Advertising in an Uncertain Economy
Recession, the dreaded R-word, has been used a little more than any of us would like lately, as the U.S. economy slows down. Whether it is used with a small 'r' or a capital "R", the reality is that advertisers across North America are carefully thinking through their options as they review 2008 and 2009 business plans.
How to grow (or maintain) a brand/business in an uncertain economic climate has been a challenge that marketing and sales professionals have wrestled with for decades.
The common question is: Why advertise in a recession? The short answer is: Because it is very smart business!
Market experience tells us that it pays to advertise in tight times: strategically consistent, appealing advertising leads to long term sales and a healthier market share.
The McGraw-Hill Laboratory of Advertising performance tracked actual market experience during previous recessions. The results were clear: those companies that maintained advertising emerged into the boom years that inevitably follow stronger and more successful.
History tells us that companies that cut advertising spending during a recession and then restored it to normal levels thereafter achieved an average sales increase over the next five years of 79%.Those that maintained ad spending throughout the recession saw a higher growth of 132%.
McGraw-Hill repeated its measure in a later recessionary environment and discovered that companies that maintained ad spending throughout saw an average sales growth of 275% versus only 19% growth for those that cut advertising. In fact, data shows that it is easier to gain market share in bad times than in good.
PIMS(Profit Impact of Market Strategy) data, gathered and analyzed by the Strategic Planning Institute in Cambridge, Massachusetts, provides detailed marketing and financial information for thousands of brands and businesses over time. Therefore, it is able to relate advertising expenditures to sales and profit performance.
PIMS data suggests that in good times, the average company actually loses one tenth of a point of market share each year because expanding demand brings new players into the market; players that steal business away. However, PIMS claims that in recessionary times, the average company gains 0.63 points.
Those gutsy companies that boosted ad spending by an average of 25% in a recession picked up 1.5 share points. To have achieved that level of share growth in ordinary times would likely have required significantly more advertising investment.
Advertising in a recession is arguably the one time when the sheer presence and consistency of advertising in the marketplace provides consumers with much needed stimuli and reassurance.
So, should advertisers continue to spend during a recession? The evidence suggests that companies that reduce their advertising expenditures during periods of economic distress create a
self-fulfilling prophecy, losing hard-fought sales and share ground to more forward looking competitors.
---- Courtesy of Magazines Canada
Article taken from: Enterprise Magazine Vol.10 No. 2 Pg. 41 - April 2008
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