The Counterintuitive Approach: Why Increasing Your Marketing Spend During a Downturn Is Smart
And why cutting Back (understandably) Can be absolutely disastrous.
Marketing during a economic recession or Downturn
Everyone seems to be talking about a recession in 2023 and you must have been living under a stone if you are not already prepared/preparing (or running a truly solid business that’s printing money).
Many companies are projecting lower revenues in 2023 and have already started triming down their costs by firing staff and getting rid of perks and benefits. Others have cut marketing budgets and reduce media spend. However, is scaling back on marketing the right approach in an economic downturn?
A great deal of evidence suggest that this isn’t necessarily the right idea. In Peter Steidl’s book, “Survive, Exploit, Disrupt: Action Guidelines for Marketing in a Recession” he notes that companies who increased spending during a recession actually saw a 4.3% increase in profits compared to those that cut spending (0.8% increase).
In this article, we will explore why it is important to continue marketing during a recession. Want to know what strategies to take? We have discussed the 6 marketing strategies to take advantage of in an uncertain economic climate here to help you grow your business faster.
Maintain or increase market share
During a downturn, consumer spending decreases, making it much more challenging for companies to maintain sales and profitability. However, investing in marketing during this time can help companies maintain or increase their market share by reaching and engaging with consumers.
While some companies might be faltering due to bad management or excessive debt, you should absolutely take advantage of the opportunity to make use of the 6 marketing strategies discussed here to reach a wider audience and build relationships with potential customers. This will allow you, as a well-capitalised company, to grow brand awareness while your competitors are on the quiet end. In fact, projecting strength, even when you might be financially impacted like the others, can boost your reputation in the eyes of your customers and suppliers – because nobody wants to deal with a possibly failing company especially in such times.
Keep in mind that there’s decreased competition for media space because other companies reduce spending and cut marketing budgets. This means that you can stay relevant to a larger group of audience while spending significantly less on advertising costs, positioning your business as a leader and grabbing more market share from your competitiors.
For example, Procter & Gamble increased its marketing budget during the recent Covid-19 crisis because as a long established company, they knew that staying in the game and increasing visibility in such times will allow them to “come out of the crisis stronger than [they] went into it”.
Remain top-of-mind with consumers and retain customer loyalty
Just because customers have cut back on spending, it doesn’t mean they are not spending at all or completely unaware of the brands that keep advertising.
Continuing your marketing strategy helps to keep your brand top of mind with consumers and drives customer loyalty. It might seem like a painful decision as short term, you are spending more money, however, long term wise, the decision to this will help you retain current customers and build relationships with new ones to help your company grow.
Customers that need to make the purchase even in a recession will see your brand being advertised and naturally gravitate towards it as they see it as the only solution being advertised and might perceive it as the only option available in the market. Customers that delay their purchases due to a recession will still buy from companies whose messaging they’ve been constantly exposed to once the recession is over because from their perspective, your company was everywhere and so they remember you. Therefore, unless you think that demand for your product will completely vanish after the economic crisis is over, a recession is the perfect time to focus on building long-term brand equity.
This is clearly demonstrated in Expedia-owned vacation rental marketplace, VRBO ‘s recent marketing approach during the pandemic. One of VRBO’s competitor in the vacation rental market is Airbnb who had a nearly 20% market share. When Covid-19 hit, Airbnb took a step back with its marketing spend while VRBO spent nearly 10 times more than Airbnb in advertising. As a result, after the pandemic was over, VRBO saw its bookings recover by 61%, while Airbnb saw its booking dipped by 15% over the same period.
This shows that marketing loudly while the rest of the competition is quiet provides the perfect opportunity for long-term growth moves. History shows that companies that have maintained or doubled down on their marketing budgets come out greater on the other side and create an influx of opportunities to edge out competitors and make real strides in the market.
Stand out from competitors and appear strong
As a business, you do not want to reduce your marketing budget and visibility in the market place when there is a economic downturn as it shows signs that your business is vulnerable. Competitors who perceive your company as weak can take advantage of this to capture some of your customers. Suppliers who perceive the same may approach your competitors.
During a recession, companies tend to experience higher customer churn. This is often due to a variety of reasons such as lack of advertising, poor customer service due to firing, less value being offered due to budget constraints or simply just the business failing. This will result in some of the customers who were working with other companies to be in the market for a new provider.
This disruption to the market gives you the perfect opportunity to fill the gap. You can offer competitive pricing, provide additional value and leverage customer feedback. All these will help you show potential customers that they can trust your business and help you drive sales during a recession.
Weathering the economic storm and coming out stronger on the other side
While short-term savings are important, businesses that continue to invest in brand visibility by maintaining their marketing strategies ultimately realize longer-term profitability.
As we have seen in previous recessions and crises, cutting back on marketing during a recession makes brands less competitive. It also makes it hard for your business to take off again after the recession is over compared to other companies that have remained consistently top of mind with consumers. You are basically ‘chasing the competition’ at that stage rather than setting the pace.
A recession is often there to shake down those weaker businesses who did not have their fundamentals right. However, if you are prepared and execute the right marketing strategies, then your business can emerge stronger after the economic downturn and grow faster.
Don't cut back!
By taking a counterintuitive approach to marketing during a downturn, you can set your business up for long-term success. However, that does not mean being reckless with the marketing budget. In fact, being strategic with marketing dollars will allow your brand to continue the conversation even in a tight market.
Brands that boost spend will see success in the long run. After all, marketing is a necessity to stay in business.
The key is to remember that the recession will not be there forever. There will be brands that gain market share through great products, great experiences and a strong brand promise, and there will be those that miss out by being shortsighted.
Slashing marketing budgets could set you up to be on your back foot when the economic recovery inevitably begins. Focus on long term growth and you will be able to fully take advantage of the opportunities available when the market is down.
At Grow Faster Marketing, we specialize in helping businesses of all sizes develop and implement smart marketing strategies that maximize ROI and drive growth in such times. Our strong value-based business approach towards marketing will certainly help your business stay ahead of the competition and grow faster.