Economists seem to be almost as certain as you or I about whether we’re going to stay in a recession or whether things will improve this next year. Some see doom while others see steady growth. At the same time, we are preparing for another election year, which means the leader (and his people) are going to do everything possible to make certain that things look good, at least until the election.
If a recession continues, or if management believes it will occur, many company managers will slash their advertising and promotional budgets – again – as part of what they feel are a series of prudent moves. Their reasoning is that a recession will mean lower sales and lower net income. They believe that cutbacks in discretionary expenses such as promotion can be easily made, and there won’t be any impact.
But, before making that move they have to ask themselves:
- What does advertising do for us, and can we achieve those same objectives with a smaller budget?
- Is there any cause and effect information available regarding companies that have cut their advertising budgets during recessionary periods as opposed to those who have maintained or increased their budgets?
- Can a recession be used to gain an advantage on the competition?
All too often, management not only looks at advertising as an expense but also as something that is carried out with the sole purpose of immediate sales.
This is partially true. But advertising should be viewed as an investment rather than an expense – an investment not only for short-term sales gains, but also for achieving long-range goals and developing stronger name and brand franchise. Strong and consistent advertising reinforces favorable attitudes toward your company and its products, not only among customers but also
among investors and the other publics you must influence.
In today’s industry, advertising is being used to assist in reducing the overall cost of doing business. The average cost of a business-to-business sales call has risen to over $500 (double the cost of 5 years ago), and on the average, each sale requires at least five sales calls. If advertising can substitute for one or more of the personal sales calls, the effect can be accomplished for pennies.
With the industry’s growing understanding and use of the marketing concept, advertising is being viewed as an integral part of the marketing mix rather than as an expense.
This would seem to indicate then that it is in the company’s best interest to develop and maintain an aggressive advertising policy, assuming they can expect a favorable effect on the company’s sales and income.
Cause and Effect
Today, there exists a large body of data that clearly shows there is a direct cause and effect of increasing or decreasing advertising during recessionary periods.
In summary, they show:
- Advertising builds strength: Companies that invest more in advertising over a period of years experience faster growth than those that spend less.
- Advertising speeds recovery: Companies that have increased their advertising during a recession have recovered more rapidly than their counterparts that have maintained or reduced advertising.
- Advertising affects sales: Organizations that have continuously increased their advertising investment have enjoyed similar increases in sales.
For example, Meldrum & Fewsmith Advertising and the BPA studied 64 business-to-business companies that advertised during a recent recession. Thirteen firms cut advertising an average of 20 to 50 percent during the two years of recession, while the remaining firms increased their advertising investment 30 to 70 percent during the period.
Those firms that increased their advertising stance not only continued to grow but also grew at a more rapid rate when the country’s financial picture improved. This growth was achieved in both sales and net income.