Why it is important to invest in communications during an economic downturn

Compiled by Marco Forgione, IVCA Chief Executive

2009 is likely to be a challenging one for many members due to the financial uncertainty.  As part of our ongoing commitment to add value to our members, support the industry and provide member focused services, we have put together a selection of comments which highlight the business benefits of continuing to market during a recession.  The current climate offers brands opportunities to build market share and establish clearer brand loyalty.  This though can only be achieved through effective communications.  Large companies have the opportunity to cement their position as market leaders, while smaller companies can take advantage of the decrease in marketing noise to increase market share.

The current communications landscape is different from the time of the last recession in a number of key ways.  At the time of the last recession interruption marketing was still in the ascendancy.  The internet was uncharted territory.  The development of social networks, media platforms and the potential of digital communications were in the very early stages of incubation.  All of which meant that marketing was far more about informing rather than communicating and certainly very little about creating a genuine dialogue, syndicating messages or building sustainable relationships.  Successful brands develop relationships with their clients, be they internal or external.  Like any relationship if they now become introspective, reduce their commitment or dramatically decrease their dialogue then their partners will quickly leave.  The cost of such short-termism will be dramatic, revenues will fall, brand identity will be tarnished, positioning will be lost and market share reduced as customers shift to competitors.  Internally the effects could be even greater with team moral falling and the communications vacuum filled with rumour and speculation.  The combination of these internal and external pressures will mean that the brand will be more vulnerable during the difficult times and less able to take advantage when the economy turns.

At this time of year there are any number of people making their predictions.  I don’t intend to add to this number but there are a some of trends which will develop over the next year;

  • Government spending on communications will continue at least at the same rate as last year there is a raft of new legislation and initiatives which Government will want promoted – the £275 million health campaign is just the beginning and with a General Election due in less than 18 months key ground work will be laid.
  • Traditional advertising spend will be hit harder with brands looking to move more to digital and adopting a more social networking approach to their communications.
  • There will be further growth in sponsored content marking a return to the time of the profession’s nascence with Grierson and Tallents.
  • Internal communications will be essential as brands reorganise
  • There is the strong possibility that mergers and acquisitions will increase later in the year demanding more strategic communications
  • Mobile content and applications will reach their tipping point

Below are some comments and views regarding the importance of communicating during an economic downturn.  If you have or know of other commentary or research on this issue please do forward it to me.

Quotations

"It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times."
Professor John Quelch, Harvard Business School

“We have a philosophy and a strategy. When times are tough, you build share."
AG Lafley, CEO, Procter & Gamble

“An analysis of the Profit Impact of Marketing Strategies (PIMS) database, presented at a March 2008 IPA conference compared the results achieved by companies that increased, maintained, and reduced marketing spend during recession. Metrics used were Return on Capital Employed (ROCA) during the recession, ROCA during the first two years of recovery, and market share change during the same period of recovery. While companies that cut marketing spend enjoyed superior ROCA during the recession, they achieved inferior results after the recession ended. During the recovery, the “spenders” achieved significantly higher return on capital employed and gained an additional 1.3 percentage points of market share.”
Nigel Hollis, Chief Global Analyst, Millward Brown

Research

McGraw-Hill Research
In a study of U.S. recessions, McGraw-Hill Research analyzed 600 companies from 1980-1985. The results showed that business-to-business firms which maintained or increased their advertising expenditures during the 1981-1982 recession averaged significantly higher sales growth, both during the recession and for the following three years, than those that eliminated or decreased advertising. By 1985, sales of companies that were aggressive recession advertisers had risen 256% over those that didn't keep up their advertising.

Meldrum & Fewsmith
Meldrum & Fewsmith studies of the 1970 and 1979 recessions 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." and "that companies which did not cut advertising expenditures during the 1974-75 recession, 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."

Roland S. Vaile
Advertising executive Roland S. Vaile tracked 200 companies through the recession of 1923. In the April 1927 issue of Harvard Business Review, he reported that the biggest sales increases throughout the period were rung up by companies that advertised the most.

Buchen Advertising
In 1947, Buchen Advertising tracked advertising dollars versus sales trends before, during and after the recessions of 1949, 1954, 1958 and 1961. Not only did it find that sales and profits dropped off at companies that cut back on advertising, it also found that, after the recession had ended, these same companies continued to lag behind those that had maintained their ad budgets.

Cahners Publishing Company
Cahners Publishing Company, together with the Cambridge-based Strategy Planning Institute (SPI), released a report in January 1982 outlining the results of an extensive study which showed that during recessionary periods, those businesses which advertised aggressively 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 aggressive firms. The study also pointed out that businesses which increased media advertising during the recessionary period gained an average of 1.5 points of market share.

MarketSense
MarketSense compared 101 household name brands during the recessionary period 1989-1991. Jell-O, Crisco, Hellman's, Green Giant and Doritos saw sales drop by as much as 26-64%. Jiff peanut butter raised ad support and sales went up 57%; Kraft salad dressings saw a rise of 70%. In the beer category, overall spending was down 1% while Bud Light and Coors Light, each spending ahead of the category, saw sales increases of 15% and 16% respectfully. Pizza Hut sales rose 61% and Taco Bell's 40% thanks to strong advertising support, with McDonald's volume down approximately 28%.

Marketing Week
Reflecting the pressure marketers feel to prove their initiatives are working and perhaps the need to justify a particular strategy in the first place, 24% predict their spend on market research will rise, the same number believe investment in data will increase. Indeed, 42% of marketers believe they will make greater use of research to justify spend or monitor effectiveness.
Despite the growing pressure, most marketers (66%) think their company will allow them to continue investing in the brand, albeit with moderations in spending and under greater scrutiny. Marketing Week YouGov poll 4 December

References

www.millwardbrown.com/Sites/MillwardBrown/Media/Pdfs/en/POV/5E807F3C.pdf

"How Advertising in Recession Periods Affects Sales," American Business Press, Inc., 1979

ABP/Meldrum & Fewsmith study, 1979

McGraw-Hill Research. Laboratory of Advertising Performance Report 5262 New York: McGraw-Hill, 1986.

Kijewski, Dr. Valerie. "Media Advertising When Your Market Is in a Recession,"

Cahners Advertising Research Report. The Strategic Planning Institute, 1982

Greenburg, Eric Rolfe. "Fortune Follows the Brave," Management Review, January 1993

Khermouch, Gerry. "Why Advertising Matters More Than Ever," Business Week, August 2001

Dhalla, Nairman K. "Advertising as an anti recession tool," Harvard Business Review, Jan.-Feb. 1980

Marketing Week

Brand Republic