Marketing Procurement

Advertising in a recession: What’s the best approach?

Thinking Ahead

Many advertisers may be tempted to focus on short-term, sales-focused activity. However… they should seek… a balance between short-term activity and longer-term brand-building strategies – Mark Pritchard

In early June, the World Bank slashed global growth forecasts to 2.9% for 2022, warning that much of the world could suffer a period of stagflation (persistent high inflation combined with stagnant demand and high unemployment) reminiscent of the 1970s. The energy crisis and the war in Ukraine have combined with prevailing negative economic conditions to create an economic downturn, and many economists are now saying that a global recession is all but inevitable.

In the US, GDP fell in Q1, stocks have tumbled into a bear market and consumer sentiment has dropped off a cliff. Meanwhile, inflation and interest rates continue to rise. Consumer confidence in the US, the UK and in many countries across the world has plummeted; in the UK, it hit a historic low of -40% in May.

This economic crisis will be challenging for all industries. This is particularly true for the advertising industry which is so closely linked to consumer behavior and concerns. Furthermore, it is still recovering from the turmoil of the pandemic. So what does advertising in a recession look like?

The ad industry as bellwether

In decades past, a decline in local advertising was often one of the first signals of a looming economic downturn. Local businesses are often first to feel a decline in revenue and therefore first to cancel their ad campaigns. Now, however, it’s digital advertising that is seen as a bellwether for the economic climate, and never more so than after Snap’s CEO Evan Spiegel admitted that his company’s previous outlook of 20-25% economic growth in Q2 was no longer realistic. He blamed a number of economic factors, such as supply chain issues, inflation and interest rates. An analyst wrote that Spiegel’s announcement ‘suggests that in just a month, the environment has aggressively deteriorated further… Digital advertising is cyclical, like all advertising, and macro headwinds are very likely getting much harder’.

Responding to the downturn

Given its proximity to consumers and the brands that serve them, the advertising industry needs to respond rapidly to the downturn, both in terms of what it communicates to consumers, and how it does that. Speaking at Cannes Lions last month, WPP CEO Mark Read said he was confident that advertisers would continue to invest in marketing during the recession and that there wouldn’t be a repeat of the short, sharp shock of 2020. Indeed, he said that many brands learned during the dark days of the pandemic that the best strategy to thrive during a downturn and beyond is to invest in marketing wherever possible.

P&G’s Chief Brand Officer Marc Pritchard agreed, urging his fellow marketers to keep spending through the hard times in order to reap the benefits when the recovery starts. Many advertisers may be tempted to focus on short-term, sales-focused activity. However, there is a consensus across the industry that they should seek to maintain a balance between short-term activity and longer-term brand-building strategies. Advertising in a recession is the best way of surviving that recession.

Making the most of difficult times

When times are tough, the prospect of decreased sales and shrinking revenues hangs over CMOs and CFOs. It becomes tempting to cut advertising investment and/or focus solely on ROI solutions further down the funnel. However, there is a strong case to resist this impulse. Although brands who focus on longer-term branding activity during a downturn may see their short-term sales and revenue affected, there is ample evidence that they will reap the benefits longer term, enjoying stronger growth during the recovery and beyond. In fact, a downturn can be a good time to acquire extra share of voice. With competitors scaling back, media prices will drop, so an effective brand-building campaign could be executed more cheaply than normal. It’s a bold move, but one that is likely to pay off.

It goes without saying that it pays to be smart about media usage during times of economic uncertainty. Focusing on channels that allow for precision targeting, low wastage and high measurability is a good place to start. It will also be wise to hold back a proportion of your budget for last-minute buys. Media vendors will be eager to sell their inventory, often at lower prices than earlier on in the buying calendar. Another good place to look will be in newer channels such as CTV and digital audio. These channels have good reach but are still in an experimental phase. Vendors are likely to be more open to negotiation.

Whichever strategies an advertiser chooses, there is one that they should avoid at all costs: going dark. Research after previous recessions has shown that brands that cut their ad spend altogether suffer more long term. They are more likely to lose share of market and take longer to recover from the downturn – around five years. They are also more likely to suffer a significant loss of profit when the market returns to normality.

Experienced, impartial advice

Advertising in a recession is an intimidating prospect. Many CMOs will be facing pressure from their CFOs to find savings and cut back where possible. But experts from across the industry, as well as research following previous recessions, all point to one approach: maintain spend where possible and increase it where you can. This will help brands to maintain their share of market and return to growth more quickly when the economy stabilizes.

Ensuring that advertising investments work as hard as possible to drive higher media value is even more important during a downturn. An impartial, independent media consultant can offer forensic analysis of your media activity and give advice informed by your data and their expertise, so that you can optimize your future activity and maintain media-led growth.

Fredrick Kinge is CEO and Partner of ECI Media Management.