SUMMARY: According to the Financial Times, “advertising is a tempting place to start for finance directors on the hunt for cost savings. But even as makers of some of the world’s most popular household products are squeezed by the most intense inflationary pressures in a decade, they are thinking twice about taking the ax to marketing budgets”.
When Steve Jobs was back at Apple, the economy was in a downward trend. He decided to ramp up Apple’s advertising because “it was the right choice to make”. Marketing budgets usually get cut first because they are often viewed as an expense rather than an investment. That’s a huge mistake.
Former Leo Burnett adman Simon Broadbent was right — brands that don’t advertise are like planes with no engines.
There are several reasons to advertise during challenging times:
- The “noise level” in a brand’s product category can drop when competitors cut back on their ad spend. It also allows for advertisers to re-position a brand or introduce a new product.
- Brands can project to consumers the image of corporate stability during challenging times.
- The cost of advertising drops during recessions. The lower rates create a “buyer’s market” for brands. Studies have shown that direct mail advertising, which can provide greater short-term sales growth, increases during a recession.
- When marketers cut back on their ad spending, the brand loses its “share of mind” with consumers, with the potential of losing current — and possibly future — sales. An increase in “share of voice” typically leads to in an increase in “share of market.” An increase in market share results, with an increase in profits.
It seems other CPG companies have learned that lesson.
Procter & Gamble was particularly aggressive in seizing the moment, spending $8.2bn on advertising in the 12 months to June — $900m more than the previous year. Mark Read, chief executive of WPP, the world’s largest advertising group, said that alongside technology and pharmaceuticals, consumer packaged goods (CPG) had been among the most resilient industries during the pandemic.
While television still appeals for marketers as the strong up-front indicated Google, Facebook, and other digital platforms have become increasingly important although harder to measure.
What happens to sales when brands stop advertising?
- When brands stop advertising for a year or more, we find sales often decline year-on-year following the stop (on average, sales fell 16% after one year, and 25% after two years).
- The rate of decline is fastest for brands that are already declining before the advertising stop.
- Brand size also matters. Small brands typically suffer greater declines than bigger brands.
- Bigger growing brands tend to continue to grow after advertising stops for one to two years, whereas the sales trend quickly reverses for small growing brands.
IMO what does need major scaling back is advertising on social media. It’s been my experience that the ROI of these ads is really poor. On the other hand, ads on Amazon.com are growing in double digits. Why? Because people are usually in the buying process when they see these ads.
Television is also making a big comeback. The start of the NFL season is just a few weeks away, and ratings should be high since we’re pretty much confined to home again. Don’t view the poor performance of the Tokyo Olympics as a benchmark for TV ads. The Olympics have been bleeding users for a long time.
One thing I will say for most advertising is that it stinks. Not only are most ads annoying, but too many brands believe that increased frequency will somehow lead to more sales. Brands should be developing more ads rather than running the same ones over and over.
Now is the time to reach out to consumers with advertising that matters. Don’t ever think that cutting marketing or advertising is a smart move.