The Role of Paid Advertising During Economic Uncertainty

Marketing

By Simply Clear Marketing

According to the most recent economic forecasts, a recession will occur not if, but when. In fact, one research analyst recently estimated that a global downturn is 98% likely. 

However, those in charge of marketing budgets should not panic. As history has shown, in an uncertain economy, the right marketing strategy combined with brand innovation can often mean the difference between success and failure.

Marketers will face many of the same challenges they did in 2022 in the coming year, with the added wrinkle of that big, scary word—recession. Being strategic with your marketing dollars allows your brand to keep the conversation going even in a competitive market.

As one recent Ecommerce Times headline put it, “Increase Spend or Lose Sales.” Brands that increase their spending typically see long-term success. According to the Analytic Partners report cited in the article, 60% of brands that increased media spending during the previous recession saw higher ROI, and those that increased paid advertising spending saw a 17% increase in incremental sales.

Every recession comes to an end. There will be brands that gain market share through great products, great experiences, and a strong brand promise, and those that miss out because they are too shortsighted. Slashing marketing budgets may put you on the back foot when the inevitable economic recovery begins.

Recessions Can Be The Most Effective Period To Invest In Ads

Dollar for dollar, recessions can be the most efficient periods to invest in ads. The key is to use those dollars effectively and adjust the messaging with the times. 

When competitors cut marketing, they stop reminding their customers about their existence. This is exactly when you want to figure out how to do more marketing, not less. Because your share of voice goes up significantly.

Harvard Business Review covered several cases around this, in particular, the example of Reckitt Benckiser following the 2008 financial crisis. During this time, Reckitt Benckiser increased its advertising spending by 25% in the face of reduced marketing by competitors, resulting in 8% revenue growth and 14% profit growth at a time when most of its competitors reported profit declines of 10% or more. 

They saw advertising as an investment rather than an outlay of funds.

Of course, ramping up advertising spend (or at least maintaining it) shouldn’t be deployed in isolation. As a business, you must create value in other ways as the consumer mindset shifts from financial prosperity to financial preservation.

Creating Value-Based Messaging

Value-based messaging establishes an authentic connection with the customer. Recognizing and openly addressing economic challenges fosters trust and more personalized consumer experiences, inevitably expanding your relationship beyond your product or service.

Few brands have stood the test of time as well as General Mills, demonstrating resilience even during economic downturns. As consumers seek to reduce their spending, General Mills turned to promote the benefits of eating at home. According to CEO Jeff Harmening in this Business Insider article, during the 2008 recession, General Mills sold more products across all categories, allowing the company to grow a couple of percentage points faster than when the economy was doing well. He has mentioned investing in campaigns that communicate the brand’s mission, which is driving consumers to make value-based decisions.

Customer Loyalty Is King

Loyalty programs help to build trust and transparency by reinforcing a brand’s commitment to its best customers. According to the Antavo Customer Loyalty Report, brands that focus on their loyalty programs—particularly digital loyalty programs—while also acknowledging difficult times see increased consumer engagement. 

Furthermore, customers who participate in loyalty programs and self-identify as brand fans are often less price sensitive and spend a larger share of their wallet with that brand. In an economic downturn, this can be critical.

Starbucks Rewards is one of the most successful loyalty programs, and many other retailers have modeled their own programs after it. Starbucks has made significant investments in its digital program, which features a fun, easy-to-use interface and enticing perks. Starbucks’ loyalty program currently has 27.4 million members, with those members accounting for more than half of the company’s revenue.

Uncovering ‘The Lipstick Effect’

The Lipstick Effect, also known as the Lipstick Index, is widely regarded as the leading economic indicator in the beauty industry. The idea is that during a recession or other economic stress, women will make discretionary purchases that provide an emotional boost without breaking the bank. 

Leonard Lauder, the former CEO of Estée Lauder, is credited with popularizing “The Lipstick Effect.” He noticed that his brand’s lipstick sales increased following the 9/11 attacks and the ensuing American economic downturn.

Of course, this theory may be seen as a little misleading because people’s desire for pleasure and reward in times of stress is not limited to lipstick. However, anecdotal evidence suggests there is a widespread proclivity to spend more money on products that make you feel good during times of economic uncertainty.

Does your company have a “lipstick” strategy that it can capitalize on?

Hard Times Don’t Last (But Great Companies Do)

The thing is, recessions don’t generally last long. 

So if you decide to cut in other areas, but focus on growing your presence through marketing, your exposure and gravitas will be two times bigger than each of your competitors! 

And once you get that far ahead, it becomes hard for others to catch up.

You become the “big dog.”

Get Started With Google Ads Using This E-Book

The truth is that if you can continue to spend money on advertising as a business, recessions create enormous opportunities. While competitors cut back on advertising dollars, uncertain economic times present important opportunities to gain a share of voice – after six months, overall brand awareness drops by 24% for the average consumer.

Whether you are new to Google Ads or simply need a refresher on best practices, this free E-book will help you to decide whether Google Ads is a good fit for your business regardless of economic conditions. 

For any other questions about advertising during these uncertain times, feel free to contact our team at Simply Clear Marketing!