Economic Slowdown: Why Should Advertising be an Essential Part of Your Strategy?

When one starts a new business or is running an existing business, it is crucial that they make their existence known to people. It is an important step for any business to mark their territory in the conscience of the audience. After all, that which is seen is sold! However, add to this normal reality a dash of a slowing economy and all of a sudden, the situation becomes dire. As the consumer’s expenditure shrinks, it becomes absolutely important for the business to reiterate its value to the consumers. But now, you are competing with others for the coveted attention of the consumer. This makes advertising strategies extremely crucial.

However, whenever a downturn comes, businesses begin to cut back their ad spending due to a fear of declining revenues. But is this a good strategy? The old adage after all says, “When times are good you should advertise. When times are bad you must advertise.

A number of researches going back almost a century suggest that maintaining or even increasing advertising efforts in an unsettled economy have massive advantages.

A strong case for advertising

Maintaining the ad spend and efforts in economic slowdowns have multiple advantages including the following:

  • Project an image of corporate stability for the brand to the consumers during a troubled time.
  • The inherent “Noise” drops in the product categories as other players shrink their advertising budgets. It opens avenues to reposition your brand or launch new products.
  • As other players reduce their ad spend, you can steal the spotlight and increase your visibility and in turn, your market share.
  • An artificial first mover advantage is gained once everyone starts advertising again. Since, your advertising was constant through the lull, once things get back to normal, your business is more likely to be noticed and remembered.

In short, your business will benefit by maintaining or increasing their advertising during slowdowns because in doing so you take advantage of weaker competitors by increasing your market share and establishing your brand image in the long run.

Advertising: The secret weapon of an improving economy

Economics Nobel laureates Dr. Kenneth Arrow and late Dr. George Stigler had said, “Advertising is a powerful tool of competition. It provides valuable information about products and services in an efficient and cost-effective manner. In this way, advertising helps the economy to function smoothly—it keeps prices low and facilitates the entry of new products and new firms into the market.” Companies advertise to increase sales of existing products, build brand loyalty, increase market share and improve product adoption in new markets. Even though the ROI on ad spend varies from industry to industry,  studies have found that a dollar spent on advertising returns $3–20 in additional sales. Additionally, advertising helps create demand and jobs which are all dependent on advertising ranging from musicians and cinematographers for video ads to newspaper distributors and printers. Broadcast radio and TV rely exclusively on ads—people get news, music, and entertainment for free while advertisers get an audience. Forms of media that the public takes for granted would be extremely expensive to the reader or viewer or would simply be out of business without the revenues advertising produces. The demand created by advertising helps the economy to expand.

The economics of information

The idea of the economics of information suggests that consumers too, benefit from viewing advertisements. Due to readily available information (via advertising), there is a reduction in consumers’ search costs (time spent looking for products) & disutility (unhappiness or lost value from picking the wrong products). Advertising performs the following functions

  • Describing new products and what they do
  • Alerting consumers to product availability and purchase locations
  • Showing consumers what to look for on store shelves
  • Helping them differentiate among competitive choices
  • Advising them of pricing information and promotional opportunities
  • Saving consumers money by encouraging competition that exerts downward pricing pressures

Final word

Although the natural inclination for advertisers is to cut back on advertising during a recession, the brands that maintain their ad budget and/or change their messaging can get a long-lasting boost in sales and market share.

Even on a national scale, Advertising is a major industry. It contributes to the economy directly (via the jobs it creates to produce ad messages) but also indirectly as it stimulates demand and provides information about other products and services and  If private firms can therefore be encouraged to boost their marketing campaigns, jobs may be created, demand for products will rise and with the help of the multiplier, the economy may strengthen. Advertising has both pros and cons and opinions differ on what makes a good advert. But, whatever your opinion of the role of advertising, it is certainly an important aspect of any economy.