Credit Crunch & Recession? Advertise your way to safety

13th May, 2008

First of all the media was full of the credit crunch, then it was economic slow down but now the dreaded 'r' word has started to rear it's ugly head.

Several indicators suggest the UK in 2008 is at least in an economic slow down; house prices are falling, many companies are announcing reduced profits and the figures from the British Retail Consortium (BRC) out today suggest that the high street suffered its worst performance for three years as retail sales fell for a second consecutive month in April.

Simply put, in a recession your customers are likely to spend less, so your revenues and profits go down! As a consequence many business managers take out the hatchet and cut their marketing budgets to save costs. But is this the right thing to do?

Well that depends on whether you see your marketing budget as a cost or an investment. The smarter business manager thinks of marketing as the latter. You'd expect me to say that but there is evidence to support the case for maintaining or even increasing your marketing spend in times of recession.

According to The Strategic Planning Institute of Cambridge in the US, a recessionary market can provide an opportunity for businesses to build a greater share of market through aggressive advertising without reducing short term profitability. Conversely, businesses that reduce media spend suffer a loss of market share.

How does this work? The explanation is broadly based on what we call 'share of voice' ( the percentage one company has of the total amount of advertising directed to a targeted group). In a recession, some companies reduce their advertising spend, which allows those companies that maintain or increase their spend to steal market share from them.

This has been borne out by a number of studies over the past 85 years. In1923 a study of 200 companies found that the biggest sales increase were found by those companies who advertised the most (Roland Vaile). In 1947 a study found that companies cutting advertising spend lost market share and continued to lag behind their competitors even after the recession (Buschen Advertising). More recently, in 2002, a study of 3500 US companies found that those who maintain or increase their marketing see share increase twice as big as those as those cutting marketing (PIMS).

This suggests that success in a recession is not just about being 'brave' and continuing to advertise but it also requires that at least some of your competitors aren't so bold and are cutting back. There are also additional factors at work in a recession as advertising (especially TV advertising) often becomes cheaper due to reduced demand. So the same advertising spend buys you more media.

So if you are looking at the headlines over breakfast tomorrow and read 'economic doom and gloom' then call a marketing meeting when you get in to the office and plan a new campaign.

Jason Edge

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