Advertising during a recession

How brands can set themselves up for post-recession success with a smart advertising approach

by Chase Anderson, Trader manager, MiQ

Throughout history, we’ve experienced many economic downturns. Within the last 100 years alone, we have seen the Great Depression in the 30s, the energy crisis of the 70s and 80s, and most recently, the Great Recession of 2008. 

And, right now, history is repeating itself, as the world slides into widespread economic decline, exacerbated by the shock of COVID-19 to the financial markets. Right now in the US, there has been something of a swift recovery, but as COVID-19 cases continue to surge throughout the country, we’ll likely see businesses shut their doors once again. In an effort to slow the spread of the virus, we will see yet another spike in unemployment, small businesses go under, and likely another downward shock to the markets.  

Recessions slash ad budgets

Recessions mean hard times for most businesses. And when businesses begin to see declines in sales and revenue, expenses are cut. Personnel, real estate, overhead, and future investments are streamlined. And, often, marketing and advertising budgets are first to be slashed, as they are viewed as a discretionary cost. 

Intuitively, this makes sense. While businesses struggle to keep the lights on, little focus and energy is spent on advertising. During slow economic periods, consumers are setting stricter spending priorities and often reduce non-essential purchases. So why continue to advertise your brand? 

Well, it turns out, the intuitive thinking might not be correct. 

Numerous studies have been conducted on the short and long-term impacts of advertising during declining economic conditions. McGraw Hill studied the 1980s recession between 1980 and 1985, in a study involving 600 companies from 16 different industries, some of which maintained or increased their advertising spend, and others who cut or reduced it. 

And their findings were clear: companies who continued to advertise during the two-year recession saw 256% higher sales than their counterparts post-recession. Those who chose not to advertise during the economic slump, saw virtually 0% market share increase and a rise in sales of only 18% once the economy regained traction.  

The adage that comes from their findings is:

In times of prosperity, you should advertise. In times of hardship, you must advertise. Now is the time to differentiate.  

Data makes the difference

The truth is, if you are able to continue spending on advertising as a business, there are huge opportunities created by recessions. While competitors hit the brakes on advertising dollars, uncertain economic times are key opportunities to gain share of voice – after six months, overall brand awareness to an average consumer decreases by 24%. And with today’s advertising technology, advertising investment can be smart and calculated, resulting in both short and long-term gains.   

After the collapse of the stock market during the recession of 2008, ad spending saw a reduction of over 27% across all channels. But, in 2008, advertising was still largely dominated by linear advertising (radio, TV commercials, site homepage takeovers, etc.) and virtually nothing was measurable or addressable to the user. The same message and branding was going to every user. 

Over a decade later, advertising technology has experienced a quantum leap. Programmatic, social, and search advertising (among others) now can address users on an individual or household basis. And, because we know that all consumers are not created equal, it’s now quite easy to bucket consumers into a few distinguishable groups (for instance, slam-on-the-brake spenders, reduced spenders, and well-off/luxury spenders). 

Each of these groups will respond to different kinds of advert. For example, a reduced spender will respond positively to an advertisement around saving money, while a luxury spender may see a TV commercial for a new car and be able to justify a purchase that, otherwise, could be postponed. It is important to tailor the messaging to each group for maximized return on investment. This is the first time in an economic slowdown that we have had the ability to get this level of granularity on an audience level. And, because of this, advertising budgets can be optimized to reach the right target audience. 

It makes it easier for marketing leaders to justify spending to the rest of the business. Brands now have access to data points that illustrate “if we spend x, our return on investment is y, and our sales increase by z%”. We can now quantitatively measure the impact that advertising is having on a company’s bottom line.

Targeted advertising now will reap long-term value

With advertisers having more advanced technology to reach their target users and determine the impact on revenue, the long-term problem of brand recognition is virtually erased. Those companies who are able to continue advertising during this period will keep their brand on the forefront of the minds of the consumer, likely setting them up for success when the economy rebounds. 

And in today’s data-driven world, where granular, tailored messaging is possible, it’s possible to optimize ad spend to reach exactly the right consumers in the right ways. 

For example, we know that, right now, most US consumers are at home and watching ever-more content through connected TVs (ie TVs that are online and addressable). Users who used to be reachable on laptops and smartphones are now to be found in a non-skippable, targeted OTT environment. This provides a unique opportunity to drive brand awareness to a user whose undivided attention is given to the program they are watching. 

In times of crisis and uncertainty, there is always a light at the end of the tunnel. The data shows us that many advertisers will cut media spend across all channels during downward economic cycles. And the data also shows us that increasing marketing spend during these cycles can pay off handsomely in the future with increased market share and sales. The conclusion is clear: if you’re able to continue spending on advertising, right now is the best time to do it.