It’s no secret that global forces are to blame for the current economic recession. The downturn was brought on by the war in Ukraine, the cost of living crisis, and year-over-year inflation peaking at 9.1% in April 2022, now at 6.5% in January 2023. This has resulted in consumers spending less and brands struggling more.
This begs the question for marketers: When times get tough during a recession, should you increase or decrease your advertising spend?
Individuality Unleashed, Season 1, Episode 4
Benefits of increased advertising spend during a recession
While your C-suite might be quick to cut budgets in areas such as advertising and marketing, this may not be the smartest move. Here’s why:
Reap rewards in the future
According to a study by NTC Publications, “Marketers that increase their spending by an average of 48% during a recession win virtually double the share gains of those who increase their expenditures more modestly.”
This increase in advertising was associated with a drop in ROI of 2.7% in the short term, but helped companies in the long term see huge gains in a post-recession climate.
Peter Boolkah, award-winning business coach and speaker, wrote for Forbes, “As an entrepreneur, I understand the impulse to reduce marketing spending during an economic downturn. I did exactly that during the 2008 recession and have learned from my past missteps. Now I’m investing more than ever in marketing because I know this strategy will result in long-term gains for my business.”
Play the long game
Harvard Business Review reminds us, “Recessions are typically short-lived and followed by long periods of growth and prosperity. The period after World War II, for example, is considered the greatest expansionary phase in modern times. […] Each recession was followed by a longer period of growth than the period of recession.”
By focusing on brand awareness and loyalty now, you’re priming consumers to engage and shop with you during the inevitable period of upcoming prosperity.
Be proactive to achieve performance
A study from the International Journal of Research in Marketing found that, “Organizations with a strategic emphasis on marketing, an entrepreneurial culture, and slack resources engage in proactive marketing during a recession. […] Proactive firms achieve superior business performance in a recession. Thus, for the firms in our sample, it pays to deploy a proactive marketing strategy during a recession.”
“Brands and investors are always going to be nervous about poor economic climates, so advertisers end up pulling back ad spend,” says Greg Lawrence, Associate Director of Strategy Consulting at Wunderkind. “A lot of companies aren’t increasing their budgets, which creates two different paths. Either they see there’s a great opportunity to increase spend, as there’s less competition and therefore more opportunity to pull ahead of competitors, or they pull back and miss out. In the long run, it’s been proven that brands that are bold with their spending will be the big winners.”
The numbers speak for themselves. An Analytic Partners report shows that 60% of brands that increased their media investment during the last recession saw ROI improvement, and brands that increased paid advertising also saw a 17% rise in incremental sales. On the other hand, marketers who cut ad spend risk losing 15% of their revenue during a recession.
Companies increasing ad spend during a recession
Travel
According to MediaRadar, the travel industry is increasing its ad spend, as consumers are keen to make up for travel time lost by the pandemic. Airline advertisers collectively increased their spending by 128%.
Retail
Insider Intelligence predicts that US digital retail media ad spend will grow by 31.4% to reach $40.81 billion this year. By 2024, it’ll reach $61.15 billion, making up almost 20% of digital ad spending. Retailers continue to see the importance of ads, despite the economic downturn.
Non-alcoholic beverages
According to the same article, non-alcoholic beverage advertisers increased their spending by 14% in August 2022 leading up to the NFL season. For example, Coca-Cola increased spending by an enormous 67% that month.
Food
According to Business Insider, 84% of people are spending less on food; however, this means that restaurant and bar advertisers offering affordability and convenience are continuing to invest in ads. For example, Roark Capital (Arby’s, Dunkin, McAlister’s and Wingstop) increased spending by 52% year over year in August 2022.
Where and how should you increase your ad spend?
So how can you engage prospects with a strong ads strategy in these tough times? Harvard Business Review says, “Successful brand advertising during a recession not only injects humor and emotion, but also answers for consumers the question: How can we help?”
Here are our top tips for engaging your customers through advertising during a recession:
Know what matters to your customer: Your customer likely has less spare income at the moment and might be pulling back on spending. Whether you’re investing in their future interest or looking for immediate conversions, messaging surrounding budget will pique their interest. Wunderkind’s 2022 Consumer Insights Report found that 83.2% of consumers said price mattered most in their purchase decision, so let customers know if they can get a discount with you.
Treat your site as a source of revenue: Spending your marketing dollars on other companies bringing you limited traffic or conversions just won’t cut it. This is the year to own your data.
“You must consider your site the center of operations because investing in more and more third-party data will just mean prices will increase, then ultimately crash,” says Arushi Khosla, Senior Product Marketing Manager of Insights at Wunderkind. “The winners of the recession will be the brands that stick with their first-party data and realize that the eventual drop in Google Ads’ CPCs doesn’t actually change anything.”
Diversify your spend: The same way diversifying your stock portfolio is smart during a recession, the same holds true for advertising investments. This way, if any singular platform becomes uber expensive or doesn’t perform as you need it to, you’ll still have conversions and leads coming from other sources. Plus, it’s always important to meet your audience where they’re at (which is, well, everywhere).
Khosla advises, “TikTok had ‘new-commerce’ status last year, so a lot of people were investing ads into the platform. However, this was the perfect example of how there’ll never be this ‘ideal channel’ because of issues TikTok now faces with privacy and lack of scalability. Invest in your owned channels, guaranteed revenue, and high-quality ads. Channels such as TikTok have no guarantees, particularly during economic headwinds.”
Invest in high-quality ads: Cutting back your ad budget may involve choosing poor-quality or intrusive ads, which then leads to poor user experience and negative associations with your brand. Use trusted publishers and high-quality ad formats to ensure your brand grabs attention for the right reasons.
Reassure your customers: If your customers have a question, answer it. One-to-one marketing communications through text and email is a highly effective way to build brand loyalty. Texts have an open rate of 99%, so keeping your brand top of mind during the recession is key to driving revenue in the coming years.
“Brands that invest in things that matter—for example, retention and loyalty—will succeed,” Khosla concludes. “It’s vital to focus on core basics like on-site personalization and channel messaging that resonates with the consumer.”
So, should you increase ad spend during a recession? While it will depend on your company’s priorities, short and long-term goals, and financial standing, we say yes. The key is to provide a great user experience and diversify your ad spend. The more you put in, the more you’ll get out—and this will place your company in a good position when the recession finally comes to an end.