by Martin E. Thoma
Pick up the paper on any given morning and you’ll get a crawful of economic depression. Ben Bernanke still won’t call it a recession, but every other soothsayer seems to think the sky is falling. The signs are certainly there: spiraling fuel costs and mortgage defaults; plummeting consumer confidence, construction starts and home sales; death throes for Bear Stearns, Countrywide and others. Spooky stuff for business leaders.
In contrast to the last ditch we crawled through (the one following the dot-com implosion and September 11), none of my clients is running for the exits. But perhaps your firm is combing the books for cuts. Every experienced marketing manager knows his or her budget is at risk in a downturn. After all, marketing dollars make easy pickings —there’s little apparent downside to saving these discretionary dollars — “at least until things pick up again.”
The facts indicate otherwise. In reality, slashing marketing during a recession is disastrous strategy. History shows that for the confident, forward-thinking company, a recession is not a storm from which to hide but a crucible in which to grab market share and position for a much more profitable future.
Since World War II, we’ve experienced nine recessions, each averaging about a year in duration. That means we’ve had six expansionary years for every recessionary one. At the end of each of these recessions, consumer spending was actually about 9% higher than when it started. How’s that possible? “Recession” is a reflection of total GDP, and is formally defined as “a decline in real gross domestic product in two or more successive quarters.” So even in a shrinking economy, consumer spending can grow — and obviously tends to do so.
Smart, savvy companies have seized this opportunity. While competitors retrench, slash budgets indiscriminately and wait for the economic indicators to refuel their confidence, the leader swims against the tide and bids for greater market share.
A McGraw-Hill study of 600 industrial companies following the 1981-82 recession showed that those companies investing against the trend posted average gains 40% greater than non-investors within the first year. The longer view was even starker: from 1980 to 1985investor companies grew revenues 275%, while firms that cut their ad spending grew sales only 19% for the same period. In the severe 1974-75 recession, the comparative sales index was 13% higher for marketers than non-marketers in the first year — and rose to 30% higher four years later.
A 1990 study examining 339 consumer marketers found that those who aggressively increased ad spending (by 20% to 100%) gained 0.9% market share while those that moderately increased spending (1% to 19%) gained an average share of 0.5%. Those that reduced spending gained 0.2%. (Of course that last figure may encourage the budget-cutters—“Hey, if the averages hold, we can cut spending and still grow share.”)
Even way back in the 1930s, Goldman Sachs noted that Kellogg maintained its advertising through the Great Depression while Post did not — leading to Kellogg’s domination of the dry cereal market for the next half-century. So much for waiting “until things pick up again.”
Can we prove a cause-and-effect relationship between recessionary marketing and market share growth? Not necessarily. But at least six studies investigating recessions between 1960 and 1990 indicate a strong correlation.
Marketing is a long-term discipline that requires an investor’s mentality and fortitude. History is clear: a recession is an opportunity for the strong to get stronger and the weak to get eaten. It certainly sounds contrarian at first, but with storm clouds looming, it might be time to increase your budget!
>> Part Two: WHAT TO DO NOW >>
Martin Thoma is a principal with Thoma Thoma, a brand growth and marketing firm serving clients throughout the United States. He is co-creator of The Brand Navigator System, a comprehensive program for discerning, defining and articulating brand power. Reach him at firstname.lastname@example.org or Skype martinethoma.
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