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Recession-driven cuts in advertising risk long-term losses, expert says

Hayden Noel
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Jason Lindsey

University of Illinois marketing expert Hayden Noel says companies that scale back advertising to weather the recession risk sales declines that could linger long after the economy rebounds.

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7/13/2009 | Jan Dennis, Business & Law Editor | 217-333-0568; jdennis@illinois.edu

CHAMPAIGN, Ill. – Companies that scale back advertising to weather the recession risk sales declines that could linger long after the economy rebounds, a University of Illinois marketing expert says.

Hayden Noel says most firms sacrifice advertising during economic downturns, despite evidence from past recessions that shows cuts can net long-term losses while staying the course can drive up sales and market share.

“Reducing advertising is something you should not do, even during a recession. You’re cutting your throat now, and you bleed out over time,” said Noel, a visiting professor of business administration who studies consumer behavior.

He says research found that companies such as Avon and Hershey’s that sacrificed advertising in the mid-1970s recession saw sales and market share declines that took years to recoup. In contrast, tobacco maker Philip Morris spent more and netted gains.

Another study after an early-1980s recession found companies that maintained advertising spending saw sales increases of 20 to 80 percent over a six-year span from 1980 to 1985, Noel said, while companies that cut back experienced long-term losses.

He says the findings show the natural instinct is to trim advertising because consumers spend less during recessions.

Companies should instead pursue a path that appears counter-intuitive, and view economic downturns as an opening to boost brand awareness, he says.

 “The field is thinner because your competitors are spending less, so recessions are a unique opportunity to increase brand equity,” Noel said. “With less competition, you not only can strengthen your base, but you also can attract new customers, primarily from competitors who reduced spending.”

Savvy marketers also have tailored their message during the nation’s current economic crisis, Noel said.

 Ziploc promotes using its storage bags for leftovers to hold down food costs. Quaker Oats touts the protein value of its products, making them an alternative to meat and other higher-priced entrees. A-1 Steak Sauce trumpets that it goes great on hamburgers, too.

“They’re shifting their message to something that consumers can better relate to during tough times,” Noel said. “It tells consumers that the company cares and wants to help them. If you think the company is with you, then you’ll spend more on products that company sells.”

 He says advertisers also need to carefully consider where their message appears when the economy turns sour. For example, general interest magazines are preferable to specialty publications on travel, wine or other interests that consumers are more likely to forego during recessions.

“You have to spend your money wisely to reach a broader audience that also includes your core audience,” Noel said. “You might not spend as much in luxury magazines, but more in Time, Sports Illustrated or other publications that will still be read by your clientele even in times of recession.”

He concedes that holding the line on advertising is a tough call for companies facing the prospect of layoffs or cuts in critical operations such as research and development to offset recession-depleted earnings. Jobs and operations are more tangible than advertising because sales can be influenced by other factors.

“The natural reaction is to cut back on some of the advertising,” Noel said. “But brand equity is intricately tied to sales. So if you lose brand equity because you reduced advertising, your product isn’t going to be top of mind and you won’t be one of the products people think about – now or when the economy rebounds.” 

Noel will appear this month on “First Business,” a nationally syndicated television program focusing on markets and investments.

Editor's note: To contact Hayden Noel, call 217-265-0649; e-mail hnoel@illinois.edu

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