Advertising during a decline, and most recently, during the pandemic, is essential. But more often than not, ad spending is the first budget to cut when there are financial pressures.
The investment in advertising is critical to maintaining a relationship with consumers. Research shows that cutting back during a downturn often results in a decline in sales and is challenging to recover from. Brands that cut ad budgets provide competitors with the opportunity to increase their share voice.
A high-profile example of this is the decision by Proctor & Gamble to boost their ad budgets during the pandemic compared to the decision by Coca Cola to cut their budgets (read more about it here). Research from the Ehrenberg-Bass Institute in Australia provides empirical support for P&G’s winning approach. The 2018 research uses two decades of existing media spend and sales data from competitive Australian consumer goods brands. The findings are based on 57 cases where a brand cut ad spend for at least a year.
The Ehrenberg-Bass Institute research found that when brands stop advertising (for a year or more), year-over-year sales decline on average 16% after one year and 25% after two years. The rate of decline is fastest for those brands that were already declining before the stop. And brand size matters – small brands suffer more significant declines than big brands.
The sales of a brand are like the height at which an airplane flies. Advertising spend is like its engines: while the engines are running, everything is fine, but, when the engines stop, the descent eventually starts. — Simon Broadbent
The research also notes that recovery is not easy in addition to sales declines. “While it may be tempting to withdraw the advertising budget for a boost in profits, the evidence suggests that doing so risks putting the brand on a downward sales trajectory.”
The data showed that stopping advertising for just a year puts growth at risk. Resuming advertising the following year did not stop the trend of declining sales, suggesting that it takes longer than 12 months to recover from a year of no advertising.
Read more about the Ehrenberg-Bass Institute research here.
