Cutting marketing cost may seem smart during Covid-19, but data tells a different story

This article was co-authored by Raja Ramachandran.

The Covid-19 pandemic has caused a lot of uncertainty for professionals out there – and marketers are no exception. As companies attempt to balance advertising budgets with resiliency plans, it’s easy to think that every dollar spent by a chief marketing officer is one less dollar the CEO has in the bank for weathering the storm. However, uncertainty is no excuse for poor business decisions.

Photo credit: junpinzon / 123RF Stock Photo.

I’ve heard from a number of marketers recently – from companies of every size and stage – that they’ve been instructed by their leadership teams to cut brand marketing spend.

If you’re a startup that has to make cuts in order to meet payroll, I get it – this piece does not apply to you. But if your decision is driven by fear of the unknown or some risk avoidance strategy, I’ll give you a few historical examples and data points on why this might not be the best for your business.

Lessons from global crises

A decade before the Great Depression, another worldwide economic recession had unfurled, stemming from the conclusion of the First World War. The Depression of 1920, as it’s often called, happened in an economy that was rapidly globalizing, where advertising and media were becoming much more important for businesses.

In his published work, “The Use of Advertising During the Depression,” author Roland Vaile followed both the revenues and magazine marketing spend of 230 companies from 1920 to 1924. According to his findings, firms that had increased their marketing spend grew their revenues much faster than those that did not.

His research also found that during the recession, businesses that had boosted their advertising spend received a smaller blow to their relative sales. These companies grew revenue past the study baseline about a year earlier than their peers and outpaced them in the recovery years that followed.

More recently, Peter Field, a research fellow at the B2B Institute, published a fascinating study on how advertisers had reacted to the global financial crisis and how their reactions affected their companies’ long-term prospects.

Field’s research concluded that those who have the resources and means have little reason not to take advantage of the moment and accelerate their brand’s share of voice (SOV).

Defined as the percentage of advertising within a category owned by a brand, SOV is heavily correlated with market share. Cutting brand marketing spend and lowering SOV have short-term cost benefits, but data shows that growth may otherwise be more expensive in the recovery period.

Field provides some practical insights and applications in his piece, which can be read in its entirety here.

Clear-eyed assessment

For companies to understand their next moves, teams must know where their businesses sit within the market.

Do they make an essential product with high demand, but supply chain disruptions are affecting their ability to deliver (e.g., a grocery supplier or producer of personal protective equipment)? Are they selling a complimentary product with higher demand than usual and are also less reliant on supply chains (e.g., a video-streaming app)? Or are they in a discretionary spending category and in need of reserving cash to simply stay in business (e.g., an airline)?

Progressive vs. defensive

Focus on core brands

Onward to recovery