RECESSION-PROOF THINKING
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.
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 for 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 grew at a more rapid rate when the country's financial picture improved. This growth was achieved in both sales and net income.
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.
