It seems natural and predictable that companies would pull back on advertising during a crisis – but this isn’t a smart move, just an expedient one.
It’s easier to cut a marketing budget than most other expenses, and the effects of doing so don’t show up immediately. Companies feel like they’re being responsive, not realizing that they are responding in the wrong way.
Everyday life feels more unfamiliar each day, but the fundamentals have not changed. Our brains are still wired the same way. We’re still connected to a society and an economy through the same ideals, concepts, and institutions as before. Advertising still works. And right now, it is needed more than ever.
Brands need to step up, not step away. Here are five reasons why.
Cutting ad spend never worked before
Economic research shows that cutting advertising during a crisis is a self-inflicted wound. After reviewing decades of empirical work, USC’s Professor Gerard J Tellis concluded that “there is strong and consistent evidence that cutting back on advertising during a recession can hurt sales during and after the recession.”
There are many studies on this question, and they all point in the same direction. They show that lowering ad spend in a recession does not increase profitability. They show that continuing to advertise boosts income and market share, both during and after a crisis. They show that companies bold enough to spend more during a recession enjoy even higher returns on their marketing spend. And, consistent with the above, they show that highly cyclical industries, such as travel and restaurants, benefit the most by advertising during a recession.
We saw this pattern hold during the most severe economic crises of our time: the Great Depression in the 1930s, the oil crisis in 1974, and stagflation in 1981. Is this crisis any different? Only if you never expect a recovery.
How can we understand this? For one thing, advertising during a recession is more effective because it is less expensive. There is less competition for consumer attention. Especially striking is that advertising spend often drops faster than disposable income. At the same time, consumers are generally more receptive to advertising — which we’ll discuss.
Again, history can guide us. Proctor & Gamble increased advertising during the Great Depression – that’s why we still have Ivory soap. Kellogg maintained ad spend while Post cut spend, ensuring that Kellogg would dominate the cereal industry for decades. Intel became a name brand during the recession of the 1990s. And lest we forget, after the 1918 Spanish Flu came the Roaring Twenties.
Consumer behavior is changing
In the past, we’ve looked to life events as a valuable opportunity for brands to win over new consumers. Moving, getting married, and having children meant that old habits were scrambled and new connections established. We thought of change as an opening, not a closing out.
Recessions and other upheavals also change buying habits, on a mass scale. The pandemic is going to have lasting effects on our society, including consumer preferences. Across the country, existing brand relationships are being upended. Our embrace of ecommerce, food deliveries, streaming media, and remote work is sudden but unlikely to be temporary. Americans are adjusting their preferences and priorities rapidly.
85% of all Americans expect to change their purchase behavior because of the virus. Our future habits are up for grabs, and many advertisers will overlook this opportunity to connect with newly receptive customers.
You are probably more concerned than your customers
Contrary to what Madonna may tell you, the coronavirus does affect some more than others. This is obviously true from a medical perspective, but also from an economic perspective.
If you live in a densely populated urban area, or in a city with strong international connections, you will face this crisis earlier and more deeply than most Americans ever will. You’re also likely to be in an area with a high percentage of travel and food service workers, who are being impacted the most. In suburban and rural areas, the crisis will be felt less strongly.
You might be horrified by the jump in unemployment claims, but these losses are likely to be temporary, and at the moment are covered by emergency benefits. Our working definition of unemployment has long been criticized, and especially in these times, it isn’t clear how meaningful the statistic reflects reality.
You might be worried about your market investments or 401(k), but only half of U.S. households have any money invested in stocks including retirement accounts. And for those who have invested, a 20% drop in stock prices might reduce household wealth by 4% or less.
Even setting these factors aside, marketers are naturally paying more attention than almost anyone else. We’re in a unique position where the economy, sociology, and consumer psychology converge. Our profession demands professional connections and thrives on media consumption. The irony is that we’re supposed to be experts on consumer behavior, but never seem to reflect on our own choices. Marketers cut ad spending because of their own anxiety more than anything else.
Consumers need reassurance
Consumers are quick to notice which companies are still playing an active role in their lives and which ones have retreated. In fact, 73% of Americans say the way companies act during this crisis will affect future purchase decisions.
Naturally, marketers want to be aligned with positive events such as sports games, but when stadiums go dark the relationship with consumers can’t go dark as well. Brands that stick through bad times are seen as more trustworthy and reliable than brands that are suddenly nowhere to be found. The best example of staying visible and relevant comes from a travel brand – the #OnlyYou ad from Visit Las Vegas.
Advertising is essential to society
Recognizing the severity of the moment, most news organizations are pulling down their paywalls. But despite unprecedented interest, revenue is down ten percent. Why? Some advertisers are trying to avoid the coronavirus topic.
Someone has to pay for journalism. Traditionally it has been advertisers that do so. Sponsoring news – even upsetting news – is a way for brands to show they are with us at this moment. If that responsibility is too much to bear, entertainment is almost as important. Never has binge-watching been so therapeutic. This advertising serves a public good as well.
Of course, advertising serves an even greater need. Consumer spending makes up 70% of economic growth. Until people start eating out, traveling, and shopping again, millions of Americans will remain out of work. Advertising will be essential in driving this demand.
A certain future
Every time I think I understand where we are, the situation changes again. By the time you’re reading this, we may be heading back to our offices or we may be sheltering in place. In the short term, nothing is certain.
In the long term, things come right again. We emerge from adversity stronger than ever. And everything we know about that certain future can help us make the right decisions, right now.
- Keep Advertising On - April 9, 2020
- Pre-Inauguration Anxiety By the Numbers – How President Trump is Affecting Consumer Sentiment - January 19, 2017