Lessons from History: Advertising in an Economic Downturn

“When times are good, you should advertise. When times are bad, you must advertise.” This quote by advertising pioneer Bruce Barton was written nearly 100 years ago. While it may be easy for an advertising agency to proclaim that advertisers should stay the course, there is overwhelming evidence that suggests this is precisely what (eligible) marketers need to do right now. So before canceling your contracts and hiding under the bed until this thing blows over, consider an alternative strategy; one that has been proven to achieve long-term success well beyond when things return to normal.
 

Image: https://www.azquotes.com/quote/521249

A History Lesson

 
First, let’s take a look at other periods of economic decline and see how savvy advertisers responded. During the recession of 1923, advertising executive Roland S. Vaile tracked 200 companies and reported that those who continued to advertise during the downturn were 20% ahead of where they had been before the recession, while companies that reduced advertising were 7% below their 1920 levels. Yes, the media landscape is vastly different a century later. Still, in each economic downturn measured over the past hundred years, there are countless examples of advertisers who were able to overtake the competition by continuing to innovate and maintain their advertising budgets. In a Forbes story published last fall, Brad Algate listed a few examples:
 

The 1930’s — Kellogg’s Destroys Post

 

Image: https://acerealblog.wordpress.com/2015/08/20/raisinbran/

Before the Great Depression, Post led the emerging ready-to-eat breakfast cereal category. But during the economic collapse, Post cut their ad budgets significantly, while their long-time rival Kellogg’s doubled ad spending. The company opted to promote their new cereal, Rice Krispies featuring the “Snap, Crackle, and Pop” catch phrase. As a result, Kellogg’s grew its profits by 30%, becoming the category leader and maintaining the position a century later. Post, as it turns out, isn’t even in the top 10.
 

The 1970’s — Toyota Squashes The Bug

 

Image: https://www.brandchannel.com/2017/02/03/volkswagen-vs-toyota-020317/

Throughout the sixties and seventies, Volkswagen reigned supreme as the leading importer of automobiles to the U.S. Their Beetle was ubiquitous. By 1970, V.W. reached a peak market share of 5.6% in the U.S. However, during the energy crisis-triggered recession of 1973 – 75, the U.S. government issued its first miles-per-gallon report in which Toyota’s Corolla received high marks. Toyota considered cutting their ad budgets, but upon experiencing strong sales in this period, they resisted. By staying the course and continuing to advertise, Toyota overtook Volkswagen as the number one imported carmaker in 1976, and they haven’t looked back since. This animated chart shows Toyota’s impressive growth by year. Today, Toyota is third in total U.S. car sales behind only Ford and G.M.
 

The 1990’s — Ronald McDonald Stumbles on his Big Red Shoes

 

Image: https://www.youtube.com/watch?v=RoatENauw-o

While it may have been attributed to a slew of menu item fails, during the 1990 recession, McDonald’s slashed its advertising and promotional budgets. Meanwhile, competitors Pizza Hut and Taco Bell maintained their ad spending. The result: Pizza Hut increased sales by 61%, Taco Bell sales grew by 40%, and McDonald’s sales declined by 28%. While McDonald’s is still the top fast-food chain in America, Taco Bell and Pizza Hut were able to steal much-needed market share during the economic dip.
 

The 2000’s — House of the Rising “Zon”

 

Image: http://nowandviral.com/amazon-product-compare-to-another-existing-competitor-product.html

In 2008, amidst the collapse of the American banking system, Amazon sales grew by 28%. How did they accomplish this monumental feat? Innovation. Jeff Bezos guided Amazon to create new products (including the new Kindle line) during the slumping economy, which helped to expand their market share massively. In fact, for Christmas giving in 2009, Amazon customers bought more e-books than printed books for the first time in human history. Amazon established itself as an innovative company that offered lower-cost alternatives to cash-strapped consumers. Moreover, Amazon has always put profitability in third place after customer service and competitive dominance, allowing them to provide more products at lower prices and making them the go-to for consumers seeking convenience and savings. It’s no wonder their stock is now worth nearly 15x what it was back then, as the third most valuable company in the world.
 

Share of Voice Now = Share of Market Later

 
I have yet to see any study that proves timidity is the route to success. Studies consistently have proven that companies that have the intelligence and guts to maintain or increase their overall marketing and advertising efforts in times of business downturns will get the edge on their timid competitors.” 1970’s ad-man, J. Welsey Rosberg, Meldrum & Fewsmith

Despite the successful track record for companies who continue to advertise, many will still pull back— this is good news for the bold! With less competition, you can gain share of mind in the short-term and gain market share in the long-term (Oxford Road’s Giles Martin recently wrote a great article on this truth). Kantar estimates that brands who go dark during this pandemic will have a 39% reduction in brand awareness. Regaining their foothold will be hard-fought. Evaluating brand recall over the past five economic downturns, the Millward Brown database shows that companies who cut advertising efforts by more than half during a recession took between 3 – 5 years to recover to pre-recession levels. However, brands that continue to advertise during a recession send a message of confidence and belief in the future, positioning them for even more significant growth when things bounce back.
 

Unprecedented Advertising Value

 
Due to the supply and demand nature of media buying, the current advertising climate has created a buyer’s market for brands. With some advertisers pulling back on their media spend, network partners are creating unprecedented deals for advertisers staying the course. For example, one major Podcast partner has offered 30% – 50% discounts across their entire catalog for our clients — and that’s just scratching the surface. Oxford Road is currently negotiating with every media partner to create opportunities that would have seemed laughable two months ago. Even if buyer demand is diminished during these times, the discounted cost of the media will result in a net gain for many performance marketers. You just have to do the math.
 

Conclusion

 
Yes, the next few months will be tough sledding.  But if you have the intestinal fortitude to continue to grow your brand through advertising, history suggests you’ll be much better off long-term than those who run away with their tails between their legs.

One note of caution: make sure your creative strategy is appropriate in the current climate. The only thing worse than cutting your ad spend right now is running creative that’s tone-deaf. Oxford Road is offering a free creative checkup for marketers who want to make sure their current messaging is appropriate for what’s happening. Fill out this short form, and upon completion, we’ll provide a diagnostic assessment of your current creative and offer suggestions to optimize.

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