Do you really want to cut your ad spend now? (Image credit: Jo San Diego on Unsplash)
Adspend: Should you really think about cutting it in (or near) a recession? Consider the contrary path to success.
Inflation has now exceeded 9%. Production and transport costs have risen noticeably this year for various reasons. Consumer sentiment is falling for the first time since early 2020. Contradictorily, these recession indicators suggest it’s actually the perfect time for e-commerce companies to advertise, rather than signaling a tightening of marketing budgets.
For over 100 years, studies have shown significant increases in revenue and brand awareness for companies that increase ad spend during an economic downturn.
Budgets are limited, opportunities are not
With a recession now in play, many companies are considering cutting their budgets for the next fiscal quarter, particularly ad spending. While this may be conventional wisdom, CEOs should reconsider this advice. As the saying goes, “recessions make most millionaires.”
This is partly because those who take advantage of the discounts available in a downturn will see the highest returns on their investment once the economy turns around. Another counterintuitive reality is that, as was learned during the Great Recession, “Brands that cut their advertising budgets more than their peers were at greater risk of losing stock,” said Nova CEO Kunal Gupta in a LinkedIn post.
Businesses that can maintain or increase advertising budgets can not only benefit from lower CPCs, but also gain market share and increase consumer awareness as fewer little guys compete for the same audience. It may seem rudimentary, but increasing a company’s ad spend, especially during a recession, will increase the company’s Share of Voice (SoV) while others go silent.
As a result, the company and its products are being discussed by more and more customers. This will translate into increased market share (SoM) and then increased profits, even during recessionary challenges.
Smaller companies can be more agile
In a recession, difficulties often hit smaller companies first. Small businesses already have tight margins, and when economic headwinds hit, they can’t afford higher production and shipping costs, to cite just one example.
Stock markets, feeling the weakness of smaller companies, have already discounted this reality, and Shopify’s share price plummeted nearly 75% in the first half of 2022.
A smaller company, due to its smaller size and market share, can orientate itself much faster and more strategically than larger companies that are overlaid with bureaucracy. By increasing your ad spend—and using it wisely—you can beat your weight and hear your voice far beyond your paper SoV.
You don’t have to be the pioneer to finish first
This kind of risky marketing during a recession might feel foolhardy; it is not. There are many historical success stories from previous recessionary periods. Kellogg’s famously doubled advertising spend during the Great Depression, and for decades thereafter dominated the cereal market over Post. Toyota in the 1970s and Amazon during the Great Recession continued to increase their SoV and even develop new products.
The unique opportunity that a recession offers
The lesson here is that instead of spending less on advertising, the downturn gives every e-commerce company a unique opportunity to overtake its competitors by maintaining or increasing its marketing efforts. You can increase your SoV, market share and brand awareness while other companies go silent. This counter-intuitive increase in ad spending will not only pay off during tough economic times, but even more so when the economy turns around.
Ben Hardt is Senior Director of Digital Strategy at X Agency