Should brands cut back on marketing during a recession?

Famed investor Warren Buffett understands the value of the brand. As a shareholder in Kraft, Coca-Cola, Anheuser-Busch, Wrigley’s etc, he sees these entities as ‘low risk’ for himself and his company, Berkshire Hathaway, because they have enormous brand equity. Buffett understands that brand equity is important as it means that his investment can sustain its pricing even when the economy goes into recession. To quote Philip Kotler: ‘Great brands are the only route to sustained, above-average profitability’. So the question  is – if brand equity is a potential buffer to recessional effects, why would the marketing budget be the first place to cut costs?

Obviously in the age of short-term management and focus in delivering interim profit, cutting marketing costs makes the business look good (without creating any instant problems). Unfortunately, the positive impact on the bottom line doesn’t last as cutting marketing costs will eventually erode market share and thus ability to compete on more than price; this is especially true in mature markets where it is easy to be dragged into a price war. It seems that contrary to popular belief, a recession is the best time to invest in a brand. According to research in the UK, investing in brand during recessionary periods can help build market share and make traction against competitors (especially those following the ‘budget cutting’ philosophy).

When looking back on previous economic recessions, although contextually different to the current situation, many now well known brands (and products) chose to invest during a time of uncertainty with big payoff (CNN, MTV, Wikipedia, IBM etc). The most famous example would be Apple, which launched their first iPod in 2001 around 40 days after the September 11 attacks, when the economy and consumer confidence were down. The advantage of investing or maintaining marketing spend during a recession is that a company has the ability to build their brand (or product) in an environment where its competitor are most likely to be cutting costs. This point is especially important in the telecommunications market, where there is fierce competition but the market is so mature that it is a ‘zero-sum’ game. Investing during this current recession can help make traction against competition that a brand hasn’t been able to touch before.

To quote Sergio Zyman, former chief marketer of Coca-Cola: ‘Marketing money is like fuel in a car. You take the fuel out of the tank, the car stops. You take the marketing out of the brand, the brand stops’.

By Pippa Kulmar

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