In uncertain economic times, how should brands respond in regards to adspend? Slow down or accelerate?
Uncertainty in the economy not only exposes the weak brands in a category, but also the timid. From a brand management perspective, telltale signs of timidity include decreased marketing spend, delayed strategic initiatives, and inaction.
For bolder brands, uncertainty can be a friend offering an excellent opportunity to make a move on the market share of now apprehensive competitors. With the right leadership and a sound strategy, the timing couldn’t be better for a brand to make a big impact in a crowded category. This is well documented, but not widely accepted.
Fortune Favors The Bold
Procter & Gamble, the world’s greatest marketing company has a long record of doing very well in uncertain times, thanks to a simple but proven approach – advertise your way out. While its rivals cut back on adspend during the Great Depression, P&G’s president at the time, Richard Deupree, ignored the shareholders’ protests and increased its marketing investments after the 1929 crash. P&G went on to dominate share of voice in radio advertising which propelled the company into the 30s and secured an unassailable lead for the rest of the century.
No Lead Is Safe
While there were other key factors, uncertainty played a major role in Reebok’s defeat to Nike. The soft economy of 1988 witnessed many brands pulling back on their adspend. Reebok, a bold, new competitor had come from nowhere five years earlier to become the top selling athletic footwear brand in North America, displacing Nike and Adidas. Uncertain about the economy, Reebok’s senior leadership sought safety in playing not to lose. That is, they became passive and let their competitor back in the game at just the wrong moment. The once bold Reebok became the timid and powered down their momentum, bolstering a new campaign their competitor had launched called ‘Just Do It’. Nike saw the opportunity, accelerated and took a lead it has never relinquished.
Statistics Versus The Timid
Over the years, hundreds of studies have been conducted to prove that companies should maintain advertising during uncertain times…particularly during recessions. Let’s revisit the 1920’s to make the point. It’s here that advertising executive Roland S. Vaile tracked 200 companies through the recession of 1923. Then, in the April 1927 issue of the Harvard Business Review, he reported that companies that advertised the most achieved the biggest sales increases throughout the period.
After World War II, Buchen Advertising, Inc. decided to plot the sales of a large number of advertisers through successive recessions. In 1947, it began measuring the annual advertising expenditures of each company. After correlating the figures with sales and profit trends before, during, and after the recessions of 1949, 1954, 1958 and 1961, it became evident that almost without exception, the companies that cut back on advertising experienced a drop in sales and profits. Studies further revealed that these companies continued to lag behind the ones that had maintained their advertising budgets even after the recessions had ended.
In 1979 a study by ABP/Meldrum & Fewsmith, covering the recession of 1974-75 as well as post-recession years, showed similar findings. They found that “companies which did not cut advertising expenditures during the recession years (1974-1975), experienced higher sales and net income during those two years and the two years following than companies which cut ad budgets in either or both recession years.”
The findings of six more recession studies by the group presented formidable evidence that cutting advertising in times of economic downturns can result in both immediate and long-term negative effects on sales and profit levels. Meldrum & Fewsmith’s former Senior VP, J. Welsey Rosberg remarked, “I have yet to see any study that proves timidity is the route to success. Studies consistently have proven that companies that have the intelligence and guts to maintain or increase their overall marketing and advertising efforts in times of business downturns will get the edge on their timid competitors.”
The statistics mount with many more examples of businesses benefiting from increased ad budgeting during a recession. Remember Reebok’s defeat to Nike in 1988? Nike was not the only winner. A MarketSense study during the 1989-91 recessionary period showed brands such as Jif Peanut Butter and Kraft Salad Dressing increased their advertising and experienced sales growth of 57% and 70% respectively. Although most of the beer industry cut budgets during that time, Coors Light and Bud Light increased theirs and saw sales jump 15% and 16% respectively. Thanks to strong advertising support, sales of fast food chains like Pizza Hut and Taco Bell rose 61% and 40% respectively, while McDonald’s decision to pull back triggered a decline in sales by some 28%. MarketSense summarized the the study by reporting: “The best strategy for coping with a recession is balanced exploitation of ad spending for long-term consumer motivation, plus promotion for short term sales boosts.”
Uncertainty Is Certain
While the last seven paragraphs can make a strong case for accelerating adspend in uncertain economic times, unfortunately, it may not be strong enough. You can’t reason with those who have fallen into the uncertainty trap as they have become the timid. The path of least resistance in much too tempting, and furthermore, there are far too few Richard Deuprees leading brands today.
However, when soft economic times emerge, marketing oriented leaders and professionals can be encouraged by the success of the bold and the opportunities created by the timid.
Once again uncertainty will help decide the winners and the losers.
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