On 7th May the Bank of England forecast that the UK economy will head into its deepest recession on record.
At the end of 2019 with the political landscape in a slight state of turmoil and uncertainty due to Brexit, it was widely predicted that the UK would experience some sort of recession during 2020.
With the added impact of COVID 19 experts are now predicting a 14% drop in the economy over the course of the year.
The encouraging news is that the Bank of England expect the UK economy to bounce back in 2021 with a return to pre-COVID19 levels around the middle of next year.
In light of this news and with a downturn in revenue likely, many businesses will begin to make cutbacks. Often in these circumstances marketing and advertising budgets are the first for the chop. Indeed, in the US the 2008 recession resulted in a drop in advertising spend of 13%.
Whilst pulling back may seem like the most sensible thing to do during a recession, we should take heed of the old adage, “When times are good you should advertise. When times are bad you must advertise!”
There are various studies to support this argument and whilst the below example is nearly 40 years old, the findings of the study have been replicated in research carried out after recessions over the past 100 years.
McGraw-Hill research compared 600 companies across 16 different industries in the US during the 1980s. Their study showed that B2B firms who maintained or even increased advertising during the 1981/2 recession averaged significantly higher sales, not only after the recession, but also during the downturn. In contrast to this, those companies who stopped or reduced advertising saw sales flatten off during the recession and only a slight increase over the subsequent three years.
There are various reasons why this may be true, but here are some of the main benefits of continuing to advertise when others have pulled back.
· When brands stop advertising, they become invisible and fickle consumers can forget about them
· If other brands stop advertising whilst you continue to advertise, your share of voice will be bigger so your brand will stand out
· Continuing to advertise whilst times are hard gives your brand an apparent stability and an air of longevity
· Your agency may be able to negotiate better deals or added value for your campaigns. If other companies have cut back it is likely that some ad inventory isn’t being sold, therefore media owners may be more open to deals.
In summary, whilst it may sound counterintuitive, cutting advertising spend during an economic downturn does not lead to increased profits, in fact the opposite may be true. Maintaining, or even increasing spend, will give you a competitive edge and will stand your business in good stead for when the economy recovers.