Bad Economy? Bad Time to Cut Ad Spend

ad spend UK wall plastered with bill feature

Do you really want to cut your ad spend now? (Photo credit: Jo San Diego on Unsplash)

Ad spend: should you really be thinking of cutting it in a recession (or near one)? Consider the contrarian route to success.

Inflation has now topped 9%. Production and transportation costs, from various causes, have increased noticeably just this year. Consumer sentiment is falling for the first time since early 2020. Counterintuitively, these recessionary markers, rather than signaling a marketing budget tightening, indicate that it’s actually the perfect time for ecommerce companies to advertise.

For over 100 years now, studies have shown a marked increase in sales and brand awareness for those firms that increase ad spend during an economic downturn.

Budgets are Limited, Opportunities are Not

With a recession now in play, many companies are looking at slashing budgets for the next fiscal quarter, especially ad spend. While this may be the conventional wisdom, CEOs should reconsider this advice. As the adage goes, “recessions make the most millionaires.”

This is partly because those who capitalize on the discounts available in a downturn get the highest returns on their investment once the economy turns around. Another counterintuitive reality is that, as learned during the Great Recession, “brands that cut their ad budget at a higher rate relative to their competitors were at a greater risk of share loss,” Kunal Gupta, CEO of Nova, said in a LinkedIn post.

Companies that can maintain or increase advertising budgets will not only be able to capitalize on lower CPCs but gain market share and consumer awareness with fewer little guys competing for the same audience. It may seem rudimentary, but expanding a firm’s ad spend, especially during a recession, will increase the company’s Share of Voice (SoV), while others are going silent.

And so the company and its products will be the ones being discussed by greater numbers of customers. This will translate into an increased Share of Market (SoM) and then to an increase in profits, even during recessionary challenges.

Smaller Firms Can be More Agile

Often in a recession, the difficulties hit smaller companies first. Small businesses are already run on thin margins, and when economic headwinds blow, they cannot absorb higher production and shipping costs, to use one example.

The equity markets, sensing the weakness of smaller corporations, have already priced in this reality, crashing the share price of Shopify by nearly 75% in the first half of 2022.

A smaller company, due to its smaller size and market share, can pivot much faster and more strategically than can larger firms layered with bureaucracy. By expanding your ad spend — and deploying it smartly — you can punch above your weight and have your voice heard far beyond your SoV on paper.

No Need to be the Pioneer to Come in First

This sort of risky marketing during a recession might feel foolhardy; it is not. There are many historical success stories from previous recessionary periods. Kellogg’s famously doubled advertising spend during the Great Depression and proceeded to dominate the cereal market against Post for decades afterward. Toyota in the 70s, and Amazon during the Great Recession, continued to increase their SoV and even created new products.

The Unique Opportunity that a Recession Affords

The lesson here is that, instead of spending less on advertising, any ecommerce business has a unique opportunity given by the downturn to leap over its competitors by maintaining or increasing its marketing efforts. You can increase your SoV, market share, and brand awareness while other companies go quiet. This counterintuitive ad spend boost will pay off not only during tough economic times but also more so once the economy turns around.

Ben Hardt is the Senior Director of Digital Strategy at X Agency