Putting the Economy in Perspective

It’s very difficult to stay away from constant bad news that has been hammering us, every day, for the past year. Most of the bad news comes from the media, with the occasional lament from friends, clients, and family members. Ironically, with a few exceptions, not one of these people is in a precarious economic situation. In fact, two family members recently went on cruises, a colleague just leased a new Volvo, and several friends and neighbors are undergoing remodeling projects.

So, if they aren’t worse off now than they were a year ago, why all the gloom and doom? Simply put, it’s fear. Fear of the unknown, or fear of what they anticipate COULD happen.

What happens when business owners and independent professionals react to fear? They start cutting back. Where? Often it’s in the very area they can least afford to do so: their marketing budget!

However, SMART Business Owners know that this is the worst possible thing they can do. That’s why their businesses flourish even while competitors flounder.

Here are some interesting statistics from Go-To-Market Strategies (which I encourage you to subscribe to) (http://www.gtms-inc.com/tip_marketingrecession.htm)

1970 recession year– American Business Press (ABP) and Meldrum & Fewsmith study showed that “sales and profits can be maintained and increased in recession years and [in the years] immediately following by those who are willing to maintain an aggressive marketing posture, while others adopt the philosophy of cutting back on promotional efforts when sales appear to be harder to get.” (1)

1974-1975 recession years– ABP/Meldurm & Fewsmith 1979 study covering 1974/1975 and its post-recession years found that “Companies 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.” (2)

1981-1982 recession years
McGraw-Hill Research’s Laboratory of Advertising Performance studied recessions in the United States. Following economythe 1981-1982 recessions, it analyzed the performance of some 600 industrial companies during that economic downturn. It found that “business-to-business firms that maintained or increased their marketing expenditures during the 1981-1982 recession averaged significantly higher sales growth both during the recession and for the following three years than those which eliminated or decreased marketing. (3)

Cahners and Strategic Planning Institute (SPI) produced their report, “Media Advertising When Your Market Is In a Recession.” It disclosed, “During a recessionary period, average businesses do experience a slightly lower rate of return relative to normal times. However, expansion times do not generate a higher level of profits than normal periods as might be expected.” This phenomenon was explained by an analysis of changes in market share.

“During recessionary periods,” said the Cahners/SPI report, “these businesses tended to gain a greater share of market. The underlying reason is that competitors, especially smaller marginal ones, are less willing or able to defend against the aggressive firms.” The study then pointed out that businesses that increased media advertising expenditures during the recessionary period “gained an average of 1.5 points of market share.” (4)

1990-1991 recession years – Management Review asked AMA member firms about spending during the 1990-1991 recession. “Fortune follows the brave,” it announced, noting that the data showed that most firms that raised their marketing budgets enjoyed gains in market share. Among the magazine’s sample, 15 percent reported “greatly decreased” ad budgets. Advertising was “somewhat cut” by 29 percent. “The keys to gaining market share in a recession,” concluded Management Review“ seem to be spending money and adding to staff. Firms that increased their budgets and took on new people were twice as likely to pick up market share. (5)

Beyond the statistics, why might it be more important than ever to market despite economic downturn? Strong consideration should be given to the idea that marketing plays a more critical role now than it did during previous recessions. While marketing’s role was once more informational than brand identity building, and considering that never more than today has the clutter factor been so great, relationships between customers and brands are critical. Relationship marketing has surged to the top of effective marketing campaigns as a means to keep an appropriate level of share of mind for purchase loyalty. Marketing serves to foster and maintain consumer-brand relationships. (6)

The effect on profits. From the Harvard Business Review, “Advertising as an anti recession tool,” comes the effect of cutting advertising on the bottom line. “The rationale that a company can afford a cutback in advertising because everybody else is cutting back [is fallacious]. Rather than wait for business to return to normal, top executives should cash in on the opportunity that the rival companies are creating for them. The company courageous enough to stay in the fight when everyone else is playing safe can bring about a dramatic change in market position.” In addition, the article points out “Advertising should be regarded not as a drain on profits but as a contributor to profits, not as an unavoidable expense but as a means of achieving objectives. Ad budgets should be related to the company’s goals instead of to last year’s sales or to next year’s promises.”