Investing In A Bad Economy

The oldest rule in investing is "buy low, sell high." You can apply the same rule to marketing your company.

Over the last 100 years there have been 20 recessions - ten since World War II. Simple arithmetic would indicate that we´re roughly two years away from the next one.

Why are we talking about a poor economy during this period of economic growth? For that matter, why are we discussing economics in an advertising column?Simple. An economic recession is your chance to "buy low."

Your opportunity is coming. There will always be another economic recession.

This is not a prediction of doom and gloom. It´s an attempt to draw your attention to an opportunity. Like the proverbial ant, you'll be preparing for winter while the grasshoppers are playing.

When the economy heads south 75% of U.S. companies respond by cutting back, hunkering down, and trying to "tough out" the tough times. Advertising is the first expense that gets eliminated.

The overall level of advertising drops. Media feels the pinch and drops rates. This is the equivalent of buying stocks at the bottom of the market. Think of it as dollar cost averaging. Buy more as the price decreases.

There are two other advantages to aggressively advertising during economic recessions.

1) Your "share of voice" becomes multiplied as the advertising noise reduces.

2) Your "share of mind" is often uncontested for months at a time. During these times your more timid competitors will fall behind and likely never catch up.

It´s a summary of the McGraw-Hill Research study of the 1981-82 economic recession in the U.S. The study analyzed 600 companies covering 16 different SIC industries. Year one on this graph is 1980. Year six is 1985.

You´ll note that the aggressively competitive companies represented by the black bar had only a slight edge over their competitors in the years leading up to the recession. Their sales growth was in the middle of the pack as the recession hit. But while their competitors cut back in year one, or year two, or both, they continued to invest in getting their message out.

These firms grew nicely during the recession, but the real news happened in the two years following the end of the economic downturn.

Two years into the recovery, the competitors who did cut back had all stalled out at levels the aggressive companies had blown past during the recession. By the end of 1985 the companies that didn´t cut back had grown a whopping 256%.

During the recessionary period 1989-1991 Kraft salad dressings, Jiff peanut butter, Bud Lite, Coors Lite, Pizza Hut, and Taco bell were in the aggressive group which increased advertising expenditures. Jell-O, Crisco, Hellman´s, Green Giant, McDonalds, and Doritos cut back on advertising during this period. Predictably the first group had showed growth during the recession ranging from 15% to 70%. The second group´s sales dropped 26% to 64%

During our last economic downturn, while aggressive marketers such as Proctor and Gamble took advantage of reduced media rates to expand their advertising program, K-Mart decided to decrease advertising during September and October, 2001.

The result? K-Mart sales dropped a resounding 5% during October. By late fall the company had lost far more in sales than it had saved in marketing expense.

At least a dozen other studies ranging from 1923 through 1991 show nearly identical results. Meldrum & Fewsmith showed in a series of six studies that, for all post World War II recessions, those firms that kept advertising aggressively increased profits as well as gross sales during the recession.

It's important to remember that during a recession consumers don´t stop buying. They become more selective. They look much harder for "value" in their purchases. They are going to buy from someone. They're likely to buy from businesses that they know and like.

Make sure they know you.

The more visible you are, the more confidant your customers and prospects become. The more they are reminded of your legitimacy and staying power, the more they'll be inclined to believe you'll be there for them tomorrow.

Remember too that during any period of economic downturn your best customers become someone else´s best prospects. When you stop inviting them to do business with you, a more aggressive competitor may become much more attractive.

So, in addition to advertising heavily when the economy is soft, what else do you need to do?

1) Never take your focus off your customers. Cherish them, and make sure they know it. Make their Personal Experience Factor exceptional.

2) Get away from "price and item" strategies, "call to action" advertising, and other transactional marketing.

3) Media pricing is driven by market demand. Take advantage of the weak demand and the resultant drop in price to buy even more market presence without increasing your advertising budget.

4) Start learning now about relationship marketing, permission marketing, and database management. Learn the names of your customers. Learn their sizes. Learn their preferences. Make sure they know you, your values, what you stand for, and what you won´t stand for.

5) Define your core values. Continuously share them with your customers, and your prospects, through your advertising, merchandising, and public relations. This is your opportunity for true brand building.