Conventional wisdom may not be so wise
Happy Friday! Congrats on making it through the week. Thank you for allowing me into your inbox.
There’s something interesting about conventional wisdom, particularly when it comes to the media world. Consider the following:
Companies across the board are slashing their advertising budgets. Which, on the surface, makes sense. The first line item to get cut in an economic downturn: ad/marketing spend.
As we discussed yesterday, companies are taking it on the chin. People aren’t shopping (household shopping down 5 percent in March); production has shifted priorities—for example, Ford switched gears in March to make reusable gowns and masks—causing billions in losses for manufacturers (Ford alone lost $2 billion in Q1).
The BBC on Thursday had a great in-depth look at the economic impact the coronavirus has had across the world using data points from GDP (down), jobs (down), oil (down), stocks (down).
We’ve seen how the biggest media companies, from the traditional New York Times (warning us in March) to the platforms (Facebook said yesterday that it “experienced a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020.”) have seen ad revenue drop.
Companies are bracing for a brutal Q2 and Q3. Alphabet’s CFO, for instance, said: “As of today, we anticipate that the second quarter will be a difficult one for our advertising business. As we move beyond the crisis and the global economy normalizes, this should be reflected in our advertising revenues, but it would be premature to comment on timing given all the variables here.”
(And this doesn’t even include the typical Q4 nonsense for publishers, where bad agencies rush to spend clients’ money because otherwise they don’t get paid while good agencies plan out for the following year, all putting undue stress on media sales teams. But this is a story for another day.)
All of this is to say, with all the headwinds companies face, they shouldn’t be spending money on ad spend.
Promoting a Digiday story today about how the soft drink sector had fizzled out its ad spend over the last several weeks, Ebiquity’s chief strategic officer said that “if you maintain or increase your share of voice during a recessionary period, you come out of it stronger.”
And there’s years and years of data and research to back this sentiment up. In 2009, as the Great Recession was cresting, Harvard Business Review offered these two main lessons for marketers on how to operate during a recession:
“First, the discipline around marketing strategy and research they developed during the recession—and the ability to respond nimbly to changes in demand—will continue to serve them when the economy recovers. And second, they should prepare now for a possible long-term shift in consumers’ values and attitudes.”
Going a bit further back, writing in 1990, two researchers, conducting a study for The WPP Center for Research & Development, found:
“In general, businesses earn reduced profits when their markets are in recession. But those that cut their advertising expenditures in a recession lose no less in terms of profitability than those who actually increase spending by an average of 10%. In other words, cutting advertising spend to increase short-term profits doesn’t seem to work.
More importantly, the data also reveal that a moderate increase in advertising in a soft market can improve share. There is a substantial body of evidence to show that a larger share of the market generally leads to higher return on investment.”
But you can take a ride in a Delorean and arrive in 1927, when Roland Vaile first published his findings (in HBR) that companies who advertised during the economic downturn of 1923 (he studied 200 companies) were up 20 percent from before the recession; companies that eliminate or reduced ad spend were down 7 percent.
Writing in Forbes last year, on what many thought was the precipice of a recession, Brad Adgate, former media buyer, lays out the case on why companies shouldn’t cut ad spend in economic downturns.
I can go on. (If you find yourself with some time and want to go down a rabbit hole, lmgtfy: advertising during a recession.)
The point is this: how does a company square the idea that budgets are slashed with the research that says you’d be way better off by spending more during economic calamity?
I don’t have an answer. If I did, I wouldn’t be sitting on my couch writing a newsletter to 540 people. But I do think it’s worth discussing the idea that perhaps conventional wisdom is a crutch for companies to lean on to justify cutting ad spend.
But at a time when ad supported journalism seems to be on its last legs, now is a good time for corporations that publicly crow “how important journalism is” to put their money where their mouth is: instead of dropping budgets into Facebook or Google because it’s easy, because of the scale, perhaps take some of those dollars and pump it into their local newspaper.
The duopoly takes in 87 cents for every digital advertising dollar (and looking to get more), so imagine a world where a marketer reallocates those cents and drops it into publisher pockets. (Of course this will assume that the publisher will spend it wisely, but, again, a story for another day.)
Then again, in the zero-sum game of operations, if you spend a dollar in advertising, it means you’re not spending that dollar elsewhere. And at a time when 1 in 5 working Americans are out of work, it could be very hard to justify to a CFO that spending that dollar on marketing can bring in an additional quarter.
If you’re a marketer who’s arguing to spend more, or a media sales rep trying to figure out how to convince companies to spend with you, I’d love to hear from you.
Hope you all have a nice and relaxing weekend, and I’ll see you on Monday!
(Built To Spill - Conventional Wisdom)
Some other interesting links:
Quiby anticipates a half billion dollars in operating losses. (WSJ)
Man gets a nice $69 million after tweeting at Trump. It’s a fraud. (BuzzFeed)
Companies are spying on their employees now that folks are WFH. (WaPo)
The new vocabulary of the coronavirus. (Boston Globe)
The Don Mattingly birthday conspiracy (ESPN)
Private equity firm cannot buy .ORG domains (NYT)