Economists seem to be almost as certain as you or I about whether we’re going to stay in a recession or whether things will improve this next year. Some see doom while others see steady growth. At the same time, we are preparing for another election year, which means the president (and his people) are going to do everything possible to make certain that things look good, at least until the election.

If a recession continues, or if management believes it will occur, many company managers will slash their advertising and promotional budgets – again – as part of what they feel are a series of prudent moves. Their reasoning is that a recession will mean lower sales and lower net income. They believe that cutbacks in discretionary expenses such as promotion can be easily made, and there won’t be any impact.

But, before making that move they have to ask themselves:

•           What does advertising do for us, and can we achieve those same objectives with a smaller budget?

•           Is there any cause and effect information available regarding companies that have cut their advertising budgets during recessionary periods as opposed to those who have maintained or increased their budgets?

•           Can a recession be used to gain an advantage on the competition?

Smaller Budget

All too often, management not only looks at advertising as an expense but also as something that is carried out with the sole purpose of immediate sales.

This is partially true. But advertising should be viewed as an investment rather than an expense – an investment not only for short-term sales gains, but also for achieving long-range goals and developing stronger name and brand franchise. Strong and consistent advertising reinforces favorable attitudes toward your company and its products, not only among customers but also

among investors and the other publics you must influence.

In today’s industry, advertising is being used to assist in reducing the overall cost of doing business. The average cost of a business-to-business sales call has risen to over $500 (double the cost of 5 years ago), and on the average, each sale requires at least five sales calls. If advertising can substitute for one or more of the personal sales calls, the effect can be accomplished for pennies.

With the industry’s growing understanding and use of the marketing concept, advertising is being viewed as an integral part of the marketing mix rather than as an expense.

This would seem to indicate then that it is in the company’s best interest to develop and maintain an aggressive advertising policy, assuming they can expect a favorable effect on the company’s sales and income.

Cause and Effect

Today, there exists a large body of data that clearly shows there is a direct cause and effect of increasing or decreasing advertising during recessionary periods.

In summary, they show:

•           Advertising builds strength: Companies that invest more in advertising over a period of years experience faster growth than those that spend less.

•           Advertising speeds recovery: Companies that have increased their advertising during a recession have recovered more rapidly than their counterparts that have maintained or reduced advertising.

•           Advertising affects sales: Organizations that have continuously increased their advertising investment have enjoyed similar increases in sales.

For example, Meldrum & Fewsmith Advertising and the BPA studied 64 business-to-business companies that advertised during a recent recession. Thirteen firms cut advertising an average of 20 to 50 percent during the two years of recession, while the remaining firms increased their advertising investment 30 to 70 percent during the period.

Those firms that increased their advertising stance not only continued to grow but also grew at a more rapid rate when the country’s financial picture improved. This growth was achieved in both sales and net income.

The results have been similar in every advertising investment study conducted since the 1920s. The first study, conducted by Roland S. Vaile, covered advertising and sales of 200 firms between 1920-1924. He concluded that a definite spread occurs between sales of firms that increase their advertising and those that decrease it. He added that, when intensive advertising during the depression was part of the sales technique, sales were maintained in better volume than when advertising appropriations were cut.

Recessions and Competitive Edge

For more than 80 years, advertising agencies and publications have been telling client management that a recession provides a unique window of opportunity for those firms that are market driven.

Marion Harper, former president of McCann-Erickson once said, “A time of recession is the most favorable time for a change in competitive positions. Companies that are second in their fields, by applying extra pressure and devising creative strategies, can gain advantages that they can carry into times of prosperity. Whatever their position, if companies wish to be growth companies, they must certainly behave like growth companies.”

Charles Brower, former president of BBDO, stated, “Instead of waiting for business to return to normal, you should be cashing in on the opportunity your overly cautious competitors are creating for you … the fact that your competitors are pulling back can make your advertising dollars look and act even bigger. There are few things as detrimental as a lapse in advertising. It costs much more to get advertising momentum up than it costs to keep it going. Once you let momentum die, you must start almost from scratch again.”

The producer who maintains his or her normal level of promotion when competitors have reduced theirs soon finds that they gain a similar increase in competitive share of market. It provides a rare opportunity for management to change market position. Then when business improves, they will grow at a much higher and more profitable rate.

One of management’s most important roles is to exploit competitive opportunities. While most management teams tend to hold off on being aggressive until all of the marketing variables are favorable, this action puts you right back in the middle of the pack so that you are competing with all of your competitors.

Taking this approach, some of your advertising investment is an expenditure since you have to vie head-to-head and toe-to-toe with your competition rather than taking advantage of opportunities.

In today’s refinement of marketing warfare, the winner is the one who takes optimum advantage of every strategic and tactical marketing blunder by his or her competition. The smart marketeers acknowledge that economic cycles are elements in the marketing battlefield that have to be used to advantage if the firm is to improve its position and increase marketshare.

Reprinted with permission

By Andy Marken, President, Marken Communications