Thanks to the ongoing impact of the COVID-19 pandemic, Australia has entered the first economic recession in nearly 30 years. The outlook for the next 12 months isn’t much better, with the RBA predicting a further 6% economic decline by June 2021. Australian companies are expected to drastically cut their marketing and advertising budgets in response.
According to Magna, IPG Mediabrands’ media investment and intelligence division, Australia’s advertising market will drop by 8.3% this year.
What Impact Will Cutting Marketing Spend Have?
Looking back to the last global recession provides important insight.
Millward Brown’s 2008 analysis of the Profit Impact of Marketing Strategies (PIMS) database showed that although companies that cut their marketing spend enjoyed a higher Return on Capital Employed (ROCA) during the recession, they had inferior results after the recession ended. Ultimately, the companies that maintained their marketing spend during the recession were able to take an average increase of 1.3% market share and achieved a sustained, higher ROCA after the recession ended.
The economic downturn represents an opportunity for brands to increase their market share, but only if they continue to invest in marketing and advertising.
During times of economic hardship and uncertainty, many companies choose to rein in their marketing and advertising budget. While this is an understandable reaction to lean times, this can actually be a false economy, which will weaken the brand’s position and reduce its market share in the long term.
History Repeats Itself
Historical data shows that brands that continue with the same advertising budget they had before an economic downturn are rewarded with increased sales and profits. And may even see their businesses grow exponentially. This is supported not only by data from the 2008 global recession but also by Ronald Vaile’s study of companies that invested in advertising during the Depression of 1920 and 1921.
Because there is a contraction in the advertising market as other brands shrink their budgets, this represents an opportunity for the companies that maintain their advertising spend at pre-crisis levels to outperform their competition and increase their market share.
An Opportunity To Take Share Of Voice
A direct relationship between a brand’s share of the market (SOM) and share of voice (SOV) exists.
If a brand has a higher SOV compared to their actual SOM, they are more likely to increase their market share the following year. Investing in marketing while their competitors are cutting back will significantly increase the brand’s SOV and subsequently boost their market share in the future.
Although brands can find opportunities within the current economic downtown, it is critical that they take action immediately.
As the historical data shows, how the brand behaves during the recession will dictate the results they enjoy once the recession is over. Now is the time to invest in marketing and advertising.
By taking action now, companies will come through this crisis stronger and enjoy an increased market share when Australia comes out of the recession. This will put them in a unique position to take advantage of the next stage of economic growth.
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- There is nothing more certain than change – Metro radio survey 8 update - December 17, 2019
- Social Media in 2020 – How to navigate the social landscape of the new decade - December 6, 2019
- Metro Radio Survey 7, 2019 Wrap - November 14, 2019
- The Role of Video in Influencing Consumer Behaviour - October 16, 2019
- Metro Radio Survey 6, 2019 Wrap - October 2, 2019
- Advertising Short Term-ism – how this is impacting business results - September 17, 2019