Is Advertising a Good Investment During a Downed Economy?
Whenever the economy goes south, consumers naturally tighten their budgets and reduce spending on most goods and services across the board. This would indicate in just about every facet that advertising budgets would drop, too. But in the last recession, many large corporations opted to increase their advertising budget heading into the downed economy. Kraft, Procter & Gamble, and Kellogg are among the big names of big spenders that decided a downed economy could be a good reason to increase ad spending.
One of the main decisions behind the decision by these big companies to increase ad spending during a recession is hidden in a 2004 report published by the American Association of Advertising. The report said that advertising generally has an outcome on financial success for up to three years following the initial investment. Combining that with the fact that the report found increased spending during a down economy usually reaps bigger rewards than increased spending during a good economy, you are able to find the reasoning that these big advertisers had.
One reason that increased advertising during a recession is a good investment is that doing essentially paints the company as “strong” and durable to the recession. Not only does it work well in the eyes of the consumer, but employees too benefit from the idea that they’re working in a strong environment. It’s essentially being optimistic about the future, and company shareholders also recognize this.
Companies that decide to cut their advertising budget during a recession usually end up seeing the negative results in their stock prices. The decreased visibility, along with the increased visibility of their competitors, lets to the big spenders gaining a big chunk of market share.
If the economy causes an entire street of supermarkets to reduce hours, yet one supermarket opens early and closes late, it’s a no brainer that more and more customers will abandon their current supermarket for the stronger one. The same goes for companies that increase ad spending during a downed economy; they’re essentially filling the space left by other companies that have cut their advertising budgets, leading to increased visibility and likely higher market share and sales down the road. And don’t think once the economy recovers that customers will flock back to their old supermarket, because once they’ve switched brands they will have little motivation to switch back.
Companies that increase their advertising budget during a recession are smart if they adapt their message, too. During the last recession, we saw companies like Starbucks try and shift their message to reflect more value-oriented ideals. Starbucks, the home of the $5 coffee, tried advertising $1 coffees in certain markets.
Increasing ad spending during a recession is something done to reach long term goals, and it’s no secret that a good majority of companies wouldn’t be able to afford it. But the ones that do end up prospering. Finding investment books About Ken Fisher can help explain the idea of investing in a downed economy, as it usually is high-risk, high-reward.