Advertising / Employee Retention / The state of the economy

Importance of Advertising in a Recession

I went to a seminar last week put on by DJ Sprague at KJZZ at the Jazz practice facility called “How to Expand in a Contracting Market.” I thought I already knew about this, because I’m very familiar with the McGraw-Hill study that follows 600 companies in the 1980′s recession. But what I was surprised to learn is that there have been 22 recessions since 1921. This seminar tracked every recession and gave statistics (from reliable research companies like Bain, Harvard Business Review, etc) on what companies increased and decreased ad spend and what it did to them. It was fascinating.

Here are some of my notes from it.

Why advertise in a recession: Dureing a recession there is less competitive clutter. And you can usually buy traditional media for less.

The Recession Cycle: This is the recession cycle. Recession happen every 5-6 years. And the prosperity following a trough has always been higher than the previous peak. Why? Because people have been hoarding their money. They now have more money to spend.

The Recession Cycle

Most companies decide to “ride the wave” throughout a recession, but companies who pull back lose market share and top-of-mind awareness.

1921 Recession: The companies who advertised throughout this recession had the greatest amounts of prosperity when it ended.

Great Depression: In 1920 Ford was outselling Chevrolet 10 to 1. During the great depression, Ford didn’t advertise (their money was tied up in manufacturing). Chevrolet increased their advertising. By 1935, Chevrolet became #1.

1953 Recession: Harvard Business Review followed companies (I didn’t write down who they were) and said that companies who maintained their ad budgets saw no slowdown. But their increase was that of 150%.

1970, 1973-75 and 1981-82 Recessions: In 1970 Budweiser was #1, Schlitz was #2 and Miller was #7. Has anyone ever heard of Schlitz? Well back then they were the number 2 brand of beer in the US. During each of these recessions, the Joseph Schlitz brewing co, a major advertiser, cut its advertising budget in response. And during each, Miller Brewing Co bumped its advertising budget up.  Miller began the 19702 in 7th place. In the first recession, their sales grew by 31%. When we came out of the 1982 recession, Miller was 2nd place in the market – where it is today. Schlitz was financially in ruins and sold to Strohs. Now they’re a tiny microbrewing company.

1981-82 Recession: For the companies that advertised, they saw a 16% increase during this recession. By 1985, those companies who had advertised during this recession saw a 250% increase. This study was done by McGraw-Hill and included 600 companies covering nearly all industries. All companies who advertised in a recession increased over the next several years.

Bain & Associates did a study and said that “The keys to gaining market share in a recession seemto be spending money and taking on new people. Those companyes who did that were twice as likely to pick up market share.

Here’s the clincher: Those who increased budgets were able to keep 70% share in the NEXT recession. Less than 30% of those who lost ground were able to rebound in the next recession.

They found that if you cut too deeply in the ad budget during a recession, the cost of regaining market share once the economy turns around may cost 4-5 times as much as the costs saved.

1990 Recession: During the 1990-1992 recession, Nike tripled its ad spending, while Reebok cut back. When the recession ended Nike’s profits were 9x’s higher than Reebok and they have stayed that way.

The things I appreciated most about this seminar were:

1) The reassurance that this is not the only recession we’ve ever had. We’ll get out of it. And we’ll have more in the future. It’s all be done before. Stop panicking.

2) The reminder that advertising is freaking powerful. And I’m glad I’m in this industry.

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7 thoughts on “Importance of Advertising in a Recession

  1. Interesting stuff. I saw an article in the NYT yesterday (or was it Washington Post) re candy consumption and the recession. They reported that candy manufacturers are experiencing a huge surge in orders. This was also true, the article pointed out, during the Great Depression. Hmm.

  2. Well hello Alice, do you remember me? I was the one who researched and presented the recession advertising seminar on behalf of KJZZ. And one week later, you guessed it, they laid me off! Drop me a line.

  3. Pingback: Recession Brings Out the Worst in Clients « Alice’s World and What She Saw There

  4. This is a good article to leave with clients if they feel they can’t afford to advertise.

  5. This is a good article to share with clients who say they can’t afford to advertise.

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