Many successful companies maximise long-term shareholder value by maintaining their advertising investment when the economy slows down and weaker competitors cut back on their marketing. This enables them – at lower cost than when the total market is growing – to build market share. A prime reason for this is that if competitors retrench, those who maintain or increase their adspend achieve a higher ‘share of voice’. Any reduction in these companies’ short-term financial performance is typically soon outweighed by their increased revenue and profit growth when economic conditions improve.

These are the conclusions of Professor Patrick Barwise of the London Business School. He has conducted an extensive review of the evidence about different advertising strategies in recessionary times. He advocates three positive strategies for coping in a recession:

• Look for new creative, targeting or media opportunities. Slower market conditions can create new possibilities.
• Strengthen your market position against weaker rivals, through your marketing strategy.
• Keep going. The advantages of maintaining or increasing marketing effort are greater than the short-term benefits of reducing spend. Maintaining or growing ‘share of mind’ is much less expensive than trying to rebuild it later on.

Analyst Tony Hillier examined marketing and financial data on 1,000 firms held in the PIMS database, and classified the firms according to whether they had cut, maintained or increased their marketing spend during recession. Then he looked at the profitability of each firm. He found that during economic recovery the firms which cut their marketing spend in the recession experienced on average a small fall in profits. Those which had maintained their marketing spend experienced a small gain in profits. But those which had increased their spend in recession enjoyed a substantial increase in profits during the economic recovery.

These firms showed a similar pattern in terms of changes in market share of sales. During the recovery phase the people who maintained spend in the recession gained market share at the expense of those who cut spend, while those who increased spend in recession made large gains in market share during the recovery.

Hillier concluded “The natural reaction of many businesses experiencing a downturn is to cut costs in areas like advertising and promotion. Our findings prove that they should do exactly the opposite if they are to ride out the recession and thrive thereafter.”

The full report is called ‘Marketing To Manufacturing: Why it pays to advertise’

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