The Key to Surviving a Recession (and Thriving Post-Recession)
Posted on October 25, 2022
During our 20+ year history as a company, we’ve survived two major economic downturns — first the recession of 2008, and then the COVID-19 pandemic of 2020. You can read my detailed recounting of how PostcardMania got through those tough times by clicking on these links:
Our Story of Recovery: The 2008 Recession
The biggest lesson I learned was that cutting back on marketing during a slowdown is a huge mistake. Businesses may be tempted to slash expenses on marketing first when times get tough, but that is the opposite of what they should do. Marketing is the wind in the sails of a businesses’ growth, and when you take away that wind, all movement stops.
While I want you to take my word for it and learn from my experience, I know some of you out there are thinking, “But you own a marketing company so of course you’re going to say that.”
That is why:
I also want you to see what hundreds of other companies have done in the face of a slumping economy to not only make it through the bad times — but to come out stronger on the other end.
The research is eye opening to say the least!
These are the lessons to learn from businesses across the U.S. who faced horrible economic conditions and made it to the other side.
Keep (or even increase) your marketing to boost post-recession sales 256%
A McGraw-Hill research study that looked at 600 companies from 1980 to 1985 found that businesses that chose to maintain or raise their level of advertising during the recession had significantly higher sales after the economy recovered.
They reported companies that consistently advertise during recessions perform better in the long run. It also revealed that companies that increased their marketing during the recession had sales 256% higher post-recession than those that did not.
Consider that by cutting into spending on marketing in a down period, it will inevitably lead to greater cost later to regain the portion of customers lost due to lack of communication.
The amount of money you will have to spend to regain those customers could be four or five times as much as the cuts that you made. It’s wiser to find more affordable ways to market your products and services rather than stop marketing altogether.
Take stock of your messaging and the economic climate, then adjust if needed to ensure sales don’t suffer
Wharton School of the University of Pennsylvania Marketing Professor Patti Williams advises businesses address the recession in their marketing messaging with caution and help customers feel more in control when the world seems to be losing control. She used Gold’s Gym’s marketing as an example.
During the recession period of 1980-1985, Gold’s Gym released a television spot that showed a person on the Stairmaster. As they climbed every step, words appeared on the screen from “first floor” to “12th floor” to “Kilimanjaro” to “Olympus.” The purpose was to show that maintaining a gym membership was more about achieving goals than vanity.
The purpose:
Appeal to the prospect’s desire to purchase something pragmatic rather than flashy or nonessential during an economic crisis.
Williams said, “Certainly people are going to be spending less in a downturn, but they will spend something.”
It’s that “something” that needs to be appropriately marketed and sold as bringing value to the individual.
What can a small business do?
Using this example, a business can review its products and/or services and think of ways they bring value to people — especially in ways that will benefit them when their funds are low.
What your brand says during a challenging time will convey to consumers that you are either on their side or ambivalent to their hardships. By positioning yourself as an ally, you can help adjust their perceptions of your company when times are tough.
For example, LG Electronics’ slogan is, “Life’s Good,” but they backed off from using it in their marketing during the recession because they did not want to appear out of touch or insensitive to customers during challenging times.
Wharton Marketing Professor John Zhang said it best in the Wharton article, “You need to fine-tune your message to be sensitive.”
Find the right balance in cutting costs, making investments, and marketing to gain market share and increase profit margins
So, you know you have to keep marketing and be sensitive to your audience when crafting advertising content during an economic crisis.
But you may be wondering:
Exactly how much should you spend on marketing, investments, and other business endeavors?
Consider this Harvard Business Review study from 2008, conducted by a group of Harvard researchers. Their aim was to identify the most effective business management strategies utilized during economic downturns. They studied 4,700 companies listed in S&P’s Global Ratings database during three recession periods: 1980-1982; 1990-1991; and 2000-2002.
As a result, they grouped all the businesses into four distinct categories:
Prevention-focused Companies: Primarily make defensive moves and are more concerned than their rivals with avoiding losses and minimizing risks.
Promotion-focused Companies: Invest more in offensive moves that provide upside benefits than their peers do.
Pragmatic Companies: Combine defensive and offensive moves.
Progressive Companies: Deploy the optimal combination of defense and offense.
Here’s what they found…
Researchers concluded that progressive companies — companies that found a middle ground — had a 32% higher chance of outperforming their competition by 10% or more following the recession.
They also discovered that the progressive companies surpassed the pragmatic companies by almost 4% in sales and more than 3% in earnings (before interest, taxes, depreciation, and amortization), and performed about twice as well as the whole group.
We all want to be that fourth category, right??
Take Target for example.
They chose the progressive approach and applied a combination of defensive and offensive business moves during the economic crisis of 2000-2002.
Target increased their marketing expenditures by 20%, added 160 more stores, added 88 Super Target stores, ramped up their credit card programs, and grew their internet business by partnering with Amazon. They also teamed up with well-known designers to differentiate and promote new products.
At the same time, Target reduced costs, improved productivity, and enhanced the efficiency of their supply chain operations. As a result, Target’s sales grew 40%, profits went above 50%, and their profit margin increased from 9% to 10% after the recession.
Sony, on the other hand, was in the Prevention-focused Company category and dramatically reduced expenses in 2000 and again in 2008 to try to prevent losses.
During the first economic downturn in 2000, Sony cut its workforce by 11%, research and development expenses by 12%, and capital expenses by 23%. While these moves helped increase profit margins from 8% to 12% over 2 years, growth in sales decreased massively from 11% to 1%.
Then in 2008, Sony announced cost reductions again of $2.6 billion. It closed several factories, eliminated 16,000 jobs, delayed investments, and cut back on marketing costs. Their 2008 report revealed they lowered marketing costs across the board. In the section regarding game sales for example, they said, “The ratio of selling, general and administrative expenses to sales decreased 4.2% from 20% in the previous fiscal year, to 15.8% mainly due to decreased advertising and marketing expenses.”
So by their own admission, sales dropped due to their lack of investment in advertising and marketing.
These numbers don’t lie; cutting back on marketing was the wrong choice. So while companies like Sony went to extremes cutting back far too much, or other businesses went the opposite direction and spent beyond their means in the hopes of receiving a return, the best strategy in the end was a combination of both. Perform some cuts on expenses and invest in some new developments while not going overboard.
But keep in mind, as mentioned before, that the companies that performed the best overall NEVER cut their marketing expenses, and the highest earners INCREASED their marketing spend.
During turbulent times, we understand how hard it is to find this balance, but that’s why we are here—to help you budget marketing expenses appropriately.
If you need help with your marketing, please reach out to us. Despite the name PostcardMania we can help you with a lot more than just postcards. We offer online advertising services, website development and more.
If you would like to speak to a marketing consultant about any of these topics that we covered: creating appropriate content during a recession, selecting the right budget for marketing expenditures, or maintaining consistency with your marketing, please call 1-800-628-1804. They will be able to tailor a marketing strategy that fits your needs and your budget.
