U.S. stocks have dropped as the market reacts to rising inflation and interest rates. All too often, we’ve seen small business owners approach marketing during an economic downturn by reducing their spending—but history shows that indiscriminate cost-cutting is a mistake.
Take it from 405 CMOs and other marketing leaders. The annual Gartner 2022 CMO Spend and Strategy Survey revealed that marketing budgets have increased to 9.5% of overall company revenue in 2022, up from 6.4% in 2021. The majority of CMOs surveyed even said they thought that inflationary pressures hitting their business and their customers would have a positive impact on their strategy and investment in the year ahead.
Instead of slashing marketing spending, companies need to understand evolving consumption patterns and fine-tune their strategies accordingly. Organizations that manage to contain costs while examining customer needs and nimbly adjusting their strategies, tactics, and product offerings in response to shifting demand are more likely to flourish in the long run.
On average, increases in marketing spending during a recession have boosted financial performance throughout the year following the recession. Increasing marketing budgets can become a competitive advantage as companies are able to capture market share from weaker rivals, sometimes at a lower cost than usual.
1920 and 1921
- Research on the recession of 1920 and 1921 found that companies that kept investing in advertising managed to drive more sales and growth than any of their competitors, both during and after the recession.
- In contrast, companies that had cut advertising continued to see a decline in their performance in the following three years after the recession.
In the 1920s, Post was the leader in the cereals market, but the company reduced its marketing considerably when the Great Depression hit. On the other hand, Post’s biggest rival, Kellogg’s, doubled its advertising expenditure and saw its profits boom by 30%.
2007 and 2008
- Businesses that cut their marketing budgets fared better during the recession, but experienced negative performance post-crisis.
- On the other hand, companies that invested more in marketing during the crisis performed better in the post-crisis period and experienced an average growth in market share after the recession.
Companies that saw significant growth during and after the previous recessions had the following factors in common:
- They had a long-term vision.
- They took action early on during a crisis.
- They focused on growth rather than cost savings.
1. Focus on your audience
As we’ve discussed before, effective marketing begins by knowing your target market. In an era of economic downturn, it’s important to reevaluate your understanding of your customers and how they are likely to behave in the current market. You’ll then need to adapt your marketing approach accordingly.
One way of extending and reevaluating your current customer segments is to consider not only their demographic details, but also their psychology, taking into consideration their emotional reactions to the economic environment. A 2009 article from Harvard Business Review identifies four groups:
- The slam-on-the-brakes segment that feels most vulnerable and hardest hit financially. They reduce all types of spending by eliminating, postponing, decreasing, or substituting purchases.
- Pained-but-patient consumers (typically the largest segment) tend to be resilient and optimistic about the long term, but less confident about the prospects for recovery in the near term or their ability to maintain their standard of living. They economize in all areas, but less aggressively than the slam-on-brakes crowd.
- Comfortably well-off consumers feel secure about their ability to ride out current and future bumps in the economy, and continue to consume at near-prerecession levels.
- The live-for-today segment carries on as usual, unlikely to change their consumption behavior unless they become unemployed.
Throughout a downturn, all consumers (except those in the live-for-today segment) typically reevaluate their consumption priorities. It’s important to take these changing priorities into account to meet these various groups where they are. You’ll need to invest in market research to track how your customers are redlining value, reassessing priorities, and reallocating budgets.
A loyal customer base is one of your best assets during an economic downturn. Marketing to your existing customers is significantly simpler and more effective than trying to win new ones. Your loyal customers are your primary, enduring source of cash flow and organic growth, so it’s essential to focus marketing efforts on bringing in their business.
Quick tip: Use your loyalty program to reward both your big-time spenders and people who purchase small amounts frequently. Don’t have a loyalty program yet? Maybe it’s time to create one.
3. Under pressure to prioritize? Respond with data.
During an economic downturn, every dollar you spend will be under more pressure to demonstrate a return on investment. To manage your marketing expenses, you’ll need to distinguish between the necessary and nice-to-haves. You’ll also need to provide excellent marketing reporting so that you can report on marketing campaigns more effectively. We see this as an opportunity to dig into the data and drill down on what’s really working for you.
When survival is at stake during tough times, you’ll be challenged to revise your marketing strategies and reallocate investments. The discipline you develop around marketing strategy and research will continue to serve you when the economy recovers. A market downturn results in challenging market conditions, but it also forces us to come up with innovative and cost-effective market strategies.
Building and maintaining strong brands that customers recognize and trust remains one of the best ways to reduce business risk. Add in highly personalized messages, in-depth reporting, and data-driven decision-making, and your business will be in a better position to tame the bear. If you need an expert consultant to guide you along the way, don’t hesitate to get in touch with the Brighter Messaging team. We’ve helped many small businesses prioritize their marketing budgets and tactics to improve their ROI. Yes, it costs money to pull off great marketing during an economic downturn. The question is: can you afford not to?