Imagine this: You are flying at 30,000 feet. The captain announces that a huge storm is approaching. He then informs you that he is running low on fuel. If he lowers the speed to conserve fuel, the storm may overpower the plane and take it off its course. He may then not have enough fuel to find his way back to reach the destination. If he increases speed to surge through the clouds, he runs the risk of exhausting his fuel faster. Now he gives you the option of lowering the speed to conserve fuel or to go full throttle to surge through the clouds.
What would you choose?
Supporting a brand through an economic downturn is much like a plane caught in a storm with low fuel. Of course, one has the option of conserving the juice. However, after the saving, whether the brand will be able to recover from the effects of a nosedive or not is a million-dollar question. Nobody has seen the future, but we have the option of looking back. Time and again, advertising professionals have tried to prove that advertising in times of recession has helped brands in the long run. The Harvard Business Review covered 200 US companies during the recession of 1923-25. During the period of post-recession recovery, companies that spent more money on marketing expenses achieved higher sales. This study was not accepted by most because it did not record the profit indicators.
In 1999, PIMS (Profit Impact of Marketing Strategy) conducted a special analysis of 183 UK-based companies in periods of recession and recovery. Of that lot, 110 cut ad spends, 53 chose to maintain at the same level and 20 increased expenditure. During the period of recession, the ones that spent more made the least profits. However, during the period of recovery, the scroungers saw their profit grow by 0.8 per cent, whereas the spenders saw a hefty 4.3 per cent points growth. This more than made up for the lower profits during the period of recession. As for market share, the cost-cutters saw 0.6 per cent point growth as against a hefty 1.7 per cent appreciation for the spenders, during the recovery period.
The study most conclusively proved that the good costs that one should focus on during recession are:
- Marketing communication
- Product quality enhancement
- New product development
Whereas the bad costs that should be curbed during recession are:
- Manufacturing overheads
- Administrative overheads
- Fixed capital
- Working capital
If these are effectively cut, there should be enough money to spend on the good costs. Such examples supporting advertising spends during recession are quite common in the annals of marketing history. Closer home, there are enough examples from countries that faced the Asian meltdown. Here, brands that spent maintained their leadership position and, in some cases, surged ahead of the competition.
Some recent analyses during our current phase of economic slowdown throw up interesting facts in support of advertising. In the sub-popular soap category, Breeze has upped its Gross Rating Points (GRP) by 47 per cent over the year 2000 to achieve a 20 per cent value growth in sales. As against that, Lux has maintained its GRPs to see some decline in sales value. Similarly, in the category of hair dyes, Godrej—the market leader—has grown by more than 20 per cent in value by increasing GRPs by a comparative amount. These are some indicators that hard times have not dampened the desire to look good and feel good. As a matter of fact, there is an indication that despite recession, businesses such as mortgage, insurance, snack foods, home furnishings and house wares, to name a few, continue to do well. Perhaps, investing, feeling safe and feeling good are the more basic needs during a phase when people are generally feeling depressed?
While on one hand periods of economic slowdown are a good time for established players because consumers don’t want to take chances, it’s also true that during such uncertain times there is a tendency to trade-down. Therefore, recession is also a great opportunity for challenger brands that spend heavily to communicate brand values that lead to a churn. One such example in recent times is Akai TV from Baron. At a point when the color TV business was growing annually at the rate of eight per cent (value) and the total advertising outlay for all brands put together was Rs 830 million, Akai came up with a proposition for upgrading from black-and-white TVs on one hand and moving from 21″ to 29″ TVs on the other; all this at never-before, attractive prices. Akai achieved some dramatic results in terms of market shares with an aggressive advertising budget that supported a hefty 16 per cent share-of-voice (SOV). Akai reached a 13 per cent market share in less than two years. What really happened as a result of this brave and defiant move from Baron was that the color TV market saw a growth of 18 per cent and, in the following year, the category grew three-folds.