Advertising in a Downturn

Advertisers and marketers should maintain their levels of adspend during periods of economic uncertainty if they want to protect the long-term profitability of their brands, according to research published by the IPA.

Advertising in a Downturn

Stephen Whiteside

Advertisers and marketers looking to protect the long-term profitability of their brands during periods of economic uncertainty should look to maintain their levels of adspend, according to research publish.

The table below shows two hypothetical examples of this: the first for a brand that cuts its budget to zero for a year before returning to its previous levels, and the second where it reduces it to zero for just six months before increasing it to its prior total. Marketing communications have also been shown to reduce price elasticity (defined as the change in volume sales that result from a one percent change in price). As such, cutting marcoms spending could require an increase in price elasticity, and the need to cut prices in order to boost volume sales (a trend which, again, could be subject to a time-lag effect). This was because while increasing adspend causes a dip in ROCE during a downturn, it offers improved ROCE once the market starts to recover. Cutting marcoms spending, by contrast, results in lower levels of market share and ROCE when the recovery has begun, as shown below. An analysis of 880 case studies submitted to the IPA Effectiveness Awards since 1980 emphasised the relationship between a brand’s share of voice and its share of market. In particular, there is an “equilibrium” line which correlates to the minimum amount advertisers need to spend to maintain their market share, as shown below. The IPA’s report, , is available from (free to IPA members; £25 for non-members).

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