How can managers make the case for marketing in an economic downturn? Here, we offer a set of working papers to help you better navigate these turbulent times. While firms are often tempted to reduce their marketing expenditures to boost profitability, these studies suggest that this is not necessarily the best approach. For example, short-term gains in profits may come at the expense of long-term gains in loyalty and satisfaction. In general, the authors find that going against conventional wisdom can be the best approach to take in recessionary periods.
I hope you find these topical papers useful.
Boost advertising spending
A very pertinent issue is how much to spend on advertising in recessions. Kristina Frankenberger of Western Oregon University and Roger Graham of Oregon State University analyze data from 2,662 firms over 7-8 years to see the effects advertising has on earnings and market value compared to the effects of increased and decreased advertising spending during recessions. Their main finding is that, for consumer and industrial products firms, increased spending during a recession improves firm performance more than similar spending during non-recessionary periods. Download working paper
Take the far-sighted view
Given the turmoil in the markets, marketing managers may be tempted to cut marketing expenditures in order to inflate current-term earnings and stock price. Natalie Mizik of Columbia University and Robert Jacobson of the University of Washington study this “myopic” approach to marketing management. Using security prices and earnings data, they find that, in fact, myopic marketing management has a detrimental long-term impact on firm value in that myopic firms have long-term stock returns that are significantly lower than other firms. Download working paper
Understand your business cycle
How does advertising spending react to business cycles around the world? Barbara Deleersnyder of Tilburg University, Marnik Dekimpe of Tilburg University and Catholic University, Leuven, J.B. Steenkamp of the University of North Carolina, and Peter Leeflang of the University of Groningen study data from 37 countries, up to 25 years, and four media (magazines, newspapers, radio and television). They find that, overall, expenditures do move with economic activity but that there are significant variations related to cultural context. In addition, advertising is more sensitive to business cycle fluctuations in countries exhibiting significant stock market pressure. Download working paper
Bolster national brands
The success of private labels also seems to be sensitive to business cycles. Lien Lamey of Catholic University, Leuven, Barbara Deleersnyder, Marnik Dekimpe, and J.B. Steenkamp confirm that private label demand increases during recessionary periods as retailers invest more in their private label programs. However, the authors also find that the switching to private labels during economic downturns is faster than the return to national brands when the economy improves. Since there appear to be long-term positive effects on private label demand after a recessionary period, the authors argue that national brand managers should increase their marketing efforts during these periods to mitigate the inroads made by private labels. Download working paper
While it is generally felt that caution is the best policy during a recession, some firms have done better than others by increasing marketing expenditures. Using survey responses from 154 senior marketing executives, Raji Srinivasan of the University of Texas and Arvind Rangaswamy and Gary Lilien of Penn State University find that not all firms do or should increase marketing expenditures in a recession. Firms that place a strategic emphasis on marketing, have an entrepreneurial culture, and have slack resources plus the flexibility to deploy them are more likely to increase their marketing activities in a recession and be successful doing so. Download working paper
Focus on customer satisfaction and retention
In a resource-constrained environment, service businesses need to target their quality improvement efforts. Conventional wisdom holds that improvements are most profitable when they emphasize cost reduction and customer satisfaction and retention simultaneously. Counter to the assumption, Roland Rust of the University of Maryland, Christine Moorman of Duke University, and Peter Dickson of Florida International University use survey data and interviews of managers to show that firms that focus on satisfaction and retention to grow revenues perform better than those that also try to focus on cost reduction. Download working paper
Make the case for marketing
Finally, in these difficult times, it is important to remember the key factors that drive marketing’s influence in the organization. Based on in-depth interviews with CEOs and CMOs, the paper by Frederick Webster of Dartmouth College and Alan Malter and Shankar Ganesan of the University of Arizona outlines the following three drivers of marketing’s influence: (1) demonstrating marketing productivity, (2) “marketing” marketing as an investment not an expense, and (3) emphasizing marketing’s role in building and maintaining brands, the cornerstone of long-term customer loyalty. Download working paper