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Crisis Advertising

The Importance of Investing in Marketing During a Recession

It’s been widely known that a global recession is coming our way. How long it will last or how hard it’s going to hit us is not yet certain, but many people and businesses are already feeling the blow. Multiple companies have been forced to close their doors as a result of the strict, but necessary, measures and policies that have been imposed in countries all over the world. For those businesses that have managed to find a workaround, it’s still highly probable that they are compelled to cut budgets, fire staff or even stop their operations after all. 

Koen van den Brink

Intern Data Analyst

Apr 30. 2020

A recession comes with change

One of the consequences this recession will bring is the fact that consumers will have to sit at home for a longer period of time and will start to watch their budgets and expenses more closely. This is why it’s expected that brands that offer more low-priced products will do well and that products or services that require minimal advertising costs will become more prominent. Businesses focusing on the mid-market, however, will face most of the expected problems. 

Many marketers are looking at a difficult time in which pressure, from management teams to show the results of their marketing investments, will increase. Any budget that will be made available now, is more costly than it has ever been before. For any organisation in times like these, however, it’s especially crucial to focus on good marketing. This means that marketers themselves will have to adapt to the current situation as well.

What can we learn from previous recessions?

This is definitely not the first recession the world has seen. Due to experiencing these tough periods before, we now have the chance to see what has worked for businesses and people in the past. Even though a crisis comes with a lot of destruction, many new opportunities arise too. 

The recession of 1920 and 1921

Research done by Roland Vaile and Reavis Cox on the recession of 1920 and 1921 had found that companies that kept investing in advertising, managed to drive more sales and growth than any of its competitors. 

This had been done by dividing and comparing the performances of 3 different groups of companies; those that did not believe in advertising, those that started to cut on advertising and companies that invested extra in advertising. 

Not only was the increase in sales and growth for companies that invested in advertising visible during the recession, but this also managed to persist afterwards. On the other hand, however, companies that had cut advertising continued to see a decline in their performance in the following three years after the recession. 

The crisis of 2007 and 2008

During the infamous credit crisis in 2008, more research into the way how companies handled their budgets had been conducted. This revealed that businesses that had cut their marketing budgets fared better during the recession, but experienced negative performances post-crisis. 

In contrast, companies that actually started to invest more in marketing during the crisis showed to perform better in the post-crisis period and experienced an average growth in market share of 1.3% after the recession. 

The Importance of Investing in Marketing During a Recession

3 Factors for succeeding

On first thought, it might seem contradictory that companies that cut budgets during crises are worse off than those that started investing. This, however, can easily be explained by three factors:

  • The relationship between market share and share of voice.
    Share of voice (SOV) implies a brand’s share of advertising of the available portion of advertisements in a competitive marketplace. The greater the SOV compared to the market share of a brand, the greater the growth they’ll achieve during and after a recession.
  • The relationship between brand size and profit margins.
    Larger brands typically experience more repeat purchases and recuperation of their marketing investments than smaller brands. This is why you’ll see that companies that invest in brand awareness during a crisis, will benefit from higher profits once the economy recovers. It’s not without reason that the saying goes: ‘’Out of sight, out of mind’’.
  • Less pushing by competitors offers opportunities for your brand.
    New products that are launched during recessions tend to have a greater and longer-lasting impact during these times than during others. A unique product or a product that is comparably better than its competitors can charge higher prices, even if there are more price-conscious consumers.

    Competitors, who are afraid, may be late in releasing these products and lose their chance to stand out. And due to the decrease in media advertising costs, advertisers are now able to buy more ads with the same amount of money.

Your customers are changing

Eventually, consumers will always adapt to the new living conditions that exist. Especially now, it’s essential to take another look at who your customers are and how they are coping with the crisis. The last few weeks have shown us that difficult times bring people together to help and support each other. Another trend that we can see, is that consumers are spending more (and longer) time online. 

A mistake that is easily made right now, is to only look at how your customers might have behaved during a previous recession. What your customers did back then and what they will do now may differ very much. Who your customers have become now is far more important than who they have been back then. 

“If your competitor is cutting costs on marketing, it may provide your business with the opportunity to acquire a stronger market position after the recession.” 

On the one hand, we now know that it’s important to understand who your customers (currently) are and how they are behaving, and that cutting costs on marketing will have a negative impact on your business on the long run. Setting up the right marketing activities to support this, on the other hand, is a different story. 

In times of great uncertainty, it is important to make your marketing activities measurable and to analyse the data you collect. This way, you are able to find out how your customers are responding to your efforts and how you can continue to improve on this. 

Now that your customers’ behaviours are changing, so should your marketing approach. Pursuing a process in which you continuously improve, is essential. 

The Importance of Investing in Marketing During a Recession

What growing businesses had in common during previous recessions

Companies that saw significant growth during and after the previous recessions had the following factors in common:

  • They took action early on a crisis
  • They had a long-term vision
  • They focused on growth, instead of cost savings

Resilience. That’s what businesses need to strive for this upcoming crisis. Those who have built up a financial buffer in recent years, now have a better chance at acting on arising threats and/or opportunities. Businesses with shorter planning- and decision-cycles, are now able to react quickly when new information is made available.

Work towards growth

In a recession, it’s difficult, but very necessary to look for specific factors that will help your company grow. It’s important to, as a company, now tackle the problems and opportunities of your organization together. During a crisis, weaknesses emerge that would otherwise not be visible as quickly. 

Technological developments haven’t come to a halt either. If you can bring about a technological innovation during the crisis, it will increase your chances of gaining more market share in the future. Considering well in advance what you will spend more and/or less budget on, is the key to success.

The Importance of Investing in Marketing During a Recession

The demand for products is shifting

During a recession, the demand for various product categories will respond differently. This forces you to take another look at your own product categories and ask yourself how the demand might shift for them.

  • Consumers will be more likely to take longer when buying products that are more expensive. Consumers are doing more research into the products, available alternatives and are more likely to negotiate on prices. ‘’Basic’’ products without additional features will become more popular than their more extensive versions. 
  • Standard products will be examined more closely, considering the fact that people are becoming more price-sensitive/conscious. More research will be done by consumers when buying high-quality products, while cheaper products will be bought more easily, as consumers tend to now ignore luxury products.
  • Service providers that offer long-term agreements with their customers will be hit less hard than services with shorter contracts. 

Which category your offering belongs to has a strong impact on how your business will perform during a crisis. Whether you should invest more in your Share of Voice is also related to this. 

If a company is striving to increase its market share with 1%, it will have to invest 10% in its Share of Voice. If your offerings are in the categories where less growth is expected or if your category is in a downward trend, however, it may be better to keep your focus on saving costs. 

Your customers don’t want to ‘’lose’’ you.

Although many consumers now have less to spend, they are still looking for ways to buy their favourite brands. They will mainly look for discounts, bulk purchases at a cheaper rate or they will wait for things to go on sale. 

During a recession, it’s important to show the added value of your products. That ought to be the reason that people will continue to buy from your business. During difficult times, companies need to focus on their brand images and highlight what makes them different from other brands, in the perspective of their customers. 

Pay extra attention to your competitors

It’s crucial in times like these to keep a close eye on your direct competitors. ‘’How are they handling this situation?’’. If they are cutting back on their marketing budgets, it creates an opportunity for your business, but if they start investing more in marketing, it could pose a threat that could hit your company hard. 

It’s also important to ask yourself questions such as: ‘’How would your competitors react if you started investing more in Marketing?’’ ‘’Would they also start investing more?’’ If that is the case, little is likely to change for you in that perspective. ‘’Are there any competitors who are dropping their prices?’’ If so, watch out. While you may think you can’t ask a higher price for your offerings, you should also ask yourself if you want to partake in a price war, 

Customers will still associate a lower price with lower quality. Whether you are investing extra budget in marketing or not, the most important thing is that your audience keeps hearing from you. 

Working with limited marketing budgets: Here’s what you can do:

Here are 4 strategies you can implement if you are dealing with smaller marketing budgets (taking into account that more people are currently staying at home because of the COVID-19 policies):

  • Content marketing

A convenient and relatively inexpensive way to reach your target group is by utilizing content marketing. Creating content that fits your customers’ needs will take some time, but it enables your audience to access and read it at any given time they like. If you do it right, you’ll even be able to increase your visibility and findability (SEO) on search engines like Google, over time. 

  • Social media

Your target audience is spending their time online on social media, now that they are forced to stay at home. To maintain and improve your business’ brand awareness, increasing your presence on social media is a great and relatively inexpensive way to go about it.

By creating and posting organic content and using this to run ads, you will be able to show your target audience that you are very much still there! The costs for advertising on social media is also currently decreasing, as the competition for ad space is decreasing (other companies are cutting costs). After all, it works just like a stock market. 

If the demand decreases, the costs will drop as well. The graph presented below, created by Gupta Media, shows that there is a 50% decrease in costs. This means that you could reach twice as many people with the same amount of budget as before. 

Understanding the effect of COVID-19 on Facebook Ads (by Gupta Media)

You can check out Gupta Media’s live dashboard here
  • Search engines

Like social media advertising, the costs of advertising via search engines has also decreased quite significantly. Now that your audience is spending more time online and spending more time researching products before buying them, it also means that they are making more use of search engines. 

The decrease in costs and the increased use of search engines by your target group, in combination with the right content marketing, is ideal for increasing your brand awareness.  By combining the use of content marketing, social media and online advertising, you can still reach your target group in each phase of their customer journey. 

Looking for tips on how to run your campaigns during the current COVID-19 outbreak? Click here for a 6-point checklist.

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