Business uncertainty and economic downturns can lead to difficult decisions and high levels of anxiety when trying to preserve profits and liquidity. In these situations, the marketing budget can often be an easy target for reduction or elimination.
As a local business owner, what should you do in these circumstances?
As you assess the situation, understand that any downturn will likely have different impacts across different business categories and geographies. Its important to understand the underlying dynamics of the situation and consider how it might impact your particular industry and business, and how you might adjust to effectively weather the situation. Sometimes a change in how you are marketing might be the best response.
For example, adjusting your marketing to focus on value messaging and price competitiveness might appeal to those cost-conscious shoppers navigating a recession.
Understanding your customer’s journey and the role each media play in delivering conversions, in an integrated fashion, is another critical component in weathering the downturn. Refining these programs may be a means to optimizing your marketing investment, vs. cutting parts that may impact the whole.
For example, in such circumstances business owners might prioritize and choose to fund only short-term conversion-based marketing tactics including search, social, and e-commerce. Top-of-funnel awareness and brand and reputation-building programs might suffer the knife mostly due to the fact that their contributions are longer term in nature and more difficult to measure. As well, conversion tactics such as search, social and e-commerce tend to receive the most visibility and credit in last-click attribution models, regardless of the contribution top-of-funnel tactics may have made to the sale. It is important to recognize that these media work together to deliver conversions, cutting top-of-funnel investments will negatively impact the effectiveness of your bottom-of-funnel conversion marketing.
A knee-jerk reaction to simply cut or suspend marketing investment may be a mistake. Studies indicate that advertisers who stay the course during a downturn are likely to reap benefits. According to the Ehrenberg-Bass Institute, stopping advertising can cause sales to drop by 16% after one year and 25% after two years.
The benefits of marketing during a downturn are time-tested. More than 100 years ago Harvard University tracked the performance of 250 U.S. companies from the end of WWI through post-war recession and into the expansion of the 1920s. They found that companies that increased their marketing budgets during the recession increased sales by 20% over pre-recession levels while those who reduced their marketing in that period saw sales drop 7% below pre-recession levels.
A 27% swing in sales can be an existential threat to many companies.
More recently, McKinsey & Company, through a study of nearly 1,000 U.S. companies over an 18-year period, including the 1990-91 recession, concluded that the top performing companies continued to invest in marketing. Those companies expanding their investments in marketing during the downturn achieved a 17% compound growth rate during the downturn. These companies continued to play offense while focusing on shifting dollars to high ROI tactics and cost-containment in other areas.
It is clear that as competitors draw back their own investments, it may open an opportunity for your marketing dollar to acquire customer volume yet more efficiently, increasing your market share both during the downturn and after.
The old adage about the cost of acquiring new customers vs. retaining existing ones holds true. For those businesses that exit the consideration set of consumers during a recession, it will only cost them more to re-acquire those customers later.
Managing business uncertainty and economic downturn is never fun, and marketing budgets, like all budgets, should be scrutinized for efficiency. But you should resist a knee-jerk reaction until you’ve had an opportunity to carefully assess the situation and consider alternatives to exiting the market. Otherwise, the road back may only be more difficult.
Sentinel Solutions understand how to optimize your marketing investment in good times and bad. Let us know if we can be of assistance.
Give us a call if we can help at 603-352-5896 or e-mail to Advertising@SentinelDigitalSolutions.com. We’re here to help you succeed.
