Getting ready for a recession

So many indicators are suggesting that an economic recession is imminent, that we all should be planning for it. Recent recessions have been relatively regular in the UK: 1980/81 (five quarters); 1990/91 (five quarters); and 2008/09 (five quarters). That’s not good for any of us, but we should be planning for the eventuality.

Unfortunately, the knee-jerk response at many businesses is to slash departmental budgets, starting with the less tangible activities including advertising. That particular cutback has been proven by many academic studies to be a mistake. If it’s necessary to survive, so be it, but if that’s not the case, it’s an own goal. As this document from the last recession says: “Cutting your marketing in a downturn will help cashflow only in the very short term, and the brand will emerge from the downturn weaker and much less profitable. The long-term profitability in maintaining your marketing budget greatly outweighs the short-term gain. And if other brands are cutting budgets then the longer-term benefit of keeping your spend the same (or more) is even better”.

The wrong approach seems to have been to tackle a market which has reduced in size by trying to increase market share – without giving sales the support it needs to do so. The only way sales can succeed in this case is to slash margins, negating the strategy and leaving the company in a difficult situation as the economy starts to expand again. The right approach is to maintain brand presence, which could result in the company needing to scale down across the board during the recessionary period, but leaving it in a stronger position going forward.

Marketing needs to market itself better internally to avoid that mistake. And that may mean researching evidence that cutting advertising and promotion is a false economy, well in advance of big decisions being made. You may want to have that one in the bank.