How Advertising Helps the Economy and Your Business

When a recession strikes, businesses are forced to batten down the hatches and sometimes take extreme measures to stay afloat. And while cutting back on expenses is almost always necessary, there’s one area on which you should never skimp — advertising. Not only will advertising keep your business moving, but it also encourages consumption, which boosts the economy as a whole.

A Consumption Economy

To understand how advertising is going to help you or the economy, you have to know how the economy works. Your old school textbooks have a lot to say on the subject, and while all that information is important, for this discussion the only thing you need to know is what drives the economy. And that driving force is consumption.

It’s no secret Americans are the largest group of consumers in the world, and while some may find fault with that fact, the other side of the coin is the United States is also the richest country in the world. Such wealth equals a better standard of living, more money to go around, and more jobs (to keep up with the demand for products).

However, when a recession hits, consumer confidence lowers, which only serves to exacerbate the problem. In other words, when folks quit buying, demand decreases and workers subsequently lose their jobs. Thus, the best way for people to boost a consumption based economy is to… consume.

But, who’s going to convince them to consume when their confidence is so low? Advertisers, of course. Yes, advertising encourages mass consumption, which in turn results in mass production, which inevitably leads to more jobs and a bolstered economy.

Is Advertising Necessary for My Business’ Survival?

If you’re not feeling especially altruistic and are more concerned with saving your own skin than worrying about the entire economy (actually, they go hand-in-hand, but we’ll overlook that fact for now), you might be wondering if spending money on advertising is the best move for your business. In short, the answer is yes.

Initially is may seem advertising is expendable (after all, it doesn’t directly relate to manufacturing or getting your products to market). However, without advertising, your business’ production is doomed to significant slowdown (far more than what’s triggered by the recession) and it may come to a slow halt. Even if you manage to survive the sluggish economy, your brand will undoubtedly become relegated to a lower position in the market as compared to your competitors who remain in the public’s consciousness.

Where’s the Proof?

For proof that advertising is a business’ lifeline during an economic recession, we need only look back on history. For example, in the 1920s Fords were outselling Chevrolets by a 10 to 1 margin. However, when the Great Depression hit, Chevrolet chose to expand its advertising budget while Ford’s marketing remained stagnant. The result: by 1931 Chevrolet surpassed Ford in sales.

A similar experience happened with Kellogg’s. In the 1920s, they were competing closely with Post for the top position in the breakfast cereal industry. In response to the depression, Kellogg’s increased its advertising budget by one-million dollars while Post chose to reduce ad costs. The result: Kellogg’s continually improved sales throughout the recession, surpassed Post as the dominant brand, and still holds their superior position today.

For a more modern example, look at the different ways Nike and Reebok handled the 1990-91 recession. Reebok chose to cut back on advertising while Nike took the opposite approach and tripled its advertising costs. As you probably guessed, Nike emerged as the leading brand with profits nine times higher than Reebok. And Reebok has never caught up.

The examples go on and on, but the end result is best summed up by a quote from the Harvard Business Review which says, “The company courageous enough to stay in the fight when everybody is playing it safe can bring about a dramatic change in market position.”

But, What if Everybody Else is Doing it?

When you see your competitors lowering their advertising budgets, it’s tempting to do the same. It may seem that if everyone else is doing it then it should be okay — but, of course, you know that’s not true (just think back to the old bridge scenario). In fact, by following your competitors you are missing out on a huge opportunity to stand out as leader in the market.

Just think of it, as other brands reduce advertising and consequently diminish their brand awareness, you can step up your marketing efforts, become more well-known, and further minimize your competitor’s significance. Essentially, while others are lowering their presence, you have a chance to take charge of the industry. This strategy is exactly what helped companies like Chevrolet, Kellogg’s, and Nike flourish despite economic depressions/recessions.

You can especially take advantage of the opportunity by appealing to consumer needs. For instance, you know that in times of economic slow-down most people are looking for bargains, so you should advertise your products as such. Offer coupons, discounts, and send the message that buying from you is a smart, economical decision. Proving you understand the needs of the people will encourage brand loyalty among your existing customers and also bring in new consumers who are quickly forgetting about your non-advertising rivals.

In Conclusion

The truth is people are going to consume products whether it’s an economic recession or not. Although the demand for goods and services may be less, it still exists. So, the ultimate question is: are they going to buy from you or your competitors? By continuing to devote resources to advertising (if not increasing them) you are putting the odds more in your favor, and if handled correctly, your profits may be higher than they were before the recession.

And besides growing your own business, you’ll also help improve the economic climate, which will provide you with even more eager customers — a win-win.