Over the past several months, uncertainty in the markets has grown substantially. Since the signing of the first executive order on February 1st implementing tariffs on foreign nations, the NASDAQ entered a bear market (when the market drops 20% below a recent high) and the S&P 500 neared that benchmark as well. In early April, the markets rebounded after reports that the announced tariffs would be postponed for 90 days. However, given the market volatility and uncertainty about tariffs in the future, we decided to take a look at best marketing practices if and when the threat of a recession becomes a reality.
A few years ago, at the height of the COVID-19 pandemic, we wrote this article (include link) about the opportunities that present themselves in a time of crisis. While obviously a very different situation from that of a global pandemic, a potential recession also has the potential to significantly impact a number of operations. These include consumer spending and purchase habits, profits and cash flow for businesses large and small, employment rates, and, in this particular instance, prices. But, in the midst of all this potential turmoil, such a scenario also provides opportunities for businesses and marketers that might not seem readily apparent.
For example, an economic downturn can lead to many organizations deciding to curtail their spending on advertising. With less demand for products, as is typical in a recession, companies will often reduce their expenditures to curb their losses. For those who decide to continue or expand their marketing efforts relative to their pre-recession strategy, they may find the opportunity to gain significant market share in their industry.
A great example of this occurred during the Great Depression in the cereal industry. As described in James Surowiecki’s 2009 New York Post article “Hanging Tough,”1 written in the midst of the 2000’s “Great Recession,” there were two leading cereal brands at the end of the 1920’s, Kellogg’s and Post’s. When the two companies faced the Great Depression, which began in October 1929, they each had a choice: decrease their spending on marketing, or maintain (or even increase) their advertising. Post’s chose the former, while Kellogg’s chose the latter, doubling its ad budget, aggressively using radio to advertise, and pushing a new product that would become one of its signature cereals, Rice Krispies. The results were striking: Kellogg’s profits had risen by 30% by 1933 and they had become the industry leader while Post’s became a brand decidedly second to Kellogg’s.
But this result is not limited to just cereal brands in a crisis as significant as the Great Depression. Brands across a wide variety of industries have seen similar outcomes in times of economic turmoil. Marketing consulting organization Renaissance Marketer2 references a study performed by McGraw Hill Research on 15 industries between 1980 and 1985, during which time a recession between 1981 and 1982 led the U.S. to experience the highest rate of unemployment since WWII. The study found that while the companies they analyzed had similar sales prior to the recession in 1981, those that did not cut back on their marketing during the economic downturn had sales that were approximately 70% higher in 1985 than those who made cuts to their marketing budget at any time over the previous 4 years. While certainly a lot has changed over the years, these two examples from different time periods show the importance of promotion even when it might seem less risky to pull back on spending.
Now that we’ve discussed the fact that increasing an organization’s marketing spend during a recession will likely increase sales, let’s dig into why this is the case. Ultimately, there are several factors at play:
1. Given the fact that many companies cut their advertising spend during a recession, brands that continue or increase their ad spend will be facing a less crowded, less diluted field of competition. As a result, these brands will make up a larger segment of advertising and consumers will be more likely to recognize and engage with that brand.
2. By being aggressive with a brand’s advertising spend, a company can assuage any fears that consumers may have in the face of an economic downturn. By increasing their expenditures, organizations are signaling that they are financially stable and can withstand any hardship, increasing confidence in the brand.
3. During the Great Depression, Kellogg’s ventured into radio advertising, which in the late 1920’s and early 1930’s was still a fairly new medium. Brands that invest and market in emerging platforms will not only take advantage of current opportunities in these media, but also position themselves as leaders in these channels in the future.
So, as we enter this era of economic uncertainty, there is the potential for many companies to undoubtedly once again decide to slash their advertising budgets in the coming months. If this happens, there will be opportunities for business growth for their competitors who do not shy away from tougher times. Remember, as the saying goes, fortune favors the bold.
References:
1. https://www.newyorker.com/magazine/2009/04/20/hanging-tough
2. https://renaissancemarketer.com/tips/unlock-the-power-of-marketing-conquer-the-top-3-business-challenges-of-a-recession/
Marketing During a Recession: Fortune Favors the Bold
