Recession Gives Advertisers An Unfair Advantage.

Detailed research into the role of advertising during a recession shows that advertisers taking an aggressive approach can gain significant market share and sales, as their competitors cut back. Nicola Lockey, VP Strategic Planning at J. Walter Thompson Technology, says: “we have collected research studies and data which show that smart advertisers enjoy increased market share and sales for up to five years after the recession is over”.

McGraw-Hill’s Laboratory of Advertising Performance analyzed 600 companies during 1981-1985, and found that business-to-business firms that maintained or increased advertising during the 1980-81 recession enjoyed an average sales growth of 275% over the preceding five years. A study conducted by Cahners in 1980, among 200 companies, demonstrated that those, which increased advertising expenditure, gained on average 1.5 points of market share. Furthermore, once these gains are made it is harder for the competition to catch up.

Since 1854, there have been 28 recessions in the United States. Over the past half century, the average recession lasted 11 months, according to The National Bureau of Economic Research — so the window of opportunity is short. Possibly the most significant fact about recessions during this period, is that consumer spending went up during each one (from 1.14%-11.04% in 1990-1991 – US Department of Commerce). “People don’t stop spending, they spend more carefully,” explains Lockey. “The latest Gartner Dataquest figure shows that IT spending will increase 11.6% this year over 12% in 2000. Relevance of message is key to maximizing the opportunity.”

Value for money becomes important across the board. Currently, less competition for media space means that advertisers can stretch their media dollars further, adding to the increased share of mind they can achieve. “There is a dotted line between increased share of mind, increased share of market, increased profitability and value in share price,” adds Lockey.

This is particularly important in the highly competitive technology sector. Research just completed by EDN/Cahners, titled “The Mind of the Engineer”1, reveals that 84% of design engineers rely on ads in trade publications to gather new information . Moreover, stability is a key factor in choosing a vendor, and technology companies, which cut advertising, have no visibility and are often assumed to have disappeared.

Intel is a classic example. During the 1990-1991 recessions, the company increased capital spending, accelerated investments, and launched the “Intel Inside” brand campaign. “Most companies look at advertising and branding as luxuries or discretionary expenses, and they cut a bunch during a recession,” notes Robert Atkins, vice president at Mercer Management Consulting in Boston. “But Intel realized that was exactly the time to differentiate itself.”2

Executives who try to play catch-up once the recession hits will lose out to companies who have already set their plan into motion, maintains Adrian Slywotzky, vice president at Mercer Management Consulting in New York. “There are outstanding opportunities for companies that are prepared. It’s easy to increase your relative competitive position.”3

1. “Mind of the Engineer V:What Design Engineers Expect from Vendors”; EDN/Cahners Research, 2001
2. Investor?s Daily; “Be Mindful of What You Cut During Economy?s Slowdown”; March 23, 2001
3. Sales and Marketing Management; “Recession-proof marketing”, Apr 2001