When Money's tight, spend more
Author: Vincent-Wayne Mitchell
Companies should increase advertising in times of austerity, not cut back,
argues Vincent-Wayne Mitchell, Professor of Consumer Marketing at Cass.
In times of austerity one of the first cuts a company makes is to the marketing
budget. Logic suggests that reducing advertising makes sense because consumers
have less disposable income and will not be spending. Contrary to this
presumption, virtually all studies demonstrate that advertising spend is
strongly related to business performance and this is true in all economic
climates, from the prosperous to the austere. Annual growth in shareholder
value for companies that do not tie ad spend to the business cycle is 1.3%
higher than in companies that do.
So why is this?
Firms can achieve a greater share of the total advertising voice as other
companies cut back on marketing spend. Advertising increases both the salience
of the product to consumers and the perceived quality of the brand since the
adverts remind them of the brand value. And counter-cyclical advertising in
particular sends a reassuring signal of confidence to concerned consumers and
entices customers to switch from weaker rivals. Since customers are less loyal
and more opportunistic in austere times, increased marketing spend attracts
trial purchasers, and is needed because the cost of retaining customers
increases. In addition, the focus of marketing spend is on call-to-action and
point of sale rather than on the long-term building of the brand. Finally,
market share is most up for grabs in a recession when competitors are too hard
pressed to defend their position vigorously.
At company level, four factors can indicate that investment in
marketing during a recession will be profitable:
• The company already has a strong emphasis on marketing
• There is an entrepreneurial and innovative culture within the company
• The company has slack resources (a pool of resources in excess of the minimum
necessary to produce a given level of output)
• The company has the strategic flexibility to rapidly adapt resources to
At brand level, there should be more marketing money invested
• The brand can be positioned as a value brand, such as Asda-Walmart
• The company can launch a value sub-brand, for example Fairfield Inns by
Marriott - a franchised chain of lower-cost hotels for customers who simply
want a bed for the night with fewer other amenities
• The brand can seemingly demonstrate an economic advantage to paying more for
perceived quality. For example, Fairy Liquid claims to pay by doing more with
less. The premium value of the brand can remain unchanged but it can appeal to
the austerity customer.
Companies looking to innovate in times of recession could look towards their
marketing activity as an area to be developed, not reduced. While arguments
such as "we just don't have the money" and "media costs reduce in a recession"
will always have resonance in a downturn, truly entrepreneurial marketers
should be able to justify budgets in any environment. The argument "if everyone
is cutting back we won't be hurt" is valid only if the assumption is true.
Firms capitalising on the opportunity to increase their market share as
competitors cut back will inevitably maintain a higher market share when the
economy picks up again. Studies suggest that there is strong evidence that
cutting back on advertising can hurt sales both during and after a recession.
Perhaps, when times are tough, the best method of defence is attack.
For more commentary and analysis by Cass experts, go to www.cass.city.ac.uk/casstalks