It may be human instinct to hoard cash in tough times, but it can be a self-destructive one if it means cutting back on advertising and marketing dollars, according to numerous experts and studies.
Here are three good reasons why savvy business people continue to seek out new customers, even when profits are squeezed.
1. History shows advertising in hard times pays off
"Over the last hundred years or so, studies of every recession have shown that if you pull back, you lose market share and investment," said Beth Vendice, president of Advanced Results Marketing in Marlborough.
"Even after the recessionary period, the companies that advertised not only increased their sales over that period, but they came out stronger than the competition that pulled back."
Vendice's company specializes in direct-response marketing, which is designed to get a consumer to take a specific action, such as clipping a coupon, calling a toll-free number, registering on a Web site or anything else that would turn a person into a lead.
"Everything is quantifiable," Vendice explained. "You can see leads generated per dollar spent."
2. You get more for your advertising dollar
This is a buyer's marker for advertising, Vendice said.
"The market is so soft right now, you can take advantage of lots of efficiencies in media," she explained.
In 2009, she said, with a budget equivalent to the one you had two years ago you should be able to increase your reach by 10 to 20 percent.
"There are lots of benefits in being a savvy marketer in this environment," she said.
But just as you are looking for value in advertising, so too are your customers looking for value from your business. You should be emphasizing value-oriented offers and keeping in touch with loyal customers, Vendice said.
"Reassure them about your presence in this economy," she said.
And of course, remind them of the value your company brings to their life.
3. Your competitors will lose market share to you
Hard times give you an opportunity to gain market share as competitors pull back, Vendice said.
Immediately after the terrorist attacks against America on Sept. 11, 2001, she said, some clients wanted to "pull everything."
But the Mandalay Resort Group, owners of the Las Vegas strip properties of Mandalay Bay, Excalibur, Luxor, and Circus, Circus, were back advertising within 15 to 30 days.
"TV rates were extremely inexpensive at that time and it was a very profitable subsequent quarter for some of them," she said.
Value-oriented casinos like Circus, Circus and Excalibur were the first ones back up with action-driven, value-oriented offers that also preserved the brand, Vendice said.
Prominent public relations executive Brian Solis had this to say on the topic in a December piece on TechCrunch.com:
"Customers, do not stop making decisions — they're just more discerning during volatile economic climates. But make no mistake, if you choose to stop vying for customer attention, the world will move ahead without you."
Studies show: Advertising pays off, and keeps paying
Over the years, hundreds of studies have been conducted on how companies deal with advertising during a recession.
After World War II, Buchen Advertising Inc. decided to plot the sales of a large number of advertisers through successive recessions. In 1947, Buchen began measuring the annual advertising expenditures of each company. When the figures were correlated with sales and profit trends before, during and after the recessions of 1949, 1954, 1958 and 1961, they showed that almost without exception, sales and profits dropped off at companies that cut back on advertising. The studies also revealed that after the recessions ended, those companies continued to lag behind the ones that had maintained their advertising budgets.
In 1979, another study by ABP/Meldrum & Fewsmith, covering the recession of 1974 to 1975 and post-recession years, showed similar findings.
"Companies which did not cut advertising expenditures during the recession years (1974-1975), experienced higher sales and net income during those two years and the two years following than companies which cut ad budgets in either or both recession years," the study said.
Another study by MarketSense during the 1989-to-1991 recession shows brands such as Jif peanut butter and Kraft salad dressing increased their advertising and experienced sales growth of 57 percent and 70 percent respectively.
At the same time, while most of the beer industry cut budgets, Coors Light and Bud Light increased theirs. They saw sales jump 15 percent and 16 percent respectively. Among fast food chains, Pizza Hut sales rose 61 percent and Taco Bell's 40 percent, again thanks to strong advertising support.
Excerpted from "Recession Marketing Strategies," by Ed Clark and published in November 2001 in Spokane Journal of Business. Reproduced by permission of Clark and The Clark Company, www.clarkadspr.com.
Five recession-related pitfalls
1. Cutting expenses too slowly. Don't cut expenses a little bit at a time. Now is the time to look at expenses and decide whether your company needs to cut expenses 5, 10 or up to 20 percent. Do what it takes early in the year and bring costs down.
2. Maintaining the same product and service mix. Your needs are changing. You can bet your clients' needs have changed, too. Call your clients and ask them what they need. Then design your product service mix around those needs.
3. Reducing marketing instead of focusing on marketing. The company that stands tall, strong and visible in the marketplace has stature and status. Differentiate with strong marketing to drive leads and sales.
4. Lacking systems to free up your time. Streamline your business and become more efficient. Use a handheld organizer to keep track of phone numbers, dates, appointments and meetings. Set a time each week to handle routine tasks, bills and paperwork.
5. Keeping everything to yourself. Your team knows the economy is tough and wants to understand what the company is facing and how. Together, you can make it through. Lead toward a brighter future by focusing your efforts on today.
Source: SCORE, Counselors to America's Small Business, press release, Jan. 14, 2009. www.score.org