History Repeating Itself

Financial managers looking for an oracle might want to start listening to Chuck McKay. After all, back in 2005 he predicted that our economy would head into a recession within the next few years.

McKay also had some timely advice for marketers. Though his article first appeared a few years ago, the message is important today: Companies should increase, not decrease their marketing expenditures during recessionary times.

While McKay points out that, historically, at least ¾'s of companies put their ad budgets on the chopping block when the economy tanks, he also notes that those who continue to advertise have a chance to make an impression on consumers and at a time when there is less noise from competitors.

What's even better about McKay's article is the hard data he uses to back up his argument.

The chart from McGraw-​Hill Research (depicting growth rates between 1980 and 1985 for 600 companies) shows that companies which did not cut back ad spending maintained growth during the recession and experienced higher growth rates than the competition once the recession ended.

In particular, McKay describes how food purveyor Kraft increased advertising during the recession of 1989–1991 with a resulting sales increase. But Kraft executives apparently believed history could not repeat itself because they cut advertising spending in the 2001 recession and McKay points out, ‘the company lost far more in sales than it had saved in marketing expense.'

Earlier this month I blogged about the recent McKinsey study that analyzed which industries had led and lagged in the recoveries following the last four recessions. You could play it safe and only approach clients which operate in the sectors that may lead us to recovery. Or, you could approach other clients and encourage them to be the ones to lead the recovery with a new ad campaign designed to spur consumer spending.

[Source: McKay, Chuck. Investing in a Bad Economy]
Kathy Crosett
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-​owner of several small businesses in the health care services sector.