You’ve no doubt heard the doom and gloom around the economic downturn headed our way. Financial guru and prognosticator Jamie Diamond has been leading the chorus, predicting an almost-certain U.S. recession in the next six to nine months.
We’ve been here before, just a few short years ago. In 2020, the U.S. experienced the worst recession since the Great Depression. You may have blocked this out, but recall that in March 2020, the Federal Reserve lowered fund rates to virtually 0%. The U.S. economy shrunk a record 31.2% in the second quarter after falling 1.5% the previous year, prompting stock markets to plummet.
In April 2020, our country saw 20.5 million jobs disappear, ratcheting the unemployment rate up to 14.7% where it stayed in the double digits for months. All of which compelled the U.S. Congress to come to the rescue with billions of dollars in aid. And while the economy did rebound with a 33.8% growth in the third quarter, it wasn’t enough to fully recover from the tremendous hit it had already taken.
When confronted the threat of another recession, businesses naturally respond by tightening belts and slashing budgets — including their marketing budgets. They certainly did just that during the Great Recession of 2008, when the U.S. ad market declined by 13% as businesses reduced their ad spends. All indications point to companies doing the same this time around.
A new survey from the World Federation of Advertisers (WFA) and Ebiquity reports that nearly 30% of the world’s biggest advertisers are planning to cut ad budgets in 2023. We’re already seeing signs of this, with a 4.6% drop < https://www.mediapost.com/publications/article/378942/us-ad-market-falls-for-fourth-consecutive-month.html > in the U.S. advertising marketplace in September compared to the same month last year — rounding out four straight months of decline.
To Cut or Not to Cut
While cutting ad budgets may feel like the safe move to make, research and experience say otherwise. Previous recessions show that companies who reduce their marketing spend during a slump are also likely to see a drop in incremental sales as well as customer acquisition and engagement. Marketers who decide to spend less on advertising must rely on existing customers, in place of reaching new ones. None of this is good for business — in the short or long-term.
And while marketers may be inclined to slash ad spends significantly during a recession, consumers reduce their spending at a much lower rate. In other words, your customers are still buying products — just not from you. Brands who disappear from view for 12 to 18 months in an attempt to wait out a downturn usually see sustained losses in market share. Once a customer leaves you for another, who’s to say they’ll ever come back?
A Case for Continued Ad Spending
While it may go against every instinct you have, continuing to invest in marketing during a recession can mean the difference between struggling, surviving, and even thriving. In fact, research shows that 60% of advertisers realized a higher ROI by actually spending more during past recessions.
But wait, there’s more. Research done by Harvard Business Review indicates that companies who did not cut their marketing spend, and who even increased it, during a downturn have bounced back with more strength post-recession. And, products that are launched during a recession have a better chance at long-term survival and higher sales revenue.
Believe it or not, recessions present unique opportunities for innovative marketers. This is especially true for direct-to-consumer brands, for a number of reasons. First and foremost, customers want direct-to-consumer products. In fact, 50% of consumers prefer to buy directly from the manufacturer. During the pandemic, 52% of direct-to-consumer brands saw demand for their products soar. The same trend can be expected during a recession.
In our experience, we’ve weathered two recessions as well as the pandemic. In these downturns, we’ve seen direct-to-consumer brands fare well and even grow. Remember that 2020 recession we mentioned earlier? During this time, River Direct clients ran at an average 13% higher profitability compared to the same time frame pre-pandemic. This performance can largely be attributed to the fact that our clients spent on average 34% more on advertising, while running on higher ROI.
Another reason our clients made gains during tough economic times? Simple: Their products we sell on TV actually save people money. Pay less for skin and hair care products, and save on the cost of a salon visit. Purchase cooking equipment and cook at home rather than going out to eat. Stock up on home cleaning products instead of hiring a housecleaner. Invest in exercise equipment and cancel that expensive gym membership. You get the idea.
Your audience is out there, ready and willing to buy your products even — especially — during a recession. How you reach those direct-to-consumer customers in terms of creative messaging and medium will be key. While other marketing firms may focus on digital and omnichannel marketing, there’s a powerful case to made for linear TV, streaming TV, and a convergence of both.
Reduced Ad Rates
Rather than halting your ad spend altogether, consider how best to redirect those funds to get more bang for your bucks — like into TV. When economic downturns cause sales and profits to fall, one of the first things general-rated advertisers slash is their advertising budget. During COVID-19, we saw a wave of general advertisers pull away from linear and streaming TV. When this happens, stations then turn to lower-paying advertisers like, you guessed it, direct-to-consumer brands. Intrepid direct-to-consumer marketers snap up those available slots at lower costs.
At the same time, viewership during COVID-19 soared as socially distanced households hunkered down in front of TVs and screens. As such, direct-to-consumer marketers were also capturing more eyeballs for their spend. While pandemics and recessions may have some differences, we expect to see much of the same opportunities and behaviors should the economic downturn become a reality.
In the midst of a recession, you want every cent you spend on marketing to do the most work for you. Linear TV, streaming TV, and converged TV that combines both offer built-in metrics that let you track lead generation and sales to determine ROI. This in turn allows you to focus your precious marketing dollars on programs that are demonstrably working, and eliminate marketing waste.
Direct-to-consumer advertisers know how their commercials are performing, with the ability to see if the rates are low enough and if people are in fact purchasing their products. This measurability is key. Like we’ve always said at River Direct, we have our finger on America’s pulse, and can tell you if customers are buying or not buying.
Mind the Gaps, and Fill Them
As companies cut their marketing budgets, you have a fantastic opportunity to fill the void and boost your market share. Your competitors may very well decide to pull back from linear TV and streaming TV, leaving you perfectly positioned to swoop in and scoop up their customers. With fewer competitors vying for attention, your ads are also likely to stick around longer in consumers’ minds. And once they do have money to spend, they’ll remember you.
Adjust Your Messaging
The success of your direct-to-consumer marketing efforts during a recession will rely heavily on having the right creative and message. People turn to direct-to-consumer products in large part because of their pricing. A cost-savings message becomes especially attractive to discount-seeking consumers during a recession and inflation market.
So be sure to capitalize on that driver, by emphasizing the value of your product. Consider focusing on a cost-savings offer, rather than a branded message, but proceed with caution. Companies will often cut their pricing only to increase prices again to make up for the loss in margins, then yo-yo back and forth between the two. Being consistent versus erratic in your pricing will do more to drive consumer confidence.
Keep Calm and Market On
As the threat of recession looms, remember that this too shall pass. The economy will eventually bounce back, and you’ll want to be well positioned to ride that recovery to increased sales and growth. What you do now with your direct-to-consumer marketing can have a huge impact on how well you weather the downturn, and how well you succeed on the other side of it.
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