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Why You Shouldn't Cut Your Marketing Budget in a Downturn

Your Instinct During a Downturn May Be to Cut Back Your Marketing Budget. Wrong Move.

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Parthi Loganathan

Jul 05 2022

9 mins read

Marketing is an investment. When done right, it directly contributes to your topline revenue.

Historically, in the face of a downturn, companies often panic and slash their spend, including on marketing, to stay afloat during a recession.

That seems to make sense, right? Tighten your belt and batten down the hatches?

What if I told you that a downturn is actually the time to step forward and shine?


We swear Morpheus said it | The Matrix (1999)

‎You don't sell when people are panicking — you dig in and invest more. This is traditional investing advice. There's a land grab opportunity to buy assets (or acquire customers) for cheap when others are exiting the market out of fear.

“Be fearful when others are greedy, and greedy when others are fearful.”
—Warren Buffet

In previous recessions, businesses that thrived took action early, had a long-term vision, and focused on both growth and operational efficiency. When the market is down, a grow-at-all-costs mentality has to be thrown out since capital is a scarce resource. You also don't want to overcorrect and cut spending on things that drive growth.

Let’s dive deeper to learn how businesses not only survived but also thrived in previous recessions.


Why Invest in Marketing During a Recession?

2008 was bad. The U.S. housing bubble burst. Predatory lending and banks taking big risks on a global scale brewed the perfect storm that resulted in the worst economic crisis since 1929.

Researchers have analyzed past recessions to understand what worked and didn't, both in 2008 and 1985. The results were surprising.

For example, McGraw-Hill Research analyzed 600 B2B companies and found that companies that had advertised aggressively during the 1985 crash grew 275% over those that hadn't.

Further research on the 2008 crisis from the Harvard Business Review confirmed that continued investment in marketing supports business recovery post-recession. 

"According to our research, companies that master the delicate balance between cutting costs to survive today and investing to grow tomorrow do well after a recession... These companies reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest relatively comprehensively in the future by spending on marketing."
Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen


Four Ways B2B Companies React to Recessions

B2B companies approach recessions in different ways. Some hunker down and turtle. They try to patiently survive and ride it out. Others ignore the signs and continue with their old plan... which is never good. The best companies recognize growth opportunities, even if these aren't as rapid as during boom times.

1. The Prevention-Focused Approach

The prevention-focused approach attempts to avoid losses and cut back on operational costs — decreasing headcount to boot. This strategy slams on the brakes and dials down their expenditure on everything. Customer experience suffers due to lowering the quality of operation. The company is trying to do more with less. Marketing gets tanked.

For a startup, this seemingly safe approach is dangerous because the outcome is being forgotten.

You're not big enough to survive being forgotten. Only the big guys can afford this. They just need to stick it out.

2. The Promotion-Focused Approach

With the promotion-focused approach, companies encourage an optimistic culture and ignore the realities of a recession. While this encourages a growth-oriented mindset, the downside to this strategy is that being blind to the early signs of a financial downturn and not reacting can kill your business.

A culture of unwarranted optimism can spread through a company, hampering critical thought during a recession. Bloated budgets are cut too late, and the business suffers or fails.

3. The Pragmatic-Focused Approach

The Pragmatic strategy recognizes that cost-cutting is necessary to survive a recession. However, there's still a focus on driving growth, although slower than during boom times — survival is as important as growth during a recession. The only issue is that companies might cut costs and invest in the wrong areas. That's where the final approach comes in.

4. The Progressive-Focused Approach

These companies are a refined version of the Pragmatic ones. They're selective about their offensive and defensive moves. Progressive companies cut costs by improving operational efficiency and minimally cutting bloated headcounts. It's not just a mass reduction in spend throughout.

They also recognize the growth opportunity that is opened up for them when their competition picks one of the first two approaches. Progressive companies outspend their rivals on both R&D and marketing in strategic areas that will get them ahead in the long term. Their goal is not only surviving the recession but also to use it as an opportunity to come out ahead.

Let's look at the odds a company will outperform its rivals by adopting one of these strategies:

Chance of outperforming competitors based on chosen strategy in downturn | Harvard Business Review

‎TL;DR? The right answer is number 4. Spend on marketing during an economic downturn. Only cut on cost centers.


Applying a Progressive-Focused Marketing Strategy

Competitors in your space are making moves. They'll take one of the above approaches. You need to have a plan of action.

Move Ahead when Your Competitors Take a Step Back on Marketing

During a downturn, some of your competitors will scale back their marketing efforts or even stop them altogether. Don't follow their lead.

Your competitors scaling back presents you an opportunity to gain market share. If your competitors are not investing in marketing, they're effectively giving you space to expand — it's like a free pass for you to attract more customers.


While your competitors are cutting back on their marketing spend, pursuing new, more efficient marketing strategies allows you to gain market share. Now is the time to invest in long-term growth initiatives like content marketing. You can run successful marketing campaigns even if you don't have a massive budget. 

Also, some of your competitors will continue to invest in marketing even during a downturn. If you cut your budget and your competitors increase theirs, you're the one making space for someone else. Marketing abhors a vacuum.

Communicate the Value of Your Product or Service During a Recession

Your current clients or customers will change their spending habits. During a recession, people are generally more conservative with their spending, focusing on necessities.

Communicate the need for your products or services. Position yourself as a necessity, not a luxury. Adjust your marketing to demonstrate that your product or service fulfills client needs, not wants. If your customers see a positive ROI from your offering—it helps them increase revenue profitably or cut costs—you'll make a very strong case.

Take Mailchimp, for example. During the 2008 recession, Mailchimp introduced its freemium business model — giving away basic features for free and only charging for premium features. This strategy from Mailchimp helped them acquire new customers and increase revenue. Freemium gave clients what they needed. Premium gave them what they wanted.

Lean into ROI-based marketing campaigns to show how your product or service makes money for your customers, even during an economic downturn. Use case studies to demonstrate how you help other customers move key business metrics that can keep their company afloat. Show your audience how you're indispensable. It's doubly important during a recession.

Read the Room — Be Helpful. Last Year's Message Isn't This Year's

If you continue to use the same marketing message without considering how your customer's needs and situations have changed, you will annoy them, and they will tune you out.

You can't afford that.

Instead, try to provide value and help customers get through tough times with you. Build trust with your customers and increase lifetime value — through and beyond the recession.

By providing value and becoming a source of solutions, you can create a bond with your customers that will make them want to continue doing business with you — even during tough economic times.

Ride Through the Shift in Product Demand

Demand for your product may have shifted. 

Clients may be looking for cheaper alternatives to what you currently offer. They may also be looking for products that serve a different purpose from what they originally bought them for. 

Your marketing needs to take these shifts in demand into account. Adjust your messaging and positioning to reflect the new needs of your target market. 

Zeus Living, a property management company, offers apartments and homes for rent to startups, students, and companies living in U.S. cities.

Then the rental-housing market crashed in 2020 during the COVID pandemic. Zeus had difficulty keeping their business running. They lost tens of millions of dollars in revenue and had to lay off 60% of their employees.

‎Zeus Living saw an opportunity in the market crash and decided to ride through the shift in demand. They worked tirelessly to modify their product to satisfy the new market. They understood their target market wanted to live a more flexible, mobile, and asset-light lifestyle.

Zeus Living shifted its focus to accommodate remote work:


"Work From Anywhere' was becoming our main use case, and we had to figure out how to adapt. Residents were telling us that living with us was a better option than corporate housing, more flexible than short-term housing, and more appealing and easier than the unfurnished rental market."
Kulveer Taggar, CEO and co-founder of Zeus Living


From there, they decided to add third-party homes to their platform to meet the demands of their customers in Miami, Denver, and Austin. 


Takeaway

Even though your instincts might tell you to cut your marketing footprint during a downturn, companies that continue to invest in marketing and make adjustments instead of cutting will see a long-term increase in sales and market share. 

Marketing isn't a cost center. It's an opportunity to show your customers how you can help them survive and even thrive. If anything, it's a high-ROI profit driver when used strategically. If your marketing budget is cut down, content marketing — blog and social posts — keeps you on your customers' radar at a low cost.

Refocusing your marketing approach may be the smartest thing you can do for your business during an economic downturn.

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