A seminar held earlier this year, whose proceedings have been published by the IPA (the professional body for advertising agencies in the UK), proves that it pays to advertise during a recession. The IPA convened a seminar of leading consultancies in the field of the business effects of marketing communications. The objective was to see what lessons could be learned from the consultancies’ experience about the most profitable response to an economic downturn. The key findings were:

• Cutting budget in a downturn will only defend profits in the very short term
• Ultimately the brand will emerge from the downturn weaker and much less profitable
• It is better to maintain share of voice (SOV) at or above share of market (SOM) during a downturn. The longer-term improvement in profitability is likely to greatly outweigh the short-term reduction
• If other brands are cutting budgets the longer-term benefit of maintaining SOV at or above SOM will be even greater

The consultancies sharing their experiences were Millward Brown, Data2Decisions, Malik PIMS, and Peter Field using the IPA Databank.

Millward Brown presented evidence showing that budget cutting is liable to reduce consumers’ ‘bonding’ with the brand. Brand image and brand usage – two crucial elements in ‘bonding’ – suffered considerably when brands went dark (i.e. ceased to spend on communications) for a period of six months or more. This was particularly true in the more price-sensitive product fields. This may well be accentuated in the present economic downturn, where ‘buzz’ (online and offline word-of-mouth communication) spreads consumer views of brands much more quickly and extensively than in previous recessions.

Data2Decisions, an econometric modeling consultancy, providing evidence about the time-lag effect. Advertising’s long-term effect is typically greater than the short-term effect. During a budget cut-down, the brand will continue to benefit from the marketing investment of previous years, creating a dangerously misleading increase in short-term profitability. The long-term effect of the budget cuts will operate for several years, however; the short-term cutbacks will damage the brand for years to come. Diverting marketing expenditure into short-term price promotions usually damages the brand values and is also likely to be unprofitable.

Malik PIMS has a database tracking the economic performance indicators of more than 1,000 businesses over a period of many years. It showed that the most successful policy was to increase, not decrease, marketing effort during a downturn. The heightened share of voice leads to increases in consumer preference, and in sales and profitability post- downturn. Recession provides a window of opportunity for inexpensive gains in market share for those brands which increase marketing investment in the recession.

Peter Field, marketing consultant, analysed 880 case studies from the IPA Databank. Field was able to show that during downturn (and indeed during buoyant times) brands whose marketing share of voice was higher than their share of market tended to grow their share of market. An approximate rule-of-thumb is that for every 10 points that share of voice exceeds share of market, a brand can expect to gain one point of market share per annum. Conversely, brands which allow their share of voice to fall during a recession can expect their share of market to fall, to the same degree. By modelling a series of scenarios, Field showed that when cutting budgets in a recession, the short-term improvement in profitability was rapidly overtaken by a severe decline in profitability in the medium and long term – a decline that was liable to be acute by about the third year. Because of the partially-lagged effect on sales of marketing investment, the short-term result of cutting expenditure looks attractive for a short while but masks the considerable damage being done to longer-term profitability.

These compelling analyses did not break out results for individual media used in the marketing investment. For the most part, the sources do not contain sufficient data to conduct similar analyses based only on those brands for which (for instance) magazine advertising is a major component. Nevertheless it is clear that in principle the lessons apply to magazine advertising campaigns as much as to campaigns using other media.

For more information contact Janet Hull at the IPA (Institute of Practitioners in Advertising): janet@ipa.co.uk


For an Australian analysis which reaches similar conclusions click here

This review written by Guy Consterdine, FIPP Research Consultant