Reduce marketing spend during a recession? History says no.

What will the economy do in 2023? Depends on whom you ask. 

Some predict a global recession that lasts into 2024. Others expect the economy to flirt with recession without actually crossing into it. Still others predict a moderate but protracted recession that extends far beyond the eight-month-long downturn of 2001. Who’s right? It’s anybody’s guess.

So how is your company preparing for 2023? Are you in pre-recession mode, looking for ways to reduce spending next year? And do those reductions include cutting back on marketing spend?

If so, you’re making a mistake because, according to history, you should be doing the opposite: Now is actually the ideal time to invest in marketing.

What 100 years of recession teach us

One hundred years ago, Harvard graduate Roland Vaile tracked the performance of 250 major U.S. companies from the end of World War I through the post-war recession and into the boom years of the 1920s. He found that companies that increased their marketing budgets during the recession increased sales by 20% over pre-recession levels. On the other hand, those who reduced their marketing spend saw sales drop 7% below pre-recession levels. 

A 27% swing in sales numbers will dramatically change a company’s financial outlook.  At the time, it meant the difference between success and failure for many companies. “But that was 100 years ago,” you say. “Is this example even relevant today?”

The short answer is “yes,” because the same thing happened during the recession of 1949. And again in 1954. Not to mention 1958, 1961, and 1981. 

Sensing a pattern here? 

Modern examples of business growth during economic downturns

In 2002, McKinsey & Company concluded a study of nearly 1,000 U.S. companies over an 18-year period. This study included the recession of 1990-91. The study found that the top-performing companies continued to invest in marketing, trading short-term profitability for long-term gain. A number of these companies actually spent more money on marketing during the recession than they did during economic growth periods. 

Companies that continued to invest in growth during the 2008 recession — including maintaining their marketing spend — achieved a 17% compound growth rate during the economic downturn, according to a comprehensive study of 3,900 companies worldwide. These companies focused on cost containment but continued to play offense. Rather than slash marketing budgets, they optimized their spend by shifting dollars into high-ROI tactics.

Samsung, for example, saw the 2008 recession as an opportunity to rebrand itself. Unlike its competitors, Samsung maintained its marketing spend and focused on rebranding itself as an innovation company. The strategy paid off. Prior to the 2008 downturn, Samsung ranked No. 21 in global brand value. Today, it’s No. 6.

Recessions are challenges for some, opportunities for others. 

Expect history to repeat itself in 2023

History tells us that, when it comes to marketing during a recession, reducing spending is a recipe for disaster. The companies that win big in 2023 will be those that remain aggressive in their marketing efforts. As Henry Ford once said, “Stopping advertising to save money is like stopping your watch to save time.”

Investing in marketing during a recession is easier said than done, though. Marketing budgets are easy targets during downturns. At the height of the pandemic, marketing budgets fell to 6.4% of total company revenue, down from 11.2% in 2018. That’s a 43% drop in marketing spend. What would it do to your marketing programs if 43% of your budget was suddenly pulled out from under you?

We don’t anticipate pandemic-size cuts in marketing for 2023. But even a mild recession could have a noticeable impact on marketing spend. 

So how do you succeed in an economic downturn?

When asked in 1991 what he thought about the recession at the time, Walmart founder Sam Walton answered, “I thought about it but decided not to participate.”  That’s good advice.

The chief marketing officers who can convince their companies to remain aggressive will be those who can demonstrate a direct relationship between marketing spend and revenue generation. Nearly eight out of 10 CEOs already expect marketing to drive company growth. That number will only increase in an economic downturn.

Every marketing program must be measured by clear business metrics, including cost per acquisition (CPA), return on marketing investment (ROMI), incremental sales, and revenue generated. That’s not to say other metrics aren’t important — in fact, critical — to your success. But during a recession, companies are laser-focused on the bottom line. CEOs want to know:  How do we generate revenue? How do we make that revenue more profitable? 

If marketing can help CEOs answer these questions, marketing budgets can survive — even thrive — in an economic downturn. 

Marketers, it’s time to make history.