Why You Shouldn’t Cut Your Marketing Budgets in A Recession
By Conrad Arnavutian, Director at Touchdown UK
“I thought about it but decided not to participate.” – Walmart founder Sam Walton on what he thought about recession in 1991.
There are no easy business decisions in a recession. In fact, the very definition of a recession is even debated, making planning a nightmare for many businesses looking to make the most out of challenging economic times.
In this vein, cutting budgets is an age-old knee-jerk reaction that businesses often take ahead of periods of uncertainty. Marketing budgets typically suffer the most. The logic states to tighten your purse strings as much as you can through cutting unnecessary spend. In other words, frugality will help you win a recession war.
But this may not be the best course of action; cutting budgets, particularly from marketing, can have adverse impacts on your company’s growth and long-term success.
At Touchdown, we would advocate a much more strategic approach to marketing. One that incorporates a maintaining – or, in some cases, increasing – of marketing investments to position businesses for success.
Let’s explore some of the challenges associated with cutting marketing budgets in a recession.
Cutting budgets can damage brand visibility in the long run
During a recession, consumer behaviour can be unpredictable as spend becomes harder to measure; as a consequence, marketing budgets are hit and brand awareness takes a nosedive. An immediate, money-saving move may please investors and stakeholders in the short-term but is likely to have more serious long-term consequences.
After all, brand-building is a long game. It’s not about quick wins, short-term marketing activity but rather aligned more in the long-term strategic objectives of the business.
Jeff Bezos once said, “Your brand is what other people say about you when you’re not in the room” – but you won’t even have to worry about this issue if no-one is talking about your brand anyway. And this is why marketing is a vitally important part of maintaining brand visibility – it is the mouthpiece of your business. Without it, you have no voice. And without a voice, no-one’s going to hear you and buy your products.
Engaging customers to lock out competition
Without a voice, consumers will look elsewhere instead. Jeopardising market share in this way can open up the ground for other savvier competitors to seep through and meet customer needs. And cutting marketing spend can have different impacts across all channels. For example, if you specifically cut your SEO budget after prolonged organic efforts, the drop in rankings can be hard to salvage.
Similarly, if you take away reactive PR opportunities, your brand will lose out on simple ways to secure effective coverage. And you can bet your competitor will take that slot in an important national newspaper or breaking trade story if you don’t.
In a world of waning customer loyalty, keeping up customer engagement is one vital component in maintaining market share. So long as brands can bring an element of novelty to each interaction with customers over a prolonged period of time, they’ll continue to be engaged. Brands can ill afford for that engagement well to dry up.
Besides, it’s not as if during a recession consumers suddenly overnight decide they don’t want to guzzle fizzy drinks or play computer games. Customer habits will change gradually but won’t disappear. Removing your most prominent marketing efforts could risk communicating a sense of self-alienation; your presence isn’t consistent so consumers will look elsewhere instead.
Good times will return
Nothing is ever permanent, either. Data shows recessions since the 1950 have lasted anywhere between two and 18 months, with the average spanning roughly 10 months. Not many brands – with the exception of household names such as Apple, Coca-Cola and a handful of others – can afford to turn the lights off entirely.
Emerging back onto the market if you do opt to cut your budgets can be like starting from scratch; you’ll need to re-establish and redevelop your own position in the market and play catch up with your competitors as a result. Depending on your industry, the market may have become more saturated too. Re-entering a more saturated market can often be challenging, requiring more innovative and targeted strategies to stand out (see Sony and HTC, who struggled to maintain relevance after the late 2000s recession).
Keeping your budgets consistent in a recession – or using them in smarter ways – is the key to avoiding unwanted pitfalls.
Seizing the market advantage
Marketing budget cuts are, after all, the status quo. The real opportunity for businesses lies in those that go against this. As previously outlined, companies can ill afford for competitors to gain an advantage who may likely be maintaining or increasing their marketing activities.
Withdrawing your budget shows a business has no desire to evolve their approach and solve new pain points that arise during a downturn; conversely, maintaining them enables companies to differentiate themselves and gain a larger share of voice.
The market will evolve as will, like mentioned earlier, consumer behaviour. This isn’t all doom-and-gloom; new patterns and behaviours will create new niches and demands. Is cutting back on exploring these new-fangled territories really going to help you seize the moment?
Capitalising on lower advertising costs
One way of grasping these opportunities and quick wins lies in lower advertising costs. Traditionally during a recession, the cost of placing an ad decreases as demand from other advertisers also diminishes. This means that there is more inventory available to purchase, resulting in (from a digital point of view) lower cost-per-clicks (CPCs) for advertisers.
An example of one global brand that decreased marketing spend was McDonald’s. In the 1991 recession, the US food giant dropped its advertising budget; Pizza Hut and Taco Bell took full advantage, with their sales increasing by 61% and 40% respectively. McDonald’s own sales declined by 28%.
On the flipside, in the 2008 downturn, UK-based consumer goods company Reckitt increased ad spend for its high-performing brands, which saw company revenue grow 8% and profits by 14%. In the last recession alone, 60% of brands that increased media investment saw improvements on ROI.
Diversifying your digital marketing
Instead of cutting costs, a recession can be a great time to trial new channels. New demands and niches open up new platforms and opportunities to make your marketing dollar or pound go further. The digital landscape is, naturally, one of the more cost-effective ways to reach a wide audience, making it particularly valuable during economic downturns.
Each channel comes with its own set of advantages, too. From the ability of SEO (Search Engine Optimisation) to grow organic search presence, to CRO (Conversion Rate Optimisation) encouraging users to take action on content, as well as social media to serve customers with near-enough real-time brand experiences, diversifying your marketing portfolio is essential in having each channel checked off.
Avoid inertia. Seize the moment
While the instinct to cut marketing budgets during a recession may seem like a default choice for many businesses, it is essential to recognise the long-term implications of this decision. Smart marketing investments can be a driving force behind a company’s ability to thrive and grow during challenging economic times.
By partnering with Touchdown PR, businesses can develop strategic and data-driven marketing campaigns that sustain brand visibility, capture new opportunities, nurture customer loyalty and leverage the advantages of the digital landscape.