Ad cuts could set you back five years, brands warned

digitalCompanies have been warned to think once, twice, three times maybe before they pull their marketing and advertising budgets over coronavirus concerns, amid claims they risk losing market share against rivals for up to five years.

With industry sources reporting clients are slashing budgets by up to 50% for the foreseeable future, Gareth Morgan, founder of digital agency Liberty, who also sits on the Chartered Institute of Marketing Wales board, believes firms do not realise the long-term effect of such drastic cuts.

In a blogpost, Morgan cites two separate reports, from McGraw-Hill and the IPA, which shows those companies who rein in their spend during a recession end up paying for it in the long term.

From 1980 to 1985 McGraw-Hill research analysed 600 companies in 16 different sectors. The results showed that B2B companies that increased or maintained advertising spend during the 81-82 recessions saw higher sales growth throughout the recession and afterwards. By the end of the research in 1985, companies that kept up their advertising saw a sales increase of 256% over companies that cut advertising.

Meanwhile the IPA’s Advertising in a Downturn study states: “It is better to maintain share of voice at or above share of market during a downturn: the longer-term improvement in profitability is likely to greatly outweigh the short-term reduction. If other brands are cutting budgets, the longer-term benefit of maintaining share of voice at or above share of market will be even greater.

“Following a budget cut, a brand will continue to benefit from the marketing investment made over the previous few years. This will mitigate any short-term business effects and will result in a dangerously misleading increase in short-term profitability. The longer-term business harm will be more considerable but will not be noticed at first.

“Two key constituent brand relationship metrics – brand usage and brand image – suffered considerably when brands ‘went dark’ (ie, ceased to spend on communications) for a period of six months or more.”

Morgan writes: “Your finance director or accountant will often look at marketing as a cost, rather than an investment. It’s usually one of the first budgets to get affected, but that decision to retract for just a few weeks or months will likely impact your market share for three to five years.

“This situation is temporary. On the other side of this there’s going to be a lot of competition from companies looking to get back on their feet. Get ahead of the rush and take advantage of the new audiences now shopping online and surfing the web for info. These are trying times, but we all need to make sure we are making informed, long-term decisions.”

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