Increasing marketing spend in a recession will increase profits faster in a recovery. (IPA)

Increasing marketing spend in a recession will increase profits faster in a recovery.  (IPA)

Companies that increased their marketing budget during the crisis created a competitive advantage that allowed them to achieve higher profits and market share growth when the economy recovered. The economy is still recovering.

Increasing profits faster during recovery

A study by PIMS (Profit in Market Strategy) of 1,000 companies during the 2001 and previous recessions found that ROCE (return on business investment) growth was higher in the recovery for companies that had increased their marketing spends during the crisis. These companies also increased their market share very quickly.

If you are less visible, others are more visible

When brands reduce their advertising expenditures, their competitors have more opportunities to increase their excess share of voice (the percentage of their media investments in relation to total category investments) often by simply maintaining their budget. A study for IPA, relating to the crisis of 2008-2009, shows that brands that invested in creating an ESOV of more than 8% during the recession were much more likely to achieve larger increases in market share and report very strong profit growth afterwards.

Long-term investment pays off

Brexit has impacted the UK economy and a wave of closures has hit the restaurant industry. In order to attract customers, many market players have abandoned branding for promotional discounts. In contrast, the Asian restaurant chain Wagamama switched to a new strategy of creating striking advertisements for cinema and then television. Analysis of the campaign reveals that more than three quarters of the profit growth was achieved over the long term: 440,000 additional customers in 2019 and £5.21 profit for every pound invested.

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