An economic downturn like the one we’re experiencing tends to come with a natural consequence. As businesses see their revenue threatened, they begin to look at cutting costs and balancing their P&L statements.
That step is undoubtedly understandable. However, an unfortunate side effect is that the first department to lose at least some of its budget is marketing. It’s why, during the COVID-19 pandemic, research by Gartner found that marketing budgets dropped to their lowest level in recent history when measured as a percentage of companies’ total revenue. As a 2009 article by the Harvard Business Review shows, a similar effect occurred during the 2008 recession.
And yet, a common trend does not necessarily equal sound decision-making. In fact, research overwhelmingly shows that cutting marketing costs during an economic downturn is actually a bad business decision. It cedes ground to companies who are willing to continue investing. Additionally, it creates a disadvantage when attempting a recovery during the market’s comeback.
This concept deserves further exploration. Let’s dig into why marketing tends to lose budget when the market turns sour. What does the research say about this trend? And how can sound decision-making build a crucial competitive advantage during uncertain economic times?
Why Marketing Takes a Cut During an Economic Downturn
Marketing budgets tend to get cut when revenue gets tight for a simple reason: the revenue marketing generates is difficult to tie to specific revenue increases. From brand awareness to customer service, communication with core audiences is undoubtedly essential–but it’s difficult to put a number on just how essential it truly is.
Sure, the move to data-driven marketing over the past decade has been an earnest attempt to more directly attribute value to marketing activities. But factors like last-touch attribution, still the most common way to measure conversions today, can also minimize the impact of marketing. How important was that brand awareness spot really when the sale happened after a sales call?
Marketers know the answer, but too often cannot quantify it. As a result, marketing becomes a non-essential cost center. It is considered overhead that can be cut with little damage to the overall business operation.
This issue is exasperated by the fact that Chief Marketing Officers are not always granted a seat at the table of organizational leadership and high-level budget decisions. A 2017 Harvard Business Review analysis found that only 23% took on an enterprise-wide, growth-driven role. Meanwhile, 31% took on a strategic role, while the remaining 46% were hired for a strictly commercial and advertising-driven role.
CMOs without a seat at the budget decision table, and efforts that cannot always be attributed directly to tangible revenue, make for a volatile combination. The move toward treating marketing as a profit center rather than a cost center may exist. However, until that move is embraced by a majority of organizations, marketing will always be among the first departments to lose budget when the economy turns sour.
What the Research Says About Marketing Budgets During Economic Uncertainty
So much for the reality of the current situation. But what does the research say about cutting marketing when the market slows down and revenue declines?
First, one thing is becoming increasingly clear. Trends like the above-mentioned move toward marketing as a more strategic, profit-driven activity are pervasive across industries. And for those companies embracing marketing even during economic uncertainty and downward trends, it’s an incentive to spend more for a better long-term advantage.
In fact, recent Forrester data shows that 52% of marketers are planning to spend more in early 2023. That is despite the fact that many economic experts have forecast a recession. Why? It’s a data-driven decision. As AdAge recently reported, 60% of brands that increased media spend during the last recession saw their ROI increase. Marketers who spent more on paid ads saw a 17% incremental increase in sales.
Meanwhile, the same report found that those who cut spending instead of upping their investment lost an average of 15% of their sales to their competition.
And we’re not done yet. A meta analysis of marketing studies reaching back as far as 1979 all came to the same conclusion. It might seem counterintuitive to spend more during a recession or economic downtown. However, that strategy has reliably been shown to increase both short-term and long-term revenue.
The Benefits of Spending More on Marketing When Others Spend Less
Of course, the research consensus of increasing your marketing budgets during economic downturns leads to one obvious question: why? What makes this potentially counterintuitive strategy so beneficial for marketers and organizations across industries?
The answer lies in three components: long-term thinking, a more open market, and flexibility through technology solutions. Let’s explore all three in more detail.
- When overall spending is down, a steady or increased marketing budget can stretch further. As the COVID-19 pandemic showed, less expensive marketing along with a more open field allowed a wide range of companies to build vital market share in their industries
- Downturns don’t last forever. Organizations that spend more when the market is down not only improve their market share, but position themselves at a crucial competitive advantage when the economy inevitably swings upward again. They’re now ahead of the curve, having established a foothold that can pay long-term benefits.
- Increased spending opens technology opportunities. Building a larger marketing budget does not just mean bigger media spends. In fact, experts recommend increasing spending on technology during an economic downturn, which can build more robust communications systems as other avenues break down.
Digital Assistants Help Maintain Market Share
Consider the example of digital assistants in the most recent economic downturn during the COVID-19 pandemic. When human staff became unavailable to answer questions in the sales process, the customer experience suffered. Organizations that invested in digital assistants were able to weather the storm. They maintained a strong customer presence and avoided losing market share.
It might seem counterintuitive at first. However, both the research and general advantages of the concept agree. Increasing your marketing budget during an economic downswing is a prudent business decision. Its long-term benefits far outweigh the short-term costs that may not result in immediate revenue payoffs.Learn more about how digital assistants can boost your marketing strategy.