Should we cut advertising budgets during the epidemic? Shouldn’t!

Some time ago, I wrote an article titled "What impact will the epidemic have on the advertising industry? ”, which sparked discussions in the industry. The epidemic has indeed had an impact on many advertising companies. This is mainly because many parties have reduced their marketing budgets and postponed the release of important products in response to declining consumer demand. A few days ago, the general manager of an advertising company told me that the epidemic caused most clients’ Q1 plans to be stopped or postponed.

In the face of the epidemic, a large proportion of parties have chosen to cut their budgets and reduce marketing activities. But is this behavior correct? not necessarily.

1. Budget cuts are the first response during a recession, but they are not necessarily the right response

Looking back at the history of advertising, whenever an economic depression comes, the first reaction of many brands is always to cut marketing budgets. This is in line with human intuition and is a very easy decision to make.

Very easy to understand. During a recession, if you want to make a decision to maintain or even increase your marketing budget, you need to think rationally. You need to calculate the possible benefits of investing in marketing expenses under such uncertain conditions, assess the risks involved, and assess the effects over a longer period of time . This requires you to prepare various data, plans, evaluations, etc. to support your arguments, which will take up a lot of your brain cells.

If you are making the decision to cut marketing expenses, it doesn't require much thought, because during a recession, every penny cut saves the company a penny.

In "Thinking, Fast and Slow", author Daniel Kahneman divides human thinking patterns into two types: one is fast thinking: that is, unconscious, fast, and less brain-intensive thinking. The second is slow thinking: that is, those thoughts that consume more brain power and require abstract thinking. These two types of thinking can correspond to the intuitive thinking and rational thinking mentioned above.

It is normal for humans to be easily influenced by intuitive thinking when making decisions because the human brain tends to be lazy, but such decisions are often incorrect. To give a simple example, the picture below is the Müller-Lyer illusion. Your intuition tells you that the upper line segment is longer, but a rational study will reveal that the two line segments are actually the same length.

Cutting budgets during a recession is intuitive thinking and can save a company money, but it is not a far-sighted decision because this behavior may cause the brand to lose exposure, reduce consumers' memory of the brand, and lose the opportunity for the brand to gain an advantage after the recession. The latter requires rational thinking to come up with.

Data proves that more than 90% of human decisions are made by intuition, while less than 10% are made by rationality. I think those who have insisted on not cutting their marketing budgets during the epidemic belong to the rational 10%. In essence, this is the difference between immediate interests and long-term interests.

2. Companies that don’t cut budgets during a recession perform better in the market

Roland Weil, a former professor of economics at the University of Minnesota, published an article in the April 1927 issue of Harvard Business Week, comparing companies that maintained their advertising spending with those that cut their budgets during the 1923 U.S. recession. This was one of the earliest studies on this topic.

Since then, the subject has been followed up by many others, and the results of their research have been consistent: if a company reduces its budget during a recession, it will perform worse during that period and the subsequent recovery period.

In 1973, the oil crisis broke out and the US economy suffered a severe blow. American Business Magazine used data research to show the gap in sales between companies that reduced advertising during the economic depression in the following two years.

Source: American Business Magazine

As can be seen from the above figure, the companies that cut their budgets for two consecutive years saw their performance decline in 1975, but the companies that did not cut their budgets saw their performance increase. By 1977, the performance of companies that did not cut their advertising budgets almost doubled compared to before the oil crisis, while the performance of companies that cut their advertising budgets increased by no more than 50%. The gap between the two widened in just four or five years.

The United States also experienced a recession between 1990 and 1991. After a study, the journal Management Review found that companies with significant growth in market share were those that increased their marketing budgets and marketing personnel.

During the 2008 US financial crisis, Paul Dyson published an article titled "Reducing Advertising Spending During a Recession Will Delay Recovery." In the article, Dyson demonstrated that companies that cut advertising budgets during a recession would need to increase their advertising budgets during the recovery period by about 60% if they wanted to return to pre-recession sales levels within a year. In other words, if you reduce your advertising budget by $1 during a recession, you’ll have to increase it by $1.60 after the recession ends to get back to pre-recession levels.

American marketing history shows that cutting budgets during a recession is not a wise move. There is another question that you may be more concerned about.

During this epidemic, many companies' factories cannot operate and production capacity is limited. Should the marketing and advertising budget be reduced at this time? I think at least it should not be cut too much, because the factory shutdown time will not be too long, many factories have already started to resume work one after another, and once the epidemic is alleviated, production capacity will increase rapidly, and at this time the advertisements placed during the shutdown period will play a role.

Ogilvy gave a similar example. During World War II, the British government banned the sale of margarine under brand names, and at this time it might not have been cost-effective for most cream brands to continue advertising. However, Unilever chose to continue advertising one of their cream brands, even though the brand had been nowhere to be seen on the market in those years. However, after the war, the brands made a comeback, and Unilever's cream brand suddenly became the top brand.

Part Three: Why You Shouldn’t Cut Your Budget During a Recession

The multiple data and studies mentioned above have proven that companies that maintain and increase their advertising and marketing budgets during a recession will achieve better growth and higher market share in the long run. After rational thinking, the answer is not difficult to come to.

• Continue to maintain consumers' good impression of the brand. Psychologist Zajonc once demonstrated through experiments that the more frequently people come into contact with something, the more they perceive it as positive and the happier they feel. This is also the reason why famous consumer brands advertise continuously all year round. During the epidemic, many brands stopped advertising and marketing. However, if your brand still advertises and markets normally at this time, consumers will have a deeper and better impression of you . For those companies that stop advertising and marketing, consumers' familiarity and favorability towards the brand will definitely increase and decrease. Once the epidemic is over, when consumers buy products, the first thing they think of is your brand.

• Marketing costs are reduced. Obviously, during a recession, the demand for advertising will fall as most companies will cut their advertising budgets, resulting in a reduction in the fees charged by most advertisements, both online and offline. At this time, as long as you find the right channel, it is equivalent to spending less money and doing more advertising and marketing.

• When the enemy retreats, we advance, and we achieve twice the result with half the effort. In years when the market is hot, competition between brands is often very fierce. Of course, competition in advertising and marketing is also very fierce. The battle for market share among brands is like a war of attrition. It takes a lot of effort to grab a small portion of the market from competitors. In recessionary years, competition between brands is significantly reduced. At this time, when most competitors have given up marketing and you still maintain it, it will be easy to seize the opponent's market. During this epidemic, the annual MWC conference was cancelled, so many mobile phone brands also cancelled the release and marketing of new products. Here I would like to praise Xiaomi's decision. Xiaomi 10 chose to release its flagship mobile phone online as planned during this period and conduct online advertising. Obviously, compared with previous years when various brands released new phones one after another and competed fiercely for the market, this year's Xiaomi 10 faces much less competition . The exposure effect obtained by Xiaomi 10 should be the greatest during the epidemic. Facts have proved that although the price of Xiaomi 10 is as high as nearly 4,000, it has been hard to get one after its release.

• Helps retain talent. Brand advertising can enhance employees' sense of honor. Most people are unwilling to work for an unknown company. Maintaining advertising during a recession reflects the company's charm and foresight. Excellent and professional marketers certainly don't want to work for a brand that cuts its budget when a recession occurs.

In the book "Detail Marketing", the author Bai Weiliang talked about an example from the SARS period: When SARS swept across the country, a company took the initiative to find the author and said that it was going to postpone an event that had been planned and prepared because people were afraid to go out shopping.

The author is against postponing the event for three reasons: first, fewer people are going out shopping, but more people are watching TV at home; second, as the SARS crisis intensifies, other companies will cut back on advertising spending, and the prices of television and magazine advertising space will fall; third, when competitors are silent, customers can hear the company's message more clearly. The SARS crisis gave them the opportunity to build their own brand at an unprecedented low cost while competitors were cutting marketing spending.

4 : Is it okay to only do promotions and not brand during the epidemic?

Advertising budgets should not be cut during a recession, nor should investments originally intended for the brand be diverted to promotions.

Many companies will cut advertising budgets during economic recessions, but fearing a sharp drop in sales, they will often do more promotional activities because promotions can bring in more direct revenue, just like cutting advertising budgets, which can be immediately reflected in the company's finances. However, this decision is also an intuitive one, not a rational one.

Promotions can boost sales in the short term, but the disadvantages are also obvious. First, price cuts during a recession will send a signal to the market: your product is too expensive, and your product is not worth the price after the recession. Once a product leaves consumers with the impression that it is low-priced, it will be very difficult to increase its brand power.

Second, short-term promotions don’t really win over consumers. If a person buys a brand product just because it is on sale, he usually will not have any brand loyalty. Professor Ellenberger commented on this behavior: " A price reduction can entice people to try a brand, but they immediately return to their familiar brands as if nothing had happened. "

Short-term promotions can boost sales temporarily, but in the long run, brands are the driving force that can create a steady stream of sales for companies. Once the economy is depressed, it is short-sighted to withdraw advertising fees and invest in short-term promotional activities.

5. Budgets should not be cut, but should be changed dynamically

It is correct for brands to maintain or even increase their advertising and marketing budgets during an economic recession, but they should not blindly place advertisements and conduct marketing. Instead, they should take more meaningful marketing actions based on the characteristics of the recession. The following points can be used as a reference.

• Study changes in consumer behavior and develop effective media strategies and marketing mixes. During this epidemic, consumers have obviously gone out less frequently, so the value of outdoor, bus, subway and other advertising has declined accordingly. However, the activity of apps such as games, short videos, live broadcasts, online education, and fresh food e-commerce has increased. For marketing, of course, marketing should go where consumers are. Therefore, marketers should make scientific basis for advertising according to changes in consumer behavior.

• Don't blindly reduce prices for promotions. This has been mentioned above. Excessive price cuts and promotions will make consumers think that your product is not worth the price, which will reduce the appeal of the brand and make it difficult to attract loyal consumers. Maintain the brand's goodwill, provide good user care and operations, and when the recession is over, they will come back.

• Participate in social events to enhance consumers’ favorability towards the brand. The purpose of a business is, of course, commercial success, but public events are often important moments that reflect the social value of the business. During this time, participating in social activities sincerely and to the best of one's ability (not deliberately) will bring goodwill to consumers and enhance the brand's image in their minds, which in itself is a form of communication. Donations from major Internet companies, the shared employee program between Hema Fresh and other catering companies, and the anti-discrimination activities initiated by the Italian-Chinese Youth Federation are all good forms of participation.

VI: Conclusion: Don’t be short-sighted, be far-sighted

There is a famous experiment in the history of psychology in which Walter Misher and his students put some four-year-old children in a cruel dilemma. The children could choose between a small reward that was always available—an Oreo cookie—or a larger reward of two cookies after waiting 15 minutes in a challenging environment.

Some children successfully survived the 15-minute test because they were able to divert their attention from the tempting reward.

Ten or fifteen years from now, there will be a big difference between the kids who resisted the temptation and those who didn't. The kids who resisted temptation had better control over cognitive tasks — especially the ability to efficiently reallocate attention. When they are young, they are less likely to get addicted to drugs. Huge differences in intelligence also emerged: Children who showed greater self-control at age 4 scored higher on intelligence tests.

In my opinion, cutting advertising budgets during an economic recession is an example of immediate temptation. Drastically cutting budgets to gain immediate benefits is like getting an Oreo cookie as a reward right away. Resisting this temptation and still conducting advertising and marketing strategically and in a planned manner are like those children who withstand immediate temptation and ultimately gain more rewards. They will eventually win over consumers.

What makes humans different from other animals is that humans can see farther.

Finally, let me end with a short story from the history of advertising:

On a train trip to California, a friend asked Mr. Wrigley, chairman of Wrigley's chewing gum,

"Why do you continue to advertise your chewing gum when you already have such a big piece of the market?"

"Do you know how fast this train will go?" Wrigley asked.

"I guess about 140 to 150 kilometers per hour," the friend replied.

"Well," Wrigley said, "what if we let go of the engine?"

Author: Xunkong2009

Source: Xunkong’s Marketing Revelation (ID: xunkong2005)