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Marketing Budgets: Why They’re the First Cost Cut, and Why They Should Be the Last

Whenever a recession or any kind of economic downturn hits, consumers and companies alike become more cautious with their money. Customers aren’t buying as much, which means that businesses have to find costs to cut to stay afloat. And since the customers aren’t buying, the thinking goes, why not cut advertising expenses?

Statistics demonstrate how big a negative effect a recession can have on advertising. For example, in the first quarter of 2009 (right after the 2008 downturn), ad spending in the U.S. fell by a whopping 10 percent. Yikes!

But what the statistics also show, and what many business owners don’t immediately realize, is that continuing to invest in marketing and advertising (including promotional products!) during a recession actually tends to benefit a business.

What Makes a Business Owner Cut Marketing Costs

We all know what the basic answer to that is. The business doesn’t have as much money coming in, but the bills still have to be paid and the accounts settled. Therefore, a business owner will think about cutting costs in order to continue operating.

why-it-happensBut why reduce the advertising or marketing budget first? It isn’t just because, for most businesses that aren’t ad agencies, marketing is a function that’s secondary to what the business primarily offers, whether that’s clothing or food or even a service like a haircut. Plenty of other reasons for putting the marketing budget up first on the chopping block have been suggested. After all, it’s not as if a brand’s social media presence will disappear overnight, or a company’s customers will suddenly forget all about it after years of marketing. Companies have some leeway when the economy gets tough.

Even with those justifications, however, scaling back ad dollars is recommended only as a temporary solution. Not only will those customers eventually forget if a company doesn’t work to keep its name out there; as research suggests, a recession might actually be the best time to advertise.

What the Evidence Says About Reducing Ad Spending

An economic downturn affects businesses at almost every level of profitability. Even companies that are successful can expect to see lower profits than they did when the economy was healthy.

What’s interesting, however, is that cutting ad spending during a recession hasn’t been shown to make companies any more profitable. In 1990, advertising guru Stephen King (not to be confused with that Stephen King) published a paper that demonstrated that “…businesses that cut their advertising expenditures in a recessionary period lose no less in terms of profitability than those who actually increase spending by an average of 10 per cent.” According to King, reducing ad spending doesn’t help the bottom line.

why-it-failsIn fact, according to another study, reductions in ad spending may have actively hurt companies in the past. Buchen Advertising’s look at data from the 1949, 1954, 1958, and 1961 recessions suggested that companies that advertised less during those periods not only saw fewer sales and lower profits – they also experienced less growth than their competitors in the years after the recessions. A look at data from the 2008 recession suggests that companies had a hard time regaining their market share after that one as well.

As if the potential loss of profits wasn’t enough, there’s also the flip side to consider. That’s right – numerous studies and anecdotes suggest that advertising when the economy is bad can lead to growth:

• During the Great Depression, General Motors pioneered the use of outdoor billboards and radio to advertise its budget brand, Chevrolet. Although Ford had been a leader in the automotive industry for years, by 1931, Ford was consistent being outsold by Chevy.

• According to a study of the 1974-1975 recession from American Business Press and Meldrum and Fewsmith, “[c]ompanies which did not cut marketing expenditures experienced higher sales and net income during those two years and the two years following than those companies which cut in either or both recession years.”

• According to McGraw-Hill Research’s look at the 1985 recession, companies that either maintained or increased their ad budgets during that time experienced a 256 percent increase in sales versus companies that cut their ad budgets. Yowza!

• And according to a 1990 study from the WPP Group’s Center for Research and Development, companies that increased their ad spending by 20 to 100 percent saw an average gain of 0.9 percent of the market share, while those that cut spending only gained 0.2 percent of the market share.

What these examples suggest is that when companies continue to advertise during a recession, they keep their names in the minds of consumers, so that when customers do have money to spend, they’re more likely to turn to the brands they readily remember.

Of course, there are some other numbers, like the 2002 analysis that suggested that companies that increased ad spending during the 2000-2001 recession saw no uptick in profits, most likely because everyone increased their ad spending.

So what are the best ways to stand out, justify your marketing budget, and find a good balance between spending wisely and growing your business?

What the Experts Suggest Doing Instead

Advertising in a stale economic climate is different from advertising during a period of economic expansion. You’re reaching out to customers who have become especially careful with their finances, which means you might have to try new techniques:

change-it-up• Change which values you promote. The 2008 recession saw car manufacturers like Nissan focusing less on ideas like road trips and more on ideas like mileage per gallon to appeal to consumers’ frugality. Focusing on prices and temporary discounts can be risky, of course, because consumers tend to get accustomed to price cuts. Some experts instead suggest promoting a sense of community in your advertising and using a “We’ll get through this together” approach.

Change your taglines. The appliance manufacturer LG was known for its slogan “Life’s Good” for some time. During the late 2000s, this rang a bit hollow to consumers dealing with unemployment and underemployment. Awareness of your customers’ experiences can go a long way, and your slogan can channel that. That’s why Wal-Mart chose to promote itself during with the tagline “Save money. Live better.”

Change the way you advertise. Take a look at your advertising expenses, and figure out which ones provide the best value for what you spend. Mass media advertising might not be the format generating the most leads; meanwhile, the affordability and personal touch that direct mail provides might allow for just the immediate sales boost and long-term brand exposure you need.

When you’re looking at your company’s expenses during tough economic times, your advertising and marketing budget might seem like one of the easiest expenses to cut. Just remember that consumers still notice advertisements during an economic recession; the companies that advertise the most will reap the greatest rewards when the economy finally turns around.

Are you a business owner who reduced advertising expenses during tough economic times? What was your result? Let us know in the comments below!

expand your brand



Sheila Johnson

Sheila Johnson is a member of the Content Team at Quality Logo Products. Prior to joining QLP, she worked freelance in a number of capacities, including writing, editing, digital art restoration, and sorting stuff in a warehouse, because money is money. She enjoys birdwatching, hiking, and reading, which doesn't make her sound old at all. Other likes: dark chocolate, comics, science, socks with bright patterns. Dislikes: how cold her toes are ALL THE TIME. You can connect with Sheila on

Comments

  1. PMO

    These stats are amazing!

    To think a simple tweak to advertising could help increase sales is pretty damn cool. And, during a recession too!

    Great article, Sheila. Very informative and full of great things to share with clients. Thank you!

  2. Kelly Bird

    This is SO true! No matter what the economy you have to spend money to make money. Sometimes it hurts the pocketbook a bit but losing business in slow times hurts even more. When times are tough you can’t afford NOT to advertise. Keep your brand in front of your customers to stay in it for the long haul. Think of advertising for your company like investing in your own business…if you stop advertising when things are slow it’s like pulling your own stock…in yourself! The expert sales team at QLP are great at helping you get the most bang for your buck and advertise effectively, even on a budget. It doesn’t have to break the bank to create a successful marketing plan using effective and creative promotional products to keep your business ahead of the competition.

  3. Ashley

    Avoiding marketing expenditures, even in the “stale” marketplace as Sheila discusses, can be a terrifying decision that makes your brand equally as stale. From the perspective of retail, when it comes to thinking about the items I am looking to buy, my trust in a certain brand to make a reliable product is easily one of the two most important factors in my decision making process, next to cost. And while all of us love it when word of mouth advertising is enough for businesses to get the message out about their quality good or service, sometimes we need to expedite that process and help get the word out ourselves. That is what makes advertising, and especially promotional products so important. The reality is getting your name in a customer’s hand is almost as important as getting your good or service to them. And if you can continually see a company name and logo in our presence, you can begin to build that positive relationship with a brand.

  4. Jon

    Listen to Sheila people! She brings up great points. You can’t expect to grow your company year over year without infusing money into your marketing spend and getting your name out there. I have heard that spending less on marketing will affect your bottom line, and this makes the most sense . . . why else would companies like Pepsi, McDonalds, and Nike keep spending so much money on advertising? They have more brand awareness than anyone else – but they spend millions keeping it that way because they need to keep that exposure up.
    This article has great numbers to back up what I tell my clients everyday – hope even more are listening!

  5. Jon

    Listen to Sheila people! She brings up great points. You can’t expect to grow your company year over year without infusing money into your marketing spend and getting your name out there. I have heard that spending less on marketing will affect your bottom line, and this makes the most sense . . . why else would companies like Pepsi, McDonalds, and Nike keep spending so much money on advertising? They have more brand awareness than anyone else – but they spend millions keeping it that way because they need to keep that exposure up.
    This article has great numbers to back up what I tell my clients everyday – hope even more are listening now!

  6. Jay

    Great read! I’m going to save this one and send it to every customer I have who faces any sort of budget cuts 😉

    I personally don’t understand cutting your marketing budget, ever, but I’m also privy to the fact that QLP grew leaps and bounds during the economic downturn that started in 2007/2008. Even large companies are relying less on things like expensive TV and radio ads and more on social media, which is where getting some swag will earn you style points with the increasingly valuable blogger/IG celeb and any other type of tastemaker you can think of. Woah… off topic! Either way, there is always a way to either cut other corners not called ‘marketing’ when trying to save money or if your balance sheet came up a little short last quarter. The best part is that we’re all experts in this type of thing! Give us a call and we’ll lead you in the right direction to make sure you save money and still get a nice return on your investment!

  7. Darcy

    Thanks for posting this! A very interesting read.

    Unfortunately, is seems that some corporate executives don’t see advertising as an investment, rather than as an expense.

    Adversity should mean that businesses be smarter, with more effective and targeted advertising.

    A great quote from Stuart H. Britt: “Doing business without advertising is like winking at a girl in the dark. You know what you’re doing, but nobody else does.”

    Cheers!

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