Increase Your Marketing Budget in Recession (Martin Thoma Commentary)

Pick up the paper on any given morning and you’ll get a craw full of economic depression. Ben Bernanke still won’t call it a recession, but every other soothsayer seems to think the sky is falling. The signs are certainly there: spiraling fuel costs and mortgage defaults; plummeting consumer confidence, construction starts and home sales; death throes for Bear Stearns, Countrywide and others. Spooky stuff for business leaders.

In contrast to the last ditch we crawled through (the one following the dot-com implosion and 9/11), none of my clients is running for the exits. But perhaps your firm is combing the books for cuts. Every experienced marketing manager knows his or her budget is at risk in a downturn. After all, marketing dollars make easy pickings – there’s little apparent downside to saving these discretionary dollars – “at least until things pick up again.”

The facts indicate otherwise. In reality, slashing marketing during a recession is disastrous strategy. History shows that for the confident, forward-thinking company, a recession is not a storm from which to hide but a crucible in which to grab market share and position for a much more profitable future.

Since World War II, we’ve experienced nine recessions, each averaging about a year in duration. That means we’ve had six expansionary years for every recessionary one. At the end of each of these recessions, consumer spending was actually about 9 percent higher than when it started. How’s that possible? “Recession” is a reflection of total GDP, and is formally defined as “a decline in real gross domestic product in two or more successive quarters.” So even in a shrinking economy, consumer spending can grow – and obviously tends to do so.

Smart companies have seized this opportunity. As competitors retrench, slash budgets indiscriminately and wait for the economic indicators to refuel their confidence, the leader swims against the tide and bids for greater market share.

A McGraw-Hill study of 600 industrial companies following the 1981-82 recession showed that those companies investing against the trend posted average gains 40 percent greater than non-investors within the first year. The longer view was even starker: from 1980 to 1985 investor companies grew revenues 275 percent, while firms that cut their ad spending grew sales only 19 percent for the same period. In the severe 1974-75 recession, the comparative sales index was 13 percent higher for marketers than non-marketers in the first year – and rose to 30 percent higher four years later.

A 1990 study examining 339 consumer marketers found that those who aggressively increased ad spending (by 20 percent to 100 percent) gained 0.9 percent market share while those that moderately increased spending (1 percent to 19 percent) gained an average share of 0.5 percent. Those that reduced spending gained 0.2 percent.

With all the current turmoil in the housing and mortgage markets, you might expect one of our residential mortgage clients to dial back a bit, to “wait-and-see.” But instead, they decided to launch a new television campaign this spring and increase their Internet marketing spend. They had already deployed our brand growth discipline to double their market share during the past two-plus years. In planning for this year, the organization’s executive vice president and chief operating officer, Scott McElmurry, said, “We knew 2008 was likely to be a slower year; we had to ask ourselves, ‘do we scale back or bite the bullet and plow ahead?'” Knowing some competitors would likely dial back and “if we did not go forward, we’d have to play catch-up later,” he decided to stay the course. It’s working: In the first two months of 2008, the company has seen its share increase further from 20 percent to 27 percent. So add one more point to my argument.

Marketing is a long-term discipline that requires an investor’s mentality and fortitude. History is clear: a recession is an opportunity for the strong to get stronger and the weak to get eaten.

It certainly sounds contrarian at first, but with storm clouds looming, it might be time to increase your budget.

(Martin Thoma is co-founder and principal of Thoma Thoma, a brand growth consultant. He may be reached at [email protected].)