Businesses should be increasing their market spend as a key strategy to weather the current economic setbacks. Not doing so will likely lose customers to competitors who boosted theirs, according to a study by commercial mix analytics firm Analytic Partners. Online visibility platform Semrush suggests similar findings. We spoke with both firms for advice on budgeting for marketing in a recession.
Analytic Partners last month published its ROI Genome report with guidelines for recession-proofing a brand. The results are based on marketing intelligence collected over 20 years, from more than 750 brands, in 45 countries, and hundreds of billions in spending across industries. It focuses on the dangers of cutting marketing spend in a recession and the opportunities for bold marketers who maintain or increase advertising.
The report confirms experiences from prior recessions. Companies that increased ad spend saw success in the long run. Sixty percent of brands that increased their media investment during the last recession saw ROI improvements. Brands that increased paid advertising also saw a 17% rise in incremental sales. By contrast, marketers who cut ad spending risk losing 15% of their revenue during a recession.
“The best way to get through a possible recession and prosper on the other side of it is to think long term by investing in your brand and your relationships with customers,” said Mike Menkes, senior vice president at Analytic Partners.
That view clearly opposes the thinking that the first move during a recession should be to cut paid ad spend and marketing headcount to preserve margins. But the data shows that organizations that cut spend are likely to lose ground to rivals during and after a recession.
However, this actually undermines margins, according to the report. It is counter to what most businesses should be doing to drive success and shareholder value. The report also revealed marketing strategies for brands to consider during a recession.
- Using multiple marketing channels can increase advertising impact by 35%;
- Half of brands that increased marketing investment during the last recession saw ROI growth in back-to-back years;
- Brand messaging bests performance messaging 80% of the time, so refocusing exclusively on performance messaging will lead to losses;
- Two-thirds of the opportunities to improve video advertising performance lie in improving the quality of creativity.
Factoring Advertising Success
Analytic Partners identified five main components in advertising success. In order of impact, they are:
- Amount of investment
- Creative quality
- Halo (the power of advertising for one product to boost another product)
- Mix of media
- Channel optimization
“Short-term thinking might make some shareholders happy at the next earnings report. But it undermines growth and therefore margins true shareholders value over both the short and long term. A strong advertising strategy will lead to continued brand success that is stable and here to stay,” noted Menkes.
Marketing Budget Discussion With Semrush
We asked Andrew Warden, chief marketing officer of Semrush, to further discuss the ROI strategy playing out in today’s financial environment.
Why should marketers pursue more media investments during recessions?
Andrew Warden: For most businesses, paid advertising budgets are usually the first to go during a recession. Even for businesses with the deepest pockets, it is the first instinct and quickest to cut. But history tells us that companies who take this route suffer lower sales growth rates and see minimal profit or long-term gains.
During the recessions of 1920, 1990, and 2000, companies who invested not only recovered well but flourished, outperforming competitors by at least 10% in sales and profit growth at the exit of the recessionary period.
What role does risk consideration play in executing this strategy?
Warden: For companies willing to take a risk, I would argue that an economic downturn is actually the best time to invest more in paid advertising.
Think that is something new? We can literally go as far back as the 1920-21 recession, with evidence from Vaile (1926) that companies that maintained or increased their ad spend saw larger sales growth than those that cut their budgets.
Companies that pursue media investments during any upcoming recession will likely drown out their competition (as their competitors will almost certainly cut budgets) and grow market share more effectively.
How should they assess what media outlets are more effective for them?
Warden: Businesses and marketers should focus their paid and organic resources on where their customers spend their time. There are many platforms on the market that can help you understand where your traffic comes from.
As a standard practice, I recommend businesses dive deep into the data to discover these patterns and double down on their marketing channels to overtake the competition during any recessionary period.
How can marketers overcome the natural instinct to cut budgets and absorb losses?
Warden: In my experience, most marketers get quite nervous about recessionary periods. It is understandable; it feels like an unpredictable period of time. But is it?
I learned earlier in my career from a mentor during the 2007-08 financial crisis to see through the storm and focus on what will drive growth once the recession is over. I cannot speak for all marketers, but I do think that a lot of people focus heavily on the panic or stress of restricting budgets or projects during a recession.
I would challenge marketers to really lean in and look at the opportunities ahead. What is going to drive growth in 12-24 months? If you cannot afford to continue spending money on ads, switch exclusively to organic channels and SEO. It will cost less, and it will pay more dividends for quarters to come, especially when the economy recovers and spending habits return to normal.
Where should marketers invest if cutting their budgets is essential?
Warden: Marketers should continue investing in organic marketing channels. They are more cost-effective, easy to get started, and will pay off in the long run for virtually any business.
Investing in the right platform to understand where your audience is coming from should also be a priority. It will allow you to tweak your strategy to the areas you are seeing the most organic traffic, boosting your overall online presence.
How should marketers analyze success and pivot in a recession?
I would argue marketers should always be ready to analyze success and failure and then pivot. Inflationary or recessionary periods only highlight those skills and abilities.
As marketers, we need to follow the data on our marketing programs. We need to be ready to make a decision — and take action — on a dime. That’s especially important now.
I would encourage anyone to make decisions faster. Make the decision now to realize growth faster; do not wait around.