The business landscape is challenging, to say the least. For some sectors, dire is the more apt descriptor. But regardless of sector, businesses the nation over are hurting. When consumer confidence and spending decline, so too do sales and profitability for all but the most insulated sectors. When hard times befall American businesses, belt tightening becomes the name of the game in an effort to stay afloat. And what is often the first expense cut during a downturn? Marketing. A company’s marketing budget is one of the easiest costs to trim, and it comes with the added advantage of not necessarily having to lay off any key staff. But precedent indicates that one of the best things a company can do during a recession is to invest more into marketing budgets.
Marketing budget basics, pandemic edition
The idea of increasing one’s marketing budget is predicated on the assumption that your business isn’t in dire straits. If you’re scrapping just to keep the doors open, then increasing your marketing budget may sound like pie in the sky (and for some firms, it will be). But, if your business is slower but not at risk of going under, recessions are the best times to invest a larger percentage of your operating budget into marketing.
In analyzing the Great Recession, the closest modern analog we have to the pandemic, the Harvard Business Review concluded that in previous recessions, “…companies that were able to increase share of voice by maintaining or increasing their advertising spending captured market share from weaker rivals. What’s more, they did it at lower cost than when times were good.”
What’s more, HBR concluded that on “average, increases in marketing spending during a recession have boosted financial performance throughout the year following the recession.”
Simply put, ad rates go down during recessions because there’s less demand for ad units. You get more bang for your buck each buck you spend on advertising. If your competitors trim their ad budgets in response to the downturn, you can increase your share of voice just holding marketing budgets steady. If you invest more into marketing, though, you can further increase your share of voice and do it at a discount.
Now, all of this is predicated on your firm’s relative economic health, your sector, your target customer, etc. Obviously one size doesn’t fit all when it comes to budget allocations. That said, for those companies with the wherewithal to increase their marketing budgets at a time like this, the rewards on the other side of the recession could be hefty.