Advertising When Things Are Slow
When business is slow and customers appear thin on the ground, the natural reaction for many business owners is to cut back on all unnecessary expenditure. For some, that includes cutting back on advertising.
But is this the best option?
The following material is all related primarily to advertising during a recession. You could also view a slow time of year in a similar way. It will pick up later in the year in the same way that recessions come and go.
First a story to illustrate the point...
The Importance of Knowing the Difference
A man who owned a small hardware store was shocked when his son came home from college one weekend and told him that a recession was on the way.
“How do you know this?” asked the father.
“Because my economics professor said so,” replied the son.
“Well, what should I do?” asked the man in bewilderment.
“Reduce your inventory, trim your payroll, cut back on advertising and make no capital improvements,” was the son’s answer.
The father, realizing that his son’s professor had to be right-after all, he certainly was a very well educated man- began to institute the changes on Monday morning.
First he cancelled the orders he had made for new merchandise. Then he let two of his people go who had been tending the store on evenings and helping handle the Saturday crowd. He cancelled the advertising he had scheduled in the local newspaper, then called the carpenters and told them he had decided to hold off on the re-modeling and painting he had planned in order to open up the store’s crowded aisles and change the cramped look.
As a result, when customers came looking for new things to buy, they found the same old products on the same old shelves. Weekend shoppers, who had accounted for a large part of the business, were disappointed to have to stand in a slow-moving line to pay for their purchases, since there was only one cashier. Those customers who did come were annoyed when they couldn’t find anything on the crowded shelves, and besides, there was no one to answer their questions.
As a result, customers decided to go down the street to patronize a newer store that advertised a lot.
Because there was no advertising, the store’s only source of new customers dwindled to a trickle. Old customers began to stay away. Sales dropped, there was no Christmas bonus, morale fell away to nothing, several of his best employees quit, and as the first of the year came, the father wrote his son the following letter:
Please thank your professor for warning me. I did everything he said, and just in the nick of time – because business sure is lousy. Just think where I would be if I had not taken his advice. This proves there is nothing like a college education.
Your loving father
P.S. I guess that new car you wanted will have to wait.
The idea of conducting a study to prove that a company should maintain advertising during a recession goes back to the 1920s when an advertising executive named Roland S. Vaile tracked some 200 companies through the recession of 1923. In the April 1927 issue of the Harvard Business Review, he reported that the biggest sales increases throughout the period were rung up by the companies that advertised the most.
Sometimes we need to remind ourselves what the short-term benefits of advertising are—during good times or bad—it creates sales immediately; it generates added business from current customers; and it brings in new leads and prospects.
Then there is the long-term benefit of advertising—it works cumulatively.
In a study of U.S. recessions, McGraw-Hill Research analyzed 600 companies from 1980-1985. The results showed that business-to-business Firms that Maintained or Increased their Advertising Expenditures during the 1981-1982 recession Averaged Significantly Higher Sales growth, both during the recession and for the following three years, than those that eliminated or decreased advertising. By 1985, sales of companies that were Aggressive Recession Advertisers had Risen 256% over those that didn't keep up their advertising.
In addition, a series of six studies conducted by the research firm of Meldrum & Fewsmith showed conclusively that Advertising Aggressively during Recessions not only Increases Sales but Increases Profits. This fact has held true for all post-World War II recessions studied by The American Business Press starting in 1949.
Now is the time for smart companies to seize market share and position themselves to lead the inevitable economic turnaround. Business owners must remember what it was like to start a new business, gain name recognition and entice customers. Withdrawing from the public until the economy picks up and cash-flow increases will mean having to reinvent the company all over again. A cost that will weigh far more than a few quarters with lower than average profits.
The way for companies to maintain their market share is simple: To Advertise.