6 months to tool up for the new Model A. During this period, Chevrolet surpassed Ford in total sales for the first time. This was the start of Chevrolet's winning tag-line of "More Car For the Same Money." In the late 1920’s GM surpassed Ford in total income and kept ahead until 1986.
Post Vs Kellogg’s: Again, during the 1920s both these companies were neck to neck in the fight, to be the market leader in the breakfast cereal domain. But come Great Depression, Post cut on their ad budget, while Kellogg’s increased theirs by 1 million dollars and introduced a host of innovations. A mail-in promotion made Battle Creek, Michigan a household word when millions of youngsters clipped and mailed in Kellogg's box tops for "Stuff-Yourself Nursery Rhyme Rag Dolls". Kellogg also established one of the first home economics departments in the food industry in 1923, the same year that Kellogg's Pep wheat flakes was introduced. The famous Kellogg's Rice Krispies began talking to consumers in 1927. These moves revolutionized the cereal industry during the time. Kellogg’s upward sales curve continued right through the Depression and profits improved from about 4.3 million dollars to 5.7 million dollars in the early 30’s.
Now, that we have seen that history bears testimony to the importance of advertising during a recession, the question that still remains unanswered is: whether there exists any proven formula which can be adopted by marketing heads while they strategise to put forth their product to the public, during an economic slowdown? At the risk of sounding equivocal, one could venture to say that the question can be answered with a yes and with a no. No because, a fixed set of rules, would not work for any and every industry. Also, policy makers need to improvise and adapt as the situation demands. That remains the most important rule for survival.
Given this, we can still afford to formulate a basic syntax of how companies should go about advertising, when times are slow, if we pay close heed to history. Concentrating on dependable advertising vehicles, would be one. Generally the bigger more established, proven properties are most effective. Recession is not a good time to experiment too much.
For most businesses, 70% of the customers won’t be regular ones. Most of the revenue that walks through the doors will be from the rest 30%. Naturally, the second strategy would be to target the right customer base. This controls advertising waste, and increases effectiveness. Thus giving businesses the opportunity to increase frequency and advertise, when their competitors aren’t.
This brings us, to the threshold of the most important idea, that could massively influence public opinion and rope in valuable revenue for the business. Frequency. Advertisers who pull back on expenses, also lose sight of the crucial importance of repetition. A far ranging study conducted by the Advertising Research Foundation found that low levels of advertising allowed minimal gains in awareness, while higher frequency triggered gains of upto 600% ! Frequency employs advertising’s unique ability to provide repeated messages. This boosts awareness, positive feelings about the product and consequentially product usage.
All said and done let’s keep it simple. The onset of a recession can be a very frantic time for businesses. Advertisement remains the sole liaison between a business and its customers. Maintaining a company’s advertising during an economic downturn will give the image of corporate stability within a chaotic business environment. If a company fails to maintain its ‘Share of Mind’ during an economic downturn, current and future sales are jeopardised. Maintaining ‘Share of Mind’ costs much less than rebuilding it later on. So, the writing on the wall is clear: When times are good, one should advertise. When times are bad, one must!