Should You Advertise More Or Less In A Recession?
Some 80 years ago, when William Wrigley, Jr., was on a business trip on a DC-3, another passenger asked him why he spent so much on advertising when his chewing gum business was doing so well.
“How fast are we flying?” asked Wrigley.
“Oh, about 150-200 miles an hour,” said the passenger.
“Then since we’re doing so well, why not shut down the engines?”
In deep recessions, when cash is tight, there’s a strong and justifiable temptation to cut back on expenses â€“ or at least hold the line. But how much does it pay to yield to it?
The 100 Leading National Advertisers’ (LNA) experience from last year provides some empirical answers. As a whole, the 100 LNA cut advertising expenditures by 10.2% last year. This, incidentally, was the sharpest drop since Advertising Age started compiling LNA figures in 1956. But on-the-whole numbers can be misleading. If your feet are in the oven and your head’s in the freezer, on the whole you’re at a comfortable temperature. Breaking down the figures gives a clearer picture. Almost three out of four LNA â€“ 74 out of 100, to be precise â€“ cut advertising budgets or held them static. The remaining 26 bucked the trend and increased their ad spends. Eighteen of them â€“ 70% of that group â€“ saw their US sales increase. This compares to only half that proportion â€“ 35% â€“ of those who cut their ad budgets.
Most of the increased spenders were brands in low-price or recession-resistant categories (some both). Low-price brands included fast food chains (Subway’s franchisor and McDonalds), Progressive Insurance, which sells on the basis of lower cost through comparative shopping, and Walmart (more about them later). Recession-resistant categories included food and package goods (General Mills, Nestle, Hershey Company, Unilever); recession or no, people need to eat, stay clean and do laundry. They also included four pharmaceuticals firms (Pfizer among them), because for most people health overrides wealth.
Two duelling satellite tv services (DirectTV and Dish Network) seem at first glance to be unlikely inclusions, but both advertise as lower-cost alternatives to cable (that fits low-price brands). One could also argue that entertainment is a recession-resistant category. Recall, if you will, that during the First Great Depression, movies were one of the few industries to prosper.
Apollo Group, owner of Phoenix University, increased ad spending enough to make the 100 LNA for the first time ever. This makes sense, too, because unemployed workers have the time to learn new skills, and what they learn might eventually make them more employable.
But of all the brands to invest in advertising in a recession, the biggest winner was Walmart. In 2007, Walmart was the nation’s 16th most advertised brand. Last year, it rocketed up to number three. For the first time ever, it was the nation’s top-spending retailer based on measured-media advertising, displacing Macy’s. Even though Walmart still spends less on advertising as a percentage of worldiwde sales than other major retailers, its percentage has been growing. Over the nine years from 2000 to 2009, it’s just about doubled â€“ from 0.30% to 0.59%. Last year’s budget represented a 14.2% increase over 2008’s. In dollars, that’s $300 million more.
Did the investment pay off? Did it ever! In a year when national retail sales fell 2.1%, Walmart sales rose 1.6%.
Which goes to show that even in a deep recession, advertising is more a necessary investment than an expensive luxury. So if your business is looking to get ahead in these tough times â€“ or just to keep afloat â€“ consider the examples of Walmart and Wrigley. Don’t shut down the engines.