Why you shouldn’t cut Adspend in a Bad Economy

Jan 3, 2018

In a bad economy, the first budget to be cut is usually the ad budget.

Why continue pushing sales when you know people won’t have the money to buy?  That is possibly not the best thinking.

It’s not guaranteed that 2017 will be tough year but it’s rather certain that it is going to be a tumultuous year.  And what does a tumultuous year mean for developing or third-world economies: more often than not, a bad economy.

Oil prices up, uncertainly around a US Trump presidency, Brexit, failing European economies and a chance of South Africa nearing or reaching junk credit status.

SA rates a place on to Time’s top 10 list — of the year’s biggest global risks

Marketers all around will be asked why they are asking for the same or increased marketing budgets, specifically ad budgets, when it looks like the bad economy will mean lower consumer confidence, lower sales and lower margins.

It’s a tough argument to have.  Every organisation has its needs for funds and launching a great, big new ad campaign in the context of what seems to many news channels as impeding disaster will always raise a few eyebrows and, possibly get a complete rejection from sound-minded finance managers.

In the last major global recession, global advertising matched the bad economy brought on an immediate pull-back on advertising spend and, going in to the following year, the adspend reduction was even greater.

Global Advertising and Nominal GDP Growth Source: Adapted from McKinsey&Company

Practically speaking, a strangle on funds means ad budgets are cut and, within the budgets, the exciting and innovative campaigns are withheld relying on the old trusted tactics to keep the brands working throughout tough times.  In today’s media world is usually means brands (a) keep the TV but at a lesser level (b) completely ditch anything new and exciting and (c) almost completely obliterate the ‘smaller ticket’ items like digital and activations which, often, are the most effective.

Brands that spend through a recession actually grow their market share because few others are spending.

Two studies showed that a large increase in advertising causes an increases in market share that is larger during a recession than during stable times or an expansion. During a recession, increases in market share are larger as advertising increases. The probable reason for both these results is that most rivals cut back on advertising during a recession.

Of course, not every organisation has the financial resources to keep plodding along blindly during a recession.

A media manager or marketer’s role in this situation is to develop multiple strategies based on scenarios – what to do if funds allow to use the time to gain share during a recession, what to do if budgets will most certainly end up being cut, and what to do if your funds dry up but your lesser competitors decide to use the ‘silence’ to spend heavily.

  1. Get an understanding of which of your major competitors are reducing their spend in a bad economy
  2. Adjust your media strategy based on the change in the competitive media landscape. If all your competitors are dropping their budgets, push to keep yours at its current level and you’ll get more of consumer attention
  3. Consider moving adspend from price promotions or short-term campaigns to big, brand-building activity. You’re building long-term growth.
  4. Be strong. Understand exactly how long you intend to keep your budget going. Ad spend (or media pressure) is a constant activity.
  5. If you know you are going to have a budget cut, don’t bury your head in the sand – plan ahead. Don’t go ‘silent’ because of a budget cut which you know was likely – rather have a ‘base level’ of spend based on the lower budget and add, for now, where you know you can spend.

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