Red arrow crash

Let me tell you a story about a small family business. Simply put, it was a hot dog stand in the middle of a medium sized city. Business was good, in fact, it was booming for many years. After all, who doesn’t want a good hot dog?

This hot dog stand used a variety of marketing tools in its arsenal. They ran some TV commercials, a few radio spots, an occasional newspaper ad and It had a well-placed billboard right before an exit on the highway. This billboard literally helped drive a lot of traffic to the hot dog stand. Even though times were tough in the community, the hot dog stand was still quite popular with people from all around the area.

One day, the son (and heir) to the hot dog stand owner went to his father and said, “You know dad, business is doing great, but I think we can be doing better. Lots of people know about us and our hot dogs. I think we could cut back on some of our marketing expenses without affecting our sales. With the economy slowing down, I think we can keep our sales up while saving some money and even make more money simply by cutting some of our expenses.”

The father wasn’t quite sure what to think. He knew marketing helped him create his popular brand, but he didn’t know if the continued marketing was still necessary. Not wanting to discourage his son from having an interest in the company, he went along with the son.

The son, all excited about his dad’s trust in his business acumen, commented, “Thanks dad. I won’t let you down.” Soon thereafter, the son slowly started to cut back on the marketing.

First came the print ads, with minimal effect on sales. The son was happy because he felt like he was showing that he was right. The father was comforted because he thought his son was on to something.

Then came cuts in the TV and radio spends. Sales started to slow down, but the son could easily explain it, “Dad, the economy is slowing down. Everybody is starting to feel the pinch. Besides, we might not be selling as many hot dogs, but we are making more on each hot dog that we sell.”

A few months went by and the son made the last adjustment to the marketing budget. He cut the traffic-driving billboard. Sales bottomed out. Store traffic was a fraction of what it was when times were good. The son explained, “Dad, people just aren’t buying hot dogs anymore. This economy has caused a lot of business to close down.”

The father, tired from years of hard work and wanting to retire soon, agreed with the son, “Well, I guess you’re right. This economy is pretty bad. Sales have been dropping consistently for some time now. I guess we need to start thinking about closing down.”

The sad but true plight of this hot dog stand isn’t that it’s a victim of a bad economy. Quite to the contrary, its sales  were solid before it started cutting its marketing budget. The problem was that they made the mistake of resting on their laurels and expecting their “brand” to carry them through the bad economy. In fact, most people stopped coming to the hot dog stand not because they couldn’t afford it, but because they stopped hearing about it. The customers started to think the hot dog stand was out of business before it actually was out of business. Ever heard of “out of sight, out of mind?”

Most businesses’ initial reaction to a down economy is to cut their marketing budget and departments. Marketing is considered to be a expendable entity. They claim that marketing doesn’t yield them a return on investment. They claim marketing is overhead and that there is no real value in it.

Truth is, it is exactly in a down economy that companies should be making the investment in their marketing for many reasons. First, marketing in a down economy helps nurture sales prospects into leads and leads into customers.

Secondly, marketing in a down economy positions the company in a position of strength among potential customers and clients. Consider this, your competition is most likely going to be cutting their marketing budget. This is your chance to gain market share if you are behind them in the market. In some cases, it can make you the market leader. In a more competitive situation, if could give you the opportunity to knock out your competition.

Don’t believe me, consider the following (courtesy of Derek M. Naylor’s article entitled, “Marketing During a Recession: A Survivor’s Guide For Tough Times):

  • In April 1927, the Harvard Business Review found companies that advertised most during recessions had the biggest sales increases.
  • Companies that had higher sales and net income during the recession of 1974 to 1975 didn’t touch ad budgets. What’s more, they also beat non-advertisers in the two years following the recession’s end.
  • In the recessions of 1949, 1954, 1958, and 1961, companies tracked for ad spending cutbacks saw sales and profits fall off. Those who kept ad budgets saw profits increase and kept an edge in the years that followed.
  • In 1947, Buchen Advertising tracked the annual advertising expenditures for a large number of companies, correlating spending to sales trends before, during, or after the recessions of 1949 and 1954, as well as sales and profits trends surrounding the recessions of 1958 and 1961. It found that sales and profits dropped off almost without exception at companies that cut back on advertising, and these lags continued even after the recession ended.
  • In 1982, Cahners Publishing Company & The Strategic Planning Institute studied 2,000 businesses to explore the relationship between market share and profitability, and advertising’s impact on this relationship. As it pertains to our discussion of recessions, the study found that businesses which increased media spending by up to 28 percent had a 0.5 market share increase during periods of recession, and those that increased 28 to 80 percent increased market share by 1.5 share points. During expansion times, however, those that increased media spending up to 28 percent saw a 0.2 share increase, and those increasing 28 to 80 percent also had a 0.2 share increase.

So what does all this mean? Should companies just increase their marketing budgets and grow their marketing departments? The answer is just as complex as the question. I believe that companies should increase their marketing budgets, but not blindly. They should be smart. They should be open-minded to the opportunities that can present themselves in these times. And more importantly, they should develop a “bulldog” mentality toward the marketing strategies that have traditionally developed a return on their investment.

Everyone agrees that we are facing trying economic times right now. The companies that are willing to change their traditional ways of slashing marketing budgets will not only come out better in this economy, but they will be better off for a few years after the economy grows. The smart companies will approach a recession with a clear, executable and measurable marketing plan that is focused on market growth.