Long Term Losses Over Short Term Cuts

You cut your advertising, you could lose a heck of a whole lot more than you realize.

Odds are against your business ever recovering.

There are multiple stories over the past 100 years of how during an economic downturn a business cut their advertising and ultimately lost their standing against their competition.  During the Great Depression the Post Cereal company lost to Kellogg and never regained the top spot for breakfast cereal.

Here’s a quote from net360solutions.com of how it went down:

Post did the predictable thing: It reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. (Snap, Crackle, and Pop first appeared in the 1930s.) By 1933, even as the economy cratered, Kellogg’s profits had risen almost 30 percent and it had become what it remains today: The industry’s dominant player.

Recently I read a story about a study from the Kantar Group that I need to share with you.  Because the battle of consumers dollars is just as real today as it was last century.

A year ago there were no real warning signs of an economic downturn in the United States or around the world because we were unaware that a new pandemic would strike in 2020 and besides the health consequences, there would be economic consequences too.

I’m going to share quotes from the Inside Radio article that refer to the Kantar study.

Consumer packaged goods is a growing ad category for radio as major brand marketers like General Mills, Procter and Gamble and Coca Cola have made radio part of their media mix.

But what are the risks of stopping or cutting back on advertising during what is now the worst recession on record?

Based on media effectiveness studies conducted around the world, Kantar says that stopping or significantly reducing advertising could have impacts that take years to recover from.

The average short-term effect from advertising is an incremental 4.5% sales increase, and that usually occurs in the month after a typical eight-week campaign.

This is what you need to defend just to stand still, and what you stand to lose if you choose not to advertise.

In other words if you stopped advertising for what ever reason, you are coasting and you can only coast downhill.  When you stop inviting people to spend money with you, you lose customers and their money.

When considering the impact of an advertising hiatus, it’s imperative to take into account the consumer penetration of the brand, Kantar says. Almost nine in 10 of the brands that grew in 2019 did so by increasing their penetration. A brand must replace 50% of its buyers each year just to defend its current position.

That 50% figure of course depends on the industry.  For example if you are a roofer and you are selling roofs guaranteed for 20 years, it’s unlikely that you will retain any of your customers year after year. Other industry’s like mine for example, we average about at 85% retention rate year after year.

“It’s crucial to keep gaining new shoppers in order to secure the long-term health of the brand and build its potential for growth,” according to the study. Typically, in the short term, growth driven by penetration gains accounts for two thirds of the post campaign sales uplift. And because advertising also reminds and retains existing shoppers, it can take years to recover from the loss of heavy buyers.

Now listen up, because the loss of your brand in the mind of the consumer is not just a small loss.  And if you are only counting the dollars saved that you would have spent advertising, you are missing the big, long term picture.

My wife and I’s favorite restaurant closed down a couple of years ago.  The owner lost the lease and it was weeks before a new restaurant took over that retail space.  What did my wife and I do on Saturday nights when they closed?  If you think we just stayed home feeling hungry, you’re wrong.  We started checking out other places. If you stop inviting people to do business with you, not only do you lose, your competition wins!  And just because you start advertising two months later, it doesn’t mean your former customers are coming back.  They’re created new habits, new places to spend their money and it’s all your fault.  You lost momentum and it will take time to recover.

If a brand loses share, it’s 70% likely that its share will still be lower five years later, a study found. And brand share winners have a two-thirds probability of still having a higher share after five years.

Let this be a word of warning if you have considered cutting your advertising.  And likewise, this is a time of opportunity for others, maybe you to increase your advertising to invite people to become your customers to fill the void.