Articles
Marketing strategy in an economic downturn
23 April 2008
Firms often respond to the onset of economic downturns by cutting operating costs, with marketing and advertising budgets being prime targets for cuts. However, there is evidence from past recessions that firms that increase spending in these key areas significantly outperform their competitors.
According to Doug van Dorsten of analysts Thomas Weisel Partners:
It is historically true in any industry, the easiest time for a company to gain market share is during downturns.1
However counterintuitive this may seem, it is strongly supported by the evidence.
The 1990–91 recession
In 2002 McKinsey published a study based on data collected from approximately 1,000 firms between 1982 and 1999, a period which included the recession of 1990–1991. The study identified some key differences between the strategies of the best and worst performers, with the measure of performance being changes in firms' market to book value ratios. Interestingly, one of the most significant differences between winners and losers was with respect to their spending on marketing and advertising during the recession period. Far from battening down the hatches when the economy turned down, the best performers actually increased spending in these areas, not just relative to their competitors but also compared to their own spending in better times.2
A 2005 survey of 154 senior marketing executives published in the International Journal of Research in Marketing (IJRM) mirrored the findings of the McKinsey report.3 The authors developed and tested a model examining the outcomes for firms that pursued proactive marketing strategies during times of recession. It too found that firms that increased marketing and advertising in the contraction phases of the business cycle performed better than those that stuck to the "traditional" line that recession required cuts. The McKinsey and IJRM studies are just two of many that have arrived at broadly the same conclusions.
The role of technology
Web technologies have moved on greatly since the recession of 2000-01 (and, of course, did not exist at all during the 1990-91 recession). Today the internet offers many opportunities for firms to market themselves more cost-effectively than ever before. Nevertheless, many firms have yet to exploit the full potential of the new technologies available to them.
But how should the experience of previous recessions inform firms' decision-making in the current economic climate? The evidence is strong that firms that step up their marketing efforts in downturns outperform their competitors. And with the advances in technology of recent years, the means now exist for firms to market themselves online and to seek out new business more efficiently than at any time previously.
Ted Page Director PWS
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