Why you don’t cut ad spend in a crisis

The first lockdown of 2020 was a tough time for many and in the grand scheme marketing was not the first thought in everybody’s mind. Marketers all over the world did however face a COVID crossroads. Unprecedented revenue decline forced companywide budget cuts and as has been seen historically, marketing is one of the first to go. However, empirical evidence suggests while this may save cash in the short term, in the long term it does more harm then good. 

Why you don’t cut in a crisis

So in a play as old as recessions, the story was the same. Brands cut back from advertising because they and their target consumers were facing a difficult period. However, all it takes is one brand to maintain its marketing investments and it reaps all the rewards as a result. Not because of the company or the customers it targets, but because of the competitors and their silence. As they cut back or go completely dark, the same ad budget suddenly delivers a significantly better share of voice. Excess is a relative term after all. And excess share of voice has been shown to deliver significant growth in the short and, especially, longer term.

So who did it right and who messed it up?

Two household names are on either side. P&G the company that invented most of the concepts that now form the basis for modern branding and Coca-Cola. I think you can probably guess which brand took which approach. P&G’s results reported revenue growth of 4% for 2020 which according to the outgoing CEO was “the strongest share growth we’ve seen in many years,”. Coca-Cola however, reported a disappointing full-year reduction in net revenues of 11% for 2020. This is even more of a slap in the face as arch-rival PepsiCo seized a significant upper hand and reported net revenue growth of 5%.

Where were the warning signs this isn’t the world’s first crisis?

Warnings signs came in the form of empirical evidence from the Ehrenberg-Bass Institute. Research by the Ehrenberg-Bass Institute proves that an advertising hiatus not only leads to notable sales declines, but cannot easily be recovered from. The Institute found that on average brands saw their sales fall 16% after one year without advertising compared to the last advertised year, and by 25% after two years. By three years the drop reaches 36%, though as the years continue the steady decline eventually tapers off. They state that “Stopping advertising means brands cannot build or refresh mental networks through mass communication, but other nudges come from buying or using the brand, seeing other people buy or use the brand, or seeing in-store displays and activations (which typically also favour bigger brands),”. Now if this isn’t enough to enforce that you shouldn’t cut advertising spend then who knows what is.

Final Thoughts 

The report leaves only one obvious question, Given Ehrenberg-Bass is so empirically clear about the dangers of going dark, especially for brands that are in decline, why on earth didn’t Coca-Cola – a fully paid-up member of the Institute – listen to them?  And closer to home?  I guess Polestar should hit the marketing button.

“Covid caused every brand to question itself. The brave, the clever and the ones with long memories doubled down. Those with lesser budgets, shorter memories or a lower grade of leadership cut back and paid the price.”

By Joe Graham on 20/08/2021