Smart ad spending strategies amid uncertainty

Analysts warn that slower economic growth may increase the risk of recession, prompting more cautious consumer behavior and potentially unsettling advertisers.

When advertisers are uncertain about consumer spending, a common reaction is to reduce media spending, favor entrenched tactics over innovation and low CPMs over pricier placements — at the expense of performance against KPIs. But, decreasing spend or focusing on “safe” approaches can have unintended negative consequences.

The opposite approach can be significantly more effective in driving both short- and long-term outcomes. Investing when others aren’t and focusing on the tactics that drive outcomes, rather than immediate budget savings, is more productive. During the COVID-19 pandemic, Harvard Business Review published “Don’t Cut Your Marketing Budget in a Recession” highlighting examples of companies that continue to invest in marketing performing better than their competitors. This is especially true for companies that already have robust marketing strategies in place. For example, they found that products launched during a recession have both higher long-term survival chances and higher sales revenues.

One study found that brands that decreased advertising and marketing spending during recessions between the 1980s and early 2000s saw the lowest growth in long-term market share compared to brands that increased or maintained their media spending in periods of crisis, which recorded a 1.6% and a 1% increase in market share, respectively.

Across industries, advertising drives long- and short-term outcomes

When it comes to advertising and marketing, leading with fear is not the best approach. Brands are in an incredibly competitive market, and they need to continue to play offense, even when there are economic headwinds.

Consider the following scenarios that show the value of strategic advertising in a recession across different industries:

• Consumers consider different labels for necessities. CPG brands, in particular, can take advantage of a time of uncertainty to connect with consumers looking for less costly options, incrementally increasing their customer base — either by highlighting a product’s affordability or demonstrating that the brand delivers good value for the money. 

• Consumers explore new lifestyle options. A recession is actually a time for product discovery as consumers who tighten their budgets look for less expensive alternatives to their usual choices. The pandemic was just a few years ago when many people started baking, gardening and partaking in other DIY at-home activities. If there is a recession, history shows that people explore such hobbies, as well as travel closer to home. 

• Consumers dream about future luxury purchases. Higher-ticket items, including travel, autos and luxury retail, can use a downturn to advertise during a time when competitors might pull back. Given the long purchase cycles, this tactic can pay off as soon as the recession eases, creating new aspirational customers. 
  

Choose creative that drives outcomes

Advertisers with goals to grow in a recession can achieve lift by leaning into tactics that set them apart and “work smarter.” Advertisers can drive attention and engagement with high-impact creative that takes over the screen, includes interactivity and creates memorable moments — not more of the same cheap, yet easy-to-ignore banner ads.

Ads can also work harder when advertisers make creative do double-duty, like infusing brand-focused creative with commerce elements, especially on connected TV (CTV) where it has been proven to drive measurable outcomes. Commerce ads that personalize creative based on product information, shopper data and location are significantly more relevant and effective. 

Advertisers should also take advantage of data and context to amplify an ad’s impact. They can optimize creative for content adjacency with elements like the sentiment of the content, a relevant star or sponsor athlete or a specific action from the show.

Advertising delivers incremental lift and ROI

Continued spending in a recession is a proven strategy for driving ROI and incremental lift, but stakeholders can be skeptical. That’s where good measurement comes in. Rather than focusing solely on lower CPMs, brands should focus on the ads that will do the most work against their KPIs — regardless of the price.

The same goes for tactics. Rather than fall back on strategies like discounting, which drives sales but hurts margins, it’s important to expand efforts to include net-new audiences. A study from Nielsen found that reducing media spend in favor of promotions and discounts can actually have a disastrous effect on ROI, lowering it by as much as 45%. One major reason is that most promotional sales don't come from incremental customers and instead decrease revenue on sales that were likely to occur anyway.

Maximizing ROI during a recession requires well constructed tests, optimization and measurement that also help justify spending to nervous stakeholders. Advertisers need to work with measurement partners that can help identify the proper testing approaches so they can move forward with confidence, not retreat in fear.

This op-ed represents the views and opinions of the author and not of The Current, a division of The Trade Desk, or The Trade Desk. The appearance of the op-ed on The Current does not constitute an endorsement by The Current or The Trade Desk.