How Brands Can Navigate the Economic Downturn
Earlier this month, the federal government raised interest rates another .75 % to stem consumer spending in the hopes of managing the widespread inflation plaguing various industries. However, this does not mean that brands should also pull back on spending.
Ahead of a potential recession, a business’ natural tendency is to cut back on seemingly discretionary expenditures such as R&D and marketing. While it’s certainly understandable why they would do that, it’s not advisable, as research reveals pulling back on advertising hurts their brand in the long term.
In fact, there is a great deal of evidence demonstrating that cutting back on advertising during a recession can hurt sales during and even after the recession. We saw this play out during the 2008 recession–when brands went dark, it took three to five years for them to recover their market share. Whereas maintaining advertising investment during a recession could actually increase sales both during and after.
Brands can make the most of their ad dollars during the downturn by leaning into point-of-purchase activations, switching to cost-effective channels, and investing in creative.
Dial up point of purchase activations
One high-impact way brands can leverage their advertising during the recession is by reaching consumers close to the point of purchase. For example, by using digital out-of-home in these locations, advertisers can match promotions with moments when their offering might be top of mind, increasing the likelihood of conversion.
That being said, brands should be careful about overdoing it with promotions. During 2008’s Great Recession, many CPG brands relied heavily on promotion as a means of driving sales. Although this may have initially encouraged shoppers to purchase the promoted products, emphasizing short-term sales, often through promotions, in order to satisfy profit targets can have negative brand equity repercussions, and promotion effectiveness wanes over time as consumers get trained to “wait for the deal.”
Switch budgets to channels with lower CPMs
Not all CPMs are created equal. Some channels are cheaper to reach consumers than others. For instance, Netflix’s $65 CPM might be a non-starter for some brands right now, but Standard Media Index data shows that social media video CPMs are in the single digits. A shift to social makes sense especially for retail advertisers who are looking to drive lower-funnel results. With the proliferation of digital media, there are many options for price-sensitive brands to move spend that can give them more for their dollars.
However, TV is an outlier. Studies have shown that brands should not necessarily pull back spend on the big screen. Periods of more than six months off-air are likely to weaken a brand’s equity, and once this decline sets in, it may be hard to reverse. According to Wells Fargo, average cable advertising inventory is sold at a $25 CPM, so this channel might be more sustainable for price-wary brands.
Invest in research to make creative more effective
The importance of effective creative cannot be overstated — especially during a downturn when consumers are more cognizant of where their money goes. Stimulating insights is fundamental to achieving great creative — work that stands out and stays with viewers.
Advertisers should invest dollars now into data-driven insights and innovative research so they understand the creative that will resonate most with their target audience during the recession to both build brand loyalty and increase sales. With effective creative, any advertising buy will go further.
Ahead of the upcoming recession, resist the temptation to go dark. Instead, keep the advertising lights on by adjusting strategies. Looking at point of purchase, lower CPM channels, and investing in creative research can help brands stem the damage done during a recession and maybe even win market share if competitors are cutting their budgets.
Paul Donato is Chief Research Officer at the Advertising Research Foundation.