Why Advertise in a Recession?

And How to Advertise in a Recession

What Do These Brands Have In Common?

They allexpandedtheir sales, profits and market share in a recession, and most went on to dominate their category.

How?

They maintained or increased their advertising and promotions while their competitors were cutting back! They focused on opportunity, not fear.

Chapter IRecessions in Perspective

We’ve had 22 recessions from 1902-2009 Recessions occur about every 5-6 years, and last on average 8-16 months. National Bureau of Economic Research

The Recession CycleNational Bureau of Economic ResearchDuane “DJ” Sprague, 2009

The Recession Cycle and the Great DepressionNational Bureau of Economic Research

Recessions are Always Followed by Expansions and ProsperityNational Bureau of Economic Research

So how do we prepare for the expansion?A d v e r t i s eNow

Chapter IIThe Research

April 19, 2009“Firms that are able to increase advertising during recessions are likely to have stronger future earnings.The researchers studied data from five recessionary periods since 1971, sampling data from more than 3,000 firms listed on the public stock exchange.

Harvard Business Review “Advertising as an Anti-Recession Tool”Jan-Feb 1980“The rationale that a company can afford to cutback in advertising because everybody else is cutting back is fallacious. Rather than wait for business to return to normal, executives should cash in on the opportunity that rival companies are creating for them.”

“The company courageous enough to stay in the fight when everybody is playing it safe can bring about a dramatic change in market position.”

“Advertising should be regarded not as a drain on profits but as a contributor to profits…as a means of achieving objectives. Ad budgets should be related to the company’s goals instead of last year’s sales.”

McGraw-Hill followed the performance of 600 industrial companies for 6 years from 1980 to 1985. McGraw-Hill Research Laboratory of Advertising Performance

“Business-to-business firms that maintained or increased their advertising through the 1981-82 recession averaged sales growth between 16 and 80 percent during the recessionyears compared to those that eliminated or decreased advertising.” McGraw-Hill Research Laboratory of Advertising Performance

“More importantly, gains made during the recession were permanent and expanded during the three years following the recession.” McGraw-Hill Research Laboratory of Advertising Performance

“By 1985, sales of companies that were aggressive recession advertisers had risen 256% over those that didn't keep up their advertising.” McGraw-Hill Research Laboratory of Advertising Performance

© 2009 Larry H. Miller Communications CorporationSales Indices 1980-1985 (1980= baseline of 100). ‘81 and ‘82 were recession years

This article was written by Bain & Co. and appeared in the September 2002 issue of “Harvard Management Update”. Bain & Company analyzed over 700 firms over a six-year and found that: “Twice as many companies made the leap from laggards to leaders during the 1990-91 recession as during surrounding periods of economic calm.”

Of the firms that made major recession period gains in revenue or profitability, more than 70% sustained those gains through the next boom cycle. And less than 30% of those that cut back and lost ground were able to regain their positions.

More than two-thirds of the companies that made major gains in our study period did so during a recession. Such opportunities always exist for strong, focused companies, but the impact of exercising them is much higher during a recession, when many competitors are either distracted or hibernating.

More than two-thirds of the companies that made major gains in our study period did so during a recession. The impact of exercising growth strategies is much greater during a recession, when many competitors are hibernating.

Wharton School of Business“WHEN THE GOING GETS TOUGH, THE TOUGH DON’T SKIMP ON THEIR AD BUDGETS” Nov. 26, 2008“Advertising budgets often appear to be a dispensable luxury in the struggle to survive. Executives who succumb to that temptation, however, put the long-term future of their companies at risk.”

“If companies cut deeply into advertising and communications in a down period, the cost to regain share of voice in the market once the economy turns around may cost four or five times as much as the cuts saved.”

Coopers & Lybrand and Business Science International concluded the following in their joint 1993 report: “Businesses that maintain aggressive marketing programs during a recession, outperform companies that rely more on cost cutting measures. A strong marketing program enables a firm to solidify its customer base, take business away from less aggressive competitors, and position itself for future growth during the recovery.”

MarketSense Research compared 101 household name brands during the recessionary period of 1990 to 1991. Duane “DJ” Sprague, 2009

1990-91 Recession In the beer category overall ad spending was down 1%, while Coors Light and Bud Light, each spending ahead of the category, saw sales increases of 15% and 16% respectfully. Sales up 15%Sales up 16%Duane “DJ” Sprague, 2009

1990-91 Recession Pizza Hut sales rose 61% and Taco Bell's increased 40% with strong advertising support, while McDonald's reduced advertising and volume was down 28%. Sales down 28%Sales up 61%Sales up 40%

Conclusion:“The best strategy for coping with a recession is balanced ad spending for long-term consumer motivation, plus promotion for short-term sales boosts.”Duane “DJ” Sprague, 2009

Summary of research findings and conclusions from: Bain & Co., Coopers & Lybrand, McGraw-Hill, The American Business Press, Harvard Business Review, Knowledge @ Wharton, Fortune Magazine, American Marketing Association, MarketSense, Strategic Planning Institute/Cahners Publishing, Center for Research & Development.The available research indicates that:It’s the decisions made and actions taken during a recession that make the biggest difference in the future growth or decline of a company.“Riding it out” may equate to driving it down.

25% of companies see an opportunity to expand market share in a recession . 70% of these companies will maintain their growth for 5 years after the recession. The majority in this category reach a new and sustained high.25%75% of companies will cut staff, advertising, customer service, R&D, product launches, and acquisitions. Following the recession less than 30% of those will ever regain the market share and profitability lost during the recession. The majority in this category reach a new and sustained low. 75%Why do less than 30% of those who cut in a recession ever regain their market share in the following expansion period?If you cut marketing in the recession you lost top of mind awareness, brand preference and market share to more aggressive competitors who eroded your customer base.Nearly everyone is in the pool when the market is hot, so ad rates go up and competitive clutter increases, causing the impact of your ad budget to decrease.Bain & Co., Coopers & Lybrand, McGraw-Hill, The American Business Press, Strategic Planning Institute/Cahners Publishing, Fortune Magazine

So why should we advertise in a recession? Because following the recession period, less than 30% of those companies that stopped advertising during the recession will ever regain the market share and profitability they lost during the economic slump.

“The greatest enemies of achievement are fear, doubt and vacillation.”John Patterson, founder of NCRDuane “DJ” Sprague, 2009

Chapter IIICase StudiesWhat can cars, corn flakes, soap, beer, shoes and laptops teach us about expanding in a recession?

Beginning with the Great Depression, while competitors cut ad budgets, P&G has increased its ad spending in every recession. And in every recession, P&G has gained market share.

During the 1920s, Fords were outselling Chevrolets by 10 to 1. In spite of the Depression, Chevrolet continued to expand its advertising budget, and by 1931 Chevrolet took the lead. 1927 Models1933 Ad

Both Kellogg’s and Post were racing neck and neck to dominate the breakfast cereal category in the 1920’s.

When the Great Depression hit Post Cereal cut their ad budget, while Kellogg’s increased theirs by one-million dollars. From “The History of Kellogg’s” at Answers.com

Kellogg’s upward sales curve continued right through the depression, and profits improved from around $4.3 million a year in the late 1920s to $5.7 million in the early 1930s.”

“When the depression ended Kellogg’s emerged as the dominant, and most profitable brand, a position they have maintained to this day.”Sales, profits and market share were upSales, profits and market share were down

During the 1975 recession Chevy faced mounting inventories, so they abandoned the traditional practice of setting advertising expenditures as a fixed percentage of sales.While the industry volume fell by 10 percent, Chevy increased its ad budget for its fuel saving economy models and increased market share by 2 percent.

1974 to ’75 market down 10%, Chevy up 2%© 2009 Larry H. Miller Communications Corporation

Going in to 1970 it was Budweiser #1, Schlitz #2 and Miller #7 for U.S. market share.#1#2#7

During each of three recessions in 1970, ‘75 and ‘82 Schlitz cut its advertising budget. And during each, Miller increased its ad budget.

From 1970 to ‘72 alone, the beer industry grew by 4 percent. As a result of increased advertising during the 1970-’71 recession, Miller's sales however grew by 31 percent, outpacing the industry by 27 percent.

The beer market grew by 4% from 1970-72 alone, Miller grew by 31% and outpaced the market by 27%Heavy recession advertising created extreme gains in market share

Coming out of the 1982 recession, Miller had a solid lock on second place behind Budweiser – where it still stands today. And a financially-troubled Schlitz was acquired by Stroh's.

In the 2001 recession, Dell grew unit sales by 11% as the industry declined 12%They purchased an additional manufacturing company at a recession discount to increase capacity They focused on price cuts and promoting the message of valueDell gained more than 6 points in U.S. market share and captured 90% of the profits in the industryResults confirmed by a separate study from the University of California-Irvine

2001 computer market down 12%, Dell up 11%

In 1990 Nike and Reebok were virtually tied for first place in sales.

“During the 1990-91 recession, Nike tripled its advertising spending, while Reebok cut back.”

“When America emerged from the recession, Nike's profits were nine times higher than they were going in – and Reebok has been eating dust ever since.”

When it comes to advertising aggressively in a recession…

How to Advertise Effectively in a Recession

The Golden Rule of MarketingNothing replaces stellar customer service. As defined by your clients.

Two Basic Advertising PrinciplesIn Good Times and BadCreate desire for your product, or find people who already have the desire2. Find out what people don’t like about doing business with you, and eliminate those reasons or barriers to the sale.

Remove the Barriers to the SaleA barrier can be anything that makes it difficult to shop, do business with, contact, service, return or exchange, or find you.

Remove the BarriersSurvey your customers and target audience to identify all real and perceived hurdles, inconveniences, difficulties, challenges or barriers to doing business with you.Use secret shoppers and consultants to help identify barriers.Shop your most successful competition and other related industries to see what barriers they may or may not have.

In a Recession Consumers are SeekingOffers that provide reassurance and confidencePurchases that minimize riskFamiliar brands that reduce uncertaintyPurchases that offer extra value

How to Provide Reassurance and Confidence, Minimize Risk, and Reduce UncertaintyQuality productsGreat service and supportBrand recognition Guarantee of performance and satisfactionRisk Reversal

Risk ReversalThe Ultimate Reassurance

Hyundai is offering economic peace of mind. You can return your new car if you lose your job within one year of buying it.And reliability piece of mind with the industries first 10 year, 10,000 mile warranty.Hyundai sales were UP 14% in January ‘09, at a time when other manufacturers were down as much as 32%.

The Kellogg’s Depression StrategySampling (Risk Reversal)Premiums (Extra Value)Couponing (Discounts)Free Recipe Guide (New uses for an existing product) Brand preference through brand awareness (TOMA)

The Kellogg’s Conversion Funnel:Radio and print campaign promoting a free sample size box of Corn Flakes, and creating TOMACents off Coupon inside the sample size for the purchase of a full size boxFree recipe guide and measuring cup inside the full size box

Kellogg’s was the first company to put free value-added premiums inside the packaging to encourage sales.Free measuring cup and recipe guide in box of Corn Flakes. 1929Children’s book in box of Corn Flakes

New Uses for an Existing Product

From steak sauce to hamburger enhancer. Includes recipes for how to use A-1 in various hamburger dishes

New ways to use SPAM in this 70’s recession ad.

Offer Discounts and CouponsSpecial Recession Prices, and Sale Events

Even a parking lot can create an effective recession advertising message

Classy Recession Ads for Upscale Products

Bajio launched a “Daily Specials” value menu of low priced items.

The Wendy’s .99 Value Menu

Outback created a Value Menu with mass distribution to promote it.

Online Recession Ads

Offer Free Stuff to Drive Traffic

Free offer with urgencyEnter to Win

Build a database

Promote viral marketing

Offer a trackable coupon

Drive Brand Preference With Brand Awareness

Build A Solid BrandUse Consistency over time to build confidence and frequency.Integrated look and message across all media channels to build continuity.Consistent use of media channels to build frequency. Own a market by owning a channel.Deliver on the brand promise. Deliver the price, results, service, quality, benefits and experience you advertise.Use the unique power of Echoic Impact to create brand recall.

The basics of building a brand requires a consistent and fully integrated look and message. You cannot build impression frequency when your message and look is different from one ad to the next.

Reposition Yourself As a Value Leader

Wal-Mart is focusing on Low Prices with the new logo and slogan:“Save money. Live better”and became one of the few retailers to post growth in the 2008 holiday season.

The Basic Principles of Effective MarketingFocus on sales training and customer service for higher conversionRemove the barriers to the saleOffer a Hook or incentiveProvide a Guarantee (remove the risk)Up-Sell Cross-SellRe-Sell

The Basic Principles of Effective MarketingDominate a mediumConcentrate on a consistent messageIncrease share of voiceAccentuate the positive attributes of your brandMarket to your baseProvide samples

The Basic Principles of Effective MarketingInnovate and stand outCommand a premium price if you have strong brand equityIdentify new customersExpand to new marketsMake quality improvements

The Basic Principles of Effective MarketingEnhance relationshipsStress value rather than low price (high quality and service for the money)Promote made locally or in the USA.Ads should instill a sense of control, value, and positive emotions to the consumer.

Thank You! “When times are good, you should advertise. When times are bad, you must.”Entrepreneur MagazineJanuary, 2009

Duane “DJ” SpragueVortexplan.comduane@vortexplan.com

Duane Sprague is a founding Partner at Vortex Integrated Marketing. Duane has over 16 years in executive level agency management, marketing, advertising, PR and business development, and is a specialist in integrated marketing communication and internet marketing. As Vice President of Advertising and Digital Media for the Utah Jazz and LHM Advertising, Duane set 26 sales and profit benchmarks and broke all previous records. Worked with Kodak, IBM, Lexus, Toyota, Utah Jazz, Southwestern Bell, NASCAR, J.D. Power and Associates, Hyundai, Larry H. Miller Dealerships, Larry H. Miller Sports and Entertainment Group, Salt Lake Bees, Utah Flash, Idaho Stampede, University of Utah Athletics , Citadel Communications, ACME Communications, Rio Tinto Stadium, Liberty Homes, Technaglass, 3 Day Kitchen and Bath and dozens of other companies in the U.S. and Canada.Contributed to 3 university textbooks on branding and integrated marketing, and published over 60 articles on advertising and marketing. Published the ebook “How to Build a Power Brand in Today’s Digital World with Integrated Marketing”. National award winning speaker and writer on business development, advertising and media sales. Masters in Internet Marketing, University of San Francisco. Graduate Certificate in Integrated Marketing Communication, University of Utah. Graduate Certificate with Honors in Corporate and Real Estate Law, University of San Diego. BA in Political Science, University California, Santa Barbara. Certified Focus Group Director, Inbound Marketing Professional, Negotiator and Media Buyer. www.duanesprague.comwww.webmarketingsprague.blogspot.comwww.djsprague.comwww.youtube.com/duanespraguewww.squidoo.com/duanespraguewww.slideshare.net/duanesprague55