With loud whispers from economic experts that a recession is looming, it’s no surprise that many business owners and marketers are busy scrutinizing every dollar spent on sales and marketing. For many, this means an extra hard look at Pay Per Click ads, or PPC, where dialing back the budget is as easy as a few clicks.
But will conservative belt-tightening now make riding out a recession easier? Or will shrinking your ad budget in the short term lead to shrinking profits long term?
In times of uncertainty, our team at WTM listens to the data.
Data from a report presented by Google FITsights with Ebiquity show that the positive effects of advertising during a recession can pay dividends for years to come. Those same data also show that the adverse effects of not advertising are just as long-lasting.
PPC Lets You Take Advantage of Downturns to Build Long-Term Growth
There’s no arena in which this strategy is truer than in the digital space, particularly PPC. For PPC advertisers, these positive effects of advertising during a recession open the door to a huge opportunity for those with the foresight to walk through.
When your competition is pulling back its PPC budget, advertising prices go down. It’s basic supply and demand. This creates an opportunity for you to swoop in and claim those clicks and that market share for your business.
Right now, we may be on the cusp of grabbing impressions, clicks, and new customers at a discount. And if you can earn the loyalty and trust of those customers now, you can turn them into sources of revenue for years to come.
Cut Back and Risk Losing Market Share
We can see from the Ebiquity report (Slide 34) that pulling back on ad spend during economic downturns can have the opposite effect. It doesn’t just hurt you today. It can hurt for years and put your business in a hole that requires expending even more resources to dig out later.
Recent history is rife with examples of companies that zigged while others zagged and experienced long-term positive impacts as a result.
Take Coca-Cola’s marketing approach during the COVID lockdowns in 2020. At that time, CEO James Quincey announced the company’s intention to scale back advertising, saying, “Why would I want to spend money in a period if I can’t get the return, particularly if there’s a strong lockdown?”
How’d that work out? Not only did that strategy fail to preserve revenue, but it also gave Coca-Cola’s main rival, Pepsi, a competitive advantage — one they “earned” by doing nothing more than continuing what they were already doing.
As stated in Google’s and Ebiquity’s report, Pepsi maintained its ad spend throughout the pandemic and grew net revenue in 2020 by 5% as a result. Coca-Cola’s strategy of hiding its head in the sand resulted in an 11% reduction in revenue for the same year.
It’s not just soft drinks. This effect cuts across industries. The same report showed that financial services companies in Canada, for example, who maintained their levels of advertising during the COVID lockdowns, grew their search share 1.6 times more, on average, than those who turned ads on and off. In Latin American countries, the growth was 1.2 times more.
The Effects Can Last for Years
More importantly, these effects stick around for the long term. You can’t simply “turn your marketing back on” and get right back to where you were. Those customers – and that portion of your market share – have passed you by.
This effect is demonstrated by one study noted in Ebiquity’s report that companies that increased their marketing spend during recessions saw profits grow by 4.3% two years later. Businesses that cut marketing saw profits drop by 0.8%.
When you resume your PPC campaigns after a recession, you’ll have to fight that much harder, and pay that much more to claw your way back to where you left off.
At WTM, we’re using data to advise and guide our clients through these uncertain times. If you’re looking for similar support and guidance from a team with serious PPC expertise, we’re here for you. Let’s talk!
Ebiquity insights contributed to the WARC Guide: Navigating inflation and the threat of recession.