Is it good business practice to reduce or eliminate marketing expenditures during a recession? The logical answer would be yes, as the revenue stream reduces to a trickle. History, however, has shown this practice to be counterproductive, even detrimental, to long-term success. Weathering the storm is certainly a priority, but the objective is to get back to port safely after the storm abates.
One thing is certain: Making decisions based upon awareness is good practice; basing them on fear is not.
A tale of two cereals
In the early 1920s, Kellogg's and Post Cereals did not know they would overcome Cream of Wheat or oatmeal to develop the most popular breakfast foods of the day. The companies fought each another for market share dominance until the Great Depression hit.
Each company took a different path. One braced for the economic storm, cutting marketing budgets, watching expenses, and laying off workers. The other stepped into the storm, doubled advertising expenditures, took advantage of radio advertising, and focused their energy behind a single product. By the early 1930s, the economy had fallen to its lowest point, yet one company showed a 30 percent rise in profits. Which cereal company came out ahead?
The answer: Kellogg's Cereal did with their top-selling product, Rice Krispies. A bold decision made during crisis defined Kellogg's future, and they've maintained industry dominance for the past 75 years.
That's just one case study
OK, so that's a single success story. A fluke. An anomaly. Fortunately, many other examples can be found.
In February 1930, four months after the historic market crash, Henry Luce launched an expensive, "irreverent, and vibrantly-colored arsenal of human interest stories." At one dollar per copy, it was more than many could afford, and it kicked off with 30,000 subscribers. Seven years later, Fortune's circulation was at a half million, and the company was in the black.
Kraft Foods serves as another example. Kraft realized that consumers were downtrodden and needed something to help them through the depression, so they decided to launch a new product called Miracle Whip (a dressing/mayonnaise) at the Chicago World's Fair in 1933. "A sandwich just isn't a sandwich with out the tangy zip of Miracle Whip," was the tagline for the new product, and six months after launch, Miracle Whip outsold every single brand of dressing and mayonnaise available.
It's innovation, stupid
Innovation is the key. Kellogg Cereal focused on one product and doubled their marketing expenditures. Fortune filled a niche that was missing from The Wall Street Journal. Kraft introduced a new product. Revlon, a startup cosmetic company, introduced a classy polish for fingernails. Within years, they were the most well-known cosmetic company in the world.
Two brothers began a company that marketed the first car radio and began a company named Motorola. In England, a man came up with books that were affordable for the masses by making them entirely out of paper. The man became the founder of became Penguin books, and paperbacks sold exclusively through Woolworth's. Texas Instruments, Hewlett-Packard, basketball, The Pittsburgh Steelers, and Allstate were rooted in the Depression.
Studies completed during recessionary periods show that this was not a fluke; the same results are seen for companies that innovate and stay on course through the tough times. They emerge stronger and more profitable than those that remained static.
In a study of 600 business-to-business companies, McGraw-Hill Research found businesses that maintained or increased their advertising expenditures during the 1981-1982 recession averaged higher sales growth during it and in the three years that followed. By 1985, sales of aggressive recession advertisers (those that either maintained or increased spending) had risen 256 percent versus those that cut-back on advertising (innovating through recession).
A few years ago, Paul Arden, formerly of Saatchi and Saatchi, wrote "Whatever You Think, Think the Opposite." It's a guide that points out that one of the most dangerous practices is playing it safe.
, fo,The first page is emblazoned with this quote: "It's the wrong way to think, but the right way to win." This leaves two paths from which to choose: the safe, well-traveled path or the road less taken. The latter may be treacherous, but it will certainly be more fun.
After all, how often does a company get a chance to reinvent themselves?