While most of us were hoping for a return back to normalcy after the disruptive years of the pandemic, the economy still remains precarious and unsettled. Increasing inflation, supply chain setbacks, a persisting war in Ukraine and rising interest rates have left the U.S. economy on the brink of a recession.
According to TD Securities, there is more than a 50% percent chance of a U.S. recession in the next 18 months. With fears of the U.S. economy toppling over, marketers are looking for new tactics to stay afloat: from re-allocating advertising budgets, accessing opportunities and preparing for the long-term consequences of a recession.
But amidst all of the apprehension, and at times, panic, one thing remains clear: you should not stop advertising during a recession. There are countless studies going back more than a century that clearly prove that there can be many advantages of maintaining or even increasing ad spend during a weaker economy (Forbes).
In this blog post, we will break down how to prepare for a recession, outlining advertising strategies, recession-proof industries and how to achieve sustainable growth in uncertain times.
What is a Recession?
Before we begin to understand how to manage advertising spend during recession times, it’s important to define what a “recession” is. According to Investopedia, “a recession is a significant, widespread, and prolonged downturn in economic activity. Because recessions often last six months or more, one popular rule of thumb is that two consecutive quarters of decline in a country's Gross Domestic Product (GDP) constitute a recession.”
In simple terms, a recession is period of significant and consistent decline in economic activity. While a recession usually lasts for a few months, its aftermath can take years to revert. Economic output, employment and consumer spending all drop during a recession and can cause significant damage to brands and their marketing efforts if they do not adopt the right policies to continue to grow.
The Big Challenge for Marketers
Undoubtedly, consumers are apprehensive about the upcoming recession. Pandemic fatigue, economic uncertainty and political instability is causing consumers to lose confidence and change their buying patterns in significant waves. In preparing for hard economic times ahead, consumers are beginning to realize that they have spent way too much money in the U.S and Europe over the last three decades - with a focus on material goods and services instead of saving for the future. This has left many of them with increasing debt and bills while marketers are bombarding them with ads to buy, buy and then buy some more.
This is presenting a grave challenge for marketers now. How will they continue to grow their businesses during the recession and the recovery that will follow? The first step is to understand consumer mindset in a time of economic downturn. The predetermined targeting methods, for example by demographics, will only take marketers so far. In a time of uncertainty, they must try to understand the consumer’s emotional reactions to the environment around them.
Understanding Buyer Mindset During a Recession
The first step is to understand consumer mindset in a time of economic downturn. The predetermined targeting methods, for example by demographics, will only take marketers so far. In a time of uncertainty, they must try to understand the consumer’s emotional reactions to the environment around them and figure out each group consumers belong too.
The Harvard Business Review segmented audiences into four different groups:
- No Clicks
These consumers are adamant not to make any purchases in the time of a recession. Marketing departments should not be target these consumers because that will lead to frustration, and could stop them from becoming customers in the future.
- Click, Don’t Purchase
These consumers are curious and want to see how a recession will pan out. They will continue to browse and click, but they are not confident enough to purchase. This group can be targeted through ad messaging that emphasizes brand values, mission and purpose.
- Click, Might Purchase
These consumers are financially stable but remain cautious about their spending, especially when the economy is uncertain. These consumers can be reached through brand messaging that emphasizes your value proposition, credibility and reputation.
- Click, Will Purchase
These consumers are continuing to purchase, despite the economic downturn. They can be reached through performance marketing that includes sales, discounts, promotions, loyalty programs and calls to action.
Advertising During a Recession
Keep the following in mind when your building your marketing strategy in the time of economic uncertainty:
Lean into Lessons from the Past
To make the most of your advertising spend during a recession, it is important to look to the lessons from the past. How did other similar brands survive and grow? For example, during the 2020 pandemic, when more and more businesses had to shut down their doors, eBay’s “Stronger as One” campaign highlighted thousands of small businesses across the United Kingdom, highlighting their partners and vendors in an effort to not only increase sales, but also to uplift and inspire.
When the world was in recession in 2008 and 2009, Amazon increased its sales by 28% by diversifying its products, launching the kindle and ultimately growing its market share. In fact, on Christmas Day 2009, Amazon sold more kindles than printed books!
During the 1990-1991 recession, McDonald’s reduced its advertising budget, causing Pizza Hut and Taco Bell to take advantage of its reduced market presence and persisted with their marketing efforts. As a result, both companies experienced higher sales, with Pizza Hut seeing a 61% increase, Taco Bell coming in at a 40% increase while McDonald’s sales declined by 28%.
Don't Cut Budget!
While it may seem tempting and convenient to cut down your marketing budget in the time of a recession, industry trends have shown that when brands stop advertising, they continue to see a decline in sales year over year. According to a study by Ehrenberg-Bass Institute, on average, sales fell 16% after one year, and 25% after two years when budgets were slashed. Companies that did not cut their marketing spend, and in many cases, actually increased it have been the ones to recover most strongly from previous recessions. In other words, whatever you do, don’t stop advertising during a recession!
Leverage Your Loyal Customer Base
Humanize Your Brand
When times are tough, it’s essential to remain sensitive to customers’ fears, worries and needs and build an emotional connection with your audience. WARC noted that 44% of successful campaigns in a recession take an emotional approach. How can you go about doing this in your marketing campaigns?
- Build your marketing campaigns around messaging that amplifies messages of solidarity, perseverance and making it through difficult times.
- Try to give back to the community: Share how your brand is helping out through social media campaigns, blog posts and email campaigns to show that you're not only cognizant of what is happening in your community, but that you're actively trying to help.
- Spend your advertising investment on emphasizing the utility, durability and longevity of your products instead of focusing on luxuriously designed ads. The focus on luxury will send the wrong message to your audience, especially in times when people are trying to save money.
- Engage audiences with emotional storytelling. Bring the faces, employees, departments behind your marketing campaigns into the spotlight, highlighting their hard work and commitment to delivering the best quality products to your target audience.
Allocate AD Spending for the Long Term
When sales become unstable, marketers shouldn’t panic and try to fully rethink a brand’s fundamental position, mission statement or core values. Marketers that are quick to re-brand themselves could potentially attract new customers in the short-term, but will lose their loyal customer base in the long-term, that may feel both confused and cheated from such a sudden change.
Before making any changes, it’s important to understand: what are the customers thinking? Begin to develop your marketing strategy by tracking how customers are reassessing opportunities, re-thinking budgets, redefining value and then continue to invest in market research. This will be imperative in successfully advertising during a recession and increasing market share.
During economic downturns, assess your brands, products and services to see how to develop your marketing strategy: Analyze products with poor survival rates, figure out which products can be salvaged and determine which are likely to thrive during the recession and the recovery afterward.
- For brands that are more insulated against economic downturns like CPG, Healthcare & Pharma, Technology & Computing and Political, leverage your position to gain market share.
- For brands that might not be so insulated against recessions like Retail, Travel & Hospitality and Leisure & Entertainment, make sure to innovate! 64% of successful brand campaigns support new product launches in a recession.
Increase Market Share
With competitors potentially cutting down budgets, leverage your position to gain market share through aggressive advertising. You can accomplish this through greater expenditures without reducing short-term profitability. On the flip side, as demonstrated by the McDonald’s example earlier in this blog post, businesses that cut down their sales budgets suffer a loss of market share.
How GumGum Can Help You During a Recession
The GumGum marketing team understands that, with the recession coming up, these are volatile times. We will help you efficiently allocate advertising spending, gather marketing data, gauge market conditions and develop the best strategy to get the most of your brand messaging during a recession.
In times of recession and crisis, the data is clear: if you’re able to continue spending on advertising, now is the best time to do it. While it may be tempting to cut your marketing budget during hard times, businesses that power through, align with the consumer mindset, produce thoughtful ad messaging and continue to innovate, you can not only survive but also thrive and grow during a recession.