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Why We Can't Stop - Part 2/2

Why pausing advertising during a recession is a deceptively bad idea - this summary is from a review of the evidence carried out on behalf of the PPAI by Guy Consterdine. It considers evidence from The Institute of Practitioners in Advertising, Ehrenberg-Bass Institute, McKinsey & Company, Pennsylvania State University and many more. For the full report, please click here.

Advertising In A Recession: It pays to maintain marketing pressure

This piece penned by Guy Consterdine just after the GFC concludes that maintaining a strong advertising presence before and during a recession is not only in the best interest of the company, but also the best way to protect profit margins. Consterdine reviewed a multitude of studies covering consumer and B2B brands, finding in both cases that while restricting advertising budgets during a recession can protect profits in the long term, neglecting brand promotion “will result in weakening the brand and making it less profitable post-recession”. The report also features work from one Peter Field – world-renowned marketing strategist and co-author of the seminal marketing text, The Long and Short of It. Analysing close to 900 studies from the IPA Databank, Field was able to show that during an economic downturn firms whose share of voice (SoV) was higher than their share of market (SoM) were able to grow their market share. Field’s rule of thumb is that for every 10 points that SoV exceeds SoM, a business can expect to gain one point of market share per annum. Field was also able to show that the short-term profit improvement gained from cutting ad budgets during a recession were rapidly eclipsed by “a severe decline in profitability in the medium and long term” – this effect can last as long as three years, according to Field.

Key Points

  • Restricting advertising budgets during a recession can give profit margins temporary protection

  • The cost of this protection, however, is a considerable decline in market share and profits both during and coming out of the recession

  • Peter Field’s research finds that short-term gains in profitability from cutting ad budgets are rapidly overtaken by severe downward pressure on profits, lasting up to three years following the recession.

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