Why You Shouldn’t Cut Your Marketing Budget During an Economic Downturn
Ready for some sobering statistics?
- 60% of customers are incredibly concerned about current, global economic uncertainty.
- 47% of customers are waiting for items to go on sale before they buy them.
- 47% of consumers have less confidence in the economy.
Reading those numbers can be jarring, especially if you run a business during these uncertain times. Business leaders want their company to stay afloat and keep their employees all while satisfying their customers. Usually, the first instinct is to cut the marketing budget in hopes of making the margins look better, however the best advice is to do exactly the opposite.
What may seem like a sensible cost-cutting measure is, in reality, opening the door to competition, losing the ability to gain new customers and relying solely on existing customers to carry you through. Here are some key insights into why business decision-makers should always invest in marketing and advertising during times of economic uncertainty.
History Repeats Itself
During the 2008 recession, companies who invested in their marketing achieved a 17% compound growth rate. Studies have shown that top performing companies that continue to invest in their marketing during a recession trade short term profitability for long term gain. MailChimp, for example, introduced a new business model during the 2008 recession by adjusting to the times of the economy.
They saw that people were looking for ways to cut budget so they made their service free to small businesses, which in turn made their revenue soar because, once that business grew its list to more than 2,000 contacts, they became a paid MailChimp user.
MailChimp marketed their “freemium” to small businesses on billboards and businesses would celebrate when they finally became a paid user because that meant their business was growing. Companies that continue to invest in their marketing in 2023 will win big when the economy eventually stabilizes because they didn’t allow for their competition to creep in. They set the scene for relying on their existing customers while also gaining new ones.
Consumer Behavior Shifts
During economic downturns consumers decide what is essential and what is not according to their budget. This “lipstick effect” was coined in 2001 by Leonard Lauder when he found that lipstick sales are inversely related with economic health. This study showed how consumers will dive more into small indulgences than bigger ones in times of a crisis. Purchasing lipstick made them feel better.
Consumer behavior shifts when the economic climate shifts. Smart brands take advantage of this shift in order to feed into what their customer is needing at the time. According to a recent study by Accenture, 64% of consumers wish companies would respond faster to their changing needs. By looking for new opportunities that directly address consumer needs, companies have the opportunity to gain from an economic upheaval.
Slack, an online communication and collaboration platform was started as a result of the 2008 recession. Slack saw an opportunity in the market for companies that were going remote to bridge the gap of communication from in person to on a computer. Slack’s main goal is to ensure their customers are getting the most value out of the platform by making it easy to use.
Advertising is an Investment, not an Expense
Everything that you communicate with your customer is a marketing decision, therefore it is an investment. When your company spends money on advertising you generate a greater, long term return. You can do this by investing in web updates every year and development for thought leadership.
McGraw Hill conducted a study of 600 businesses in 16 different countries to show the short- and long-term impacts of advertising during an economic downturn. The study revealed that companies who continued to advertise showed a 256% higher increase in sales than their counterparts.
Cutting out your marketing budget when faced with financial instability feels like an obvious thing you should do immediately. However, going against your instinct and operating normally will separate you from the rest of your competition. You have the ability to keep your established customers while simultaneously gaining new ones by sticking with them and cementing their loyalty.