Spend, spend, spend…
Why should businesses increase their marketing spend in an economic downturn? We look at the lessons that can be learned from history.
For many, the Covid-19 pandemic has switched the commercial focus from growth to survival, as organisations have strived to safeguard their immediate futures and protect the livelihoods of workers.
No one saw this coming. And the instinctive survival mode response of battening down the hatches was to be expected. But where does the world of business go from here?
It should be remembered that commercial success has never been about just surviving the storms – it is about emerging from them thriving.
The ripple effect means that the decisions we make today, tomorrow, and in the weeks ahead may be still be felt in years to come. Get them wrong, and the impact can prove devastating.
So should businesses be firmly closing the lid on the marketing coffers, or is now the time for them to actually be increasing their share of voice?
When the call to continue, or even increase, marketing and PR activity comes from the mouths of marketeers, there will be inevitable scepticism – ‘well, they would say that wouldn’t they?’
The evidence to spend, however, and reap the rewards, is irrefutable. Although it may feel counterintuitive, history has clearly demonstrated that fortune really does favour the brave.
Those that have opted to double down on marketing – and wider business innovation – during recessions and economic downturns have profited, gaining a precious advantage over their competition.
Numerous studies have confirmed the returns on investment of pursuing this strategy. An analysis of the Profit Impact of Marketing Strategies (PIMS) database1, for example, has revealed companies that maintained or increased marketing spend during the financial crisis of 2007–08 gained an average market share of 1.3 per cent.
A separate study by McGraw-Hill2 found that companies increasing or maintaining advertising spend during the 1981-1982 recession enjoyed a dramatic increase in sales, both during and after the recession, of 256 per cent over those that chose to cut budgets.
So here we shine a spotlight on some of the companies that have held their nerve in the eye of the storm, and for whom positive marketing investment strategies have paid off.
When times are tough…
As the Covid-19 pandemic continues to disrupt life as we know it, Marketing Week3 reports that Procter & Gamble believes now is the time to remind its consumers of “its brands and their benefits, rather than cutting back on marketing spend”.
On a call with analysts CFO Jon Moeller said that while other companies were looking to cut media support, P&G was “doubling down”.
This has long been the Procter & Gamble approach.
“We have a philosophy and a strategy,” former Procter & Gamble CEO, A.G. Lafley, was famously quoted as telling The Wall Street Journal more than a decade ago. “When times are tough, you build share.”
Indeed if it weren’t for this philosophy, the company may never have made it this far. Look further back into the history books and Procter & Gamble’s decision to actively pursue new marketing opportunities, notably in radio, helped it survive the Great Depression of 19294.
Food for thought
During the 1990/91 recession McDonald’s opted to cut its marketing spend, according to Forbes5.
Restaurant chains Taco Bell and Pizza Hut took advantage, both deciding to continue with their marketing campaigns.
McDonald’s sales declined by 28 per cent. Taco Bell, meanwhile, increase revenues by 40 per cent while Pizza Hut’s sales grew by 61 per cent.
An appeal to the heart
Back in 2009, Tim Mahoney, chief marketing officer for Subaru, told us: “You can introduce a product during a recession and still do well if you do it right. Doing it right means being true to who you are and positioning the product properly6”.
Indeed, during the recession of the time, Subaru ran its now famous ‘Love’ campaign. Despite the economic crisis, Subaru gained a notable share of voice and in 2009 became the 11th most popular auto brand in America7, up from 19th just one year earlier.
Another company to thrive during the recession of 2009 was Amazon, which saw sales grow by a remarkable 28 per cent8.
Much of this has been attributed to the company’s commitment to continued innovation, including the launch and promotion of the Kindle. For the first time in its history, on Christmas Day 2009, Amazon customers bought more ebooks than printed books.
The creative route to driving success
During the 1970s, Toyota launched some of its most memorable marketing campaigns ever, using tag lines that included “You Asked For It/You Got It!” and the hit “Oh What A Feeling!”
Despite the recession of 1973-75, the company’s decision to continue investing in marketing saw it emerge at the end of 1975 as top imported car manufacturer in the US9.
Virgin Atlantic, flying high
During the global financial crisis of 2007-09, as the airline industry was seeing passenger numbers falling, Virgin Atlantic took the decision to increase its marketing spend with a focus on brand-building communications.
According to an entry into the IPA Effectiveness Awards in 2010, in January 2009 the company celebrated its 25th birthday by launching its ‘Still red hot’ campaign. While it was running, the campaign is estimated to have accounted for 20 per cent of company revenue, equating to a payback of £10.58 for every £1 invested10.
1Evidence presented at a March 2008 IPA conference.
2McGraw-Hill Research. Laboratory of Advertising Performance Report 5262, New York: McGraw-Hill, 1986.
3P&G ‘doubles down’ on marketing as demand soars, Marketing Week, April 2020
4Five Great Depression Success Stories, The Wall Street Journal, May 2019
5When A Recession Comes, Don’t Stop Advertising, Forbes, September 2019
6All Brands Are Niche Brands, Strategy+Business, August 2009
7Bloomberg Businessweek, May 2010
8Recession Reinvention, AdAge, October 2018
9Toyota company history, Toyota pressroom, April 2020
10IPA case study,’Virgin Atlantic: Still red hot, even in a downturn’, 2010