Recession Panic: Cutting Marketing Spend is Growth Averse, Not Risk Averse

We’ve lived through “unprecedented times”, acclimatised to the “new normal” and now we’re being rewarded with the “everything’s gone mental” economy. Joy.

We’ve got all the signs of a looming recession. Along with all the signs of a booming economy.

Rapid inflation, but more job vacancies than you can shake a stick at due to the global skills shortage.

All the signs of a housing market that’s about to crash, except for unprecedented demand which leaves us all sceptical that it truly will.

Increasing salaries, but they’re far outweighed by the rapidly increasing cost of living. Which results in belt-tightening. Which results in reduced consumer spending. Even though there’s huge consumer demand for big purchases, like cars, because of a backlog due to multiple global supply chain crises.

But, overall, reduced consumer spending and a decline in GDP means there probably is, in fact, a recession looming. And with aggressive inflation hitting businesses and households where it hurts, businesses are bracing themselves for it.

When businesses brace themselves for a recession, often the first budget to get scaled back is the marketing pot. And it looks like this is set to be true for the coming economic downturn.

Q2 net growth for marketing budgets remains positive at 10%, according to the Bellwether report from the IPA. This positivity belies a negative trend though as growth has sharply declined following levels around 14% in Q1. Growth is expected to continue to decline in Q3 and beyond.

Should you be jumping on the bandwagon and cutting back on marketing spend?

It might seem sensible and risk-averse to do so. At least on the surface. But, delving deeper in the issue shows that slashing marketing spend ahead of, or during, a recession is an unwise decision.

History clearly shows that economic downturns provide the opportunity for great gains to be made. These gains are only possible when businesses invest aggressively in marketing. Allowing for them to steal market share from their less fortunate competitors.

So why do businesses commonly sacrifice marketing budget when they need to belt-tighten?

The answer is that they fall prey to short-term solutions that end up creating longer-term problems. And they usually do it when they feel secure enough in the amount of business they have at the current time. When you have enough clients and a healthy pipeline, getting new ones doesn’t seem like a priority. For now.

By focusing on cost-cutting and staying afloat in the short term, you may neglect to think about how you’ll achieve this status with fewer prospects in the longer term. By the time the future arrives, and your pipeline is looking a little less healthy, it may be too late.

Many businesses also simply fail to consider and value competitive advantage. Many expect that everyone will be cutting their marketing spend in the same way, and they will retain their share of voice as relative spending remains similar. But…. what if it doesn’t?

Cutting your marketing spend doesn’t make sense

No matter what anyone else does, it’s guaranteed that reducing your marketing spending will negatively impact your bottom line. If the marketing budget is there to drive profitability and generate business, then it makes sense that cutting it would do nothing but hinder revenue growth rather than help it.

Conversely, continuing to drive forward with marketing strategies during a recession is linked to massive growth. Google, SalesForce, Groupon and Facebook all launched right before or during major economic downturns.

Research from McKinsey & Company shows that businesses that tightened their belts during times of recession fared significantly worse than those that didn’t. The research showed that those who maintained or increased their marketing spending were the winners. They traded “lower short-term profitability for long-term gain” when they refocused rather than cut their spending.

If you aren’t struggling now, why create a struggle for the future?

If your business is struggling with serious financial issues, then it makes sense to cut overheads. You’ll need to maximise short-term cash flow so you can try to weather the storm and make it to the future.

However, if your business is merely anticipating a struggle, you should take a pause for a second. Does it make sense to forgo growth opportunities and sacrifice your future profits by cutting your marketing spending now?

If anything, if you are in a strong situation at the moment, could it make sense to simply refocus your marketing budget to respond to fluctuating market conditions? Might it even make sense to up the ante? Research shows that maximising your marketing efforts during economic downturns can provide greatly inflated ROI and huge increases in share of voice.

Of course, there will be economic casualties if this looming recession does become an actual one. There will mostly be survivors. However, there are also going to be inevitable winners. Whether your business will be a casualty, a survivor or a victor depends on the decisions made at the forefront. And our money is on the businesses that are determined to forge ahead with a strong future in mind.

How is your business responding to the forecast recession? We’d love to talk about how you’re prioritising your marketing budget and maximising your lead generation strategy. Call us.