It was the breakfast cereal war of The Great Depression: Kellogg’s vs Post. “Who is Post?” you might be asking yourself as an Australian? Well, exactly—it was Kellogg’s who won the war by doubling their advertising spend in the middle of a crippling recession to become the market leaders by 1933.
The story was highlighted in a New Yorker article from the last recession in 2009 which also said: “numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts.”
I was curious to know more as I’ve seen the Kellogg’s example touted by numerous marketers on social media lately as being clear evidence that more ad spend in a recession is the key to business success. So, what exactly does the research say?
Perhaps, Perhaps, Perhaps…
Often cited in favour of increasing ad spends in a recession is a paper by Tellis and Tellis (2009). Of the forty reports they reviewed, only ten were actual empirical studies. Based on these ten, their findings suggest “firms that increased advertising during a recession experienced higher sales, market share, or earnings during or after the recession.”
Similarly, Dekimpe and Deleersynder (2018) reviewed 31 marketing studies from 2001 onwards and found “research has repeatedly shown that maintained, or even increased, advertising spending during economic contractions often results in long-term managerial and social benefits, which can be in the form of better firm performance.” But, when you look at the three articles cited to support this quote:
- The first paper looked at 26 of the firms listed in the top 50 global advertisers between 1986–2006, their advertising spend and whether it impacted long-term share price (not profit). I’m not sure how applicable their findings are to the majority of small and medium businesses;
- The second paper focused only on the impact of ad spend in one country (Turkey) during one recession (2001); and
- The third paper looked at a sample of 275 large, publicly listed U.S. firms during recessions between 2000–2009 and found that family firms outperformed non-family firms which is partially due to family firms exhibiting more proactive marketing behaviour in recessions. The researchers’ firm performance metric uses a form of Tobin’s q to determine company market value which can be problematic when used as the only indicator of firm performance in marketing studies (For more see Bendle and Butt 2018).
Ok then. Who is a small business to believe? Well like most things that are researched, the results are mixed.
The ‘Name of the Game’ Matters
In looking at past research, Graham and Frankenberger (2011) reiterate that there is a “notable convergence of findings” in studies looking at whether increasing ad spend in a recession improves company performance. Srinivasan, Lilien, & Sridhar (2011) also found that results are mixed on whether increasing recession ad spend increases company performance. So, both sets of researchers decided to analyse some data themselves.
After reviewing the annual accounting and stock market data for over 3,200 publicly listed companies in the U.S. between 1975 and 2003; Graham and Frankenberger found that “on average, compared with nonrecessionary periods, greater earnings effects result during and after recessions when expenditures are maintained or increased rather than decreased.”
But (there’s always a but in research), the earnings impacts of increasing ad spend in a recession depends on what type of industry you’re in. For consumer and industrial products firms, the effects of increased ad spending in recessions ranges from two to three years. For services firms, there are no effects.
So if you’re in the business of “selling intangible products to other firms or final consumers”, like many small businesses, increasing ad spend in a recession may not be worth it.
Not Too Heavy, Not Too Light: How to get Recessionary Ad Spend Just Right
In the case of recessionary advertising spend on company profits; Srinavisen, Lilien and Sridhar, found that ad spend in past recessions for business-to-consumer (B2C) goods, business-to-business (B2B) services and B2B goods firms was just about right.
For B2C services firms, it was a different story. In this space, there’s a tendency for firms to overspend on advertising in recessions.
The study authors even recommended B2C services firm managers consider “decreasing their advertising spending in recessions to improve their profits.”
Consider Lower Cost Marketing Strategies Instead of More Advertising in Recessions
While the research suggests that B2C goods, B2B services and B2B goods firms could improve earnings impacts by maintaining or even increasing recessionary ad spend; for many small businesses the budget may just not be there to spend.
Paid advertising is one marketing strategy but there are other lower-cost options that you can consider. Most of these involve ‘inbound’ and content marketing strategies: Drawing or pulling the customer towards you with helpful and engaging information instead of pushing them to your products and services through paid advertising only.
To learn more about content marketing and other digital marketing skills, check out my previous blog post here: 5 Ways to Learn Digital Marketing for Your Small Business in Brisbane.
Now might be a better time to focus on brand building through content so that when your customers are ready to spend, you’re more likely to be ‘top of mind’.