“Buy low, sell high” applies just as well to market and mind share as it does to stocks.  Astute marketers recognize that the current weakness in economic activity can be turned into an opportunity for growth.

In fact, a recent global survey of chief executives conducted by McKinsey & Company found that 20% of organizations plan to increase their marketing budgets over the next year.  Now, what do these firms know that the 45% planning to reduce budgets don’t?  Simply that advertising investments during a recession can pay off handsomely.

At a recent luncheon seminar hosted by Marketing Intelligence, Kapil Jain, Ph.D., shared insights into the historical impact of increased advertising investments during recessionary times.  As discussed in the session, a Special Report for the Marketing Science Institute by researchers Gerard Tellis and Ketha Tellis documents numerous studies showing the positive effects of advertising during economic downturns.  In one study, analysis of advertising expenditures by 822 firms during the 1990-91 recession found that those that maintained or increased their advertising budgets had a 7% increase in sales during 1991 compared to nonexistent growth for firms that decreased their advertising expenditures.  The gap only increases through time, reaching 25% by year four (1995, as shown in Graph A).

Similar conclusions can be reached when considering market share rather than sales revenue.  As weak competitors struggle to survive, their market shares get split among the survivors.  Therefore, simply continuing marketing activities through the recession leads to a typical market share gain of about 0.5%.  However, research further illustrates that recessions offer the persistent advertiser an opportunity to have a greater share of voice in the market, which can lead to a greater share of the customer’s mind.

Most importantly, staying engaged with the marketplace during these turbulent times can result in a deeper understanding of the ensuing changes in customers’ needs and buying patterns and subsequently position the firm for even faster growth during the next upswing.  In fact, the data suggest that increasing advertising during a recession by up to 20% increases market share by 0.5% versus gains of only 0.2% share for firms that reduced their advertising budgets.  Among firms that increased advertising by over 20%, the average market share gain was 0.9%. (See Graph B)

Economic downturns lead to declining revenues and an almost automatic emotional response to reduce spending, often across the board.  This is especially true if budgets (e.g. for advertising) are set as a percentage of sales.  The better move, however, is to consider carefully the new opportunities that result from the economic upheaval and to be more strategic (i.e., think longer term) and smarter (i.e., be more efficient) with your marketing investments.

– Courtesy of Marketing Intelligence

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