There is no doubt that we are facing a bleak environment. Unemployment at 11%. Dow Jones Industrial Average posts its worst one day decline ever. A pandemic sweeps the nation. But that’s not just for 2020—it was also for 1920-21, with nearly the exact same conditions.
Despite this, history has shown there is a bright spot for companies that chose to invest in growing market share now.
In 1924 Roland Vaile completed his studies at Harvard University, and in 1927 he published research on the effects of advertising in a recession. Among the 250 companies he analyzed following the 1920-21 recession he observed the following:
- Firms that increased advertising increased sales during the recession and sustained a 20% increase in the years that followed.
- Firms that decreased advertising decreased sales during the recession, and it took three years to recover to pre-recession levels.
For additional insights on this topic, check out How Market-Leading CEOs Thrive During a Recession.
Investing Now for Long-Term Gain Proven Time and Time Again
It seems counterintuitive to spend more when every dollar matters. However, study after study proves the gains can be substantial:
- In the 1980s, McGraw-Hill analyzed 600 B2B companies where this held true. Sales grew by 256% for those who advertised aggressively over those who didn’t.
- Following the 2008 recession, a study in the Harvard Business Review (HBR) found only 9% of companies flourished in the aftermath, outperforming competitors by at least 10% in sales and profit growth.
- Alex Biel and Stephen King observed that the best path towards increased profit was to increase spend. “Cutting advertising spend to increase short-term profits doesn’t seem to work,” the authors found.
HBR notes these high performs addressed “the delicate balance between cutting costs to survive today and investing more to grow tomorrow.”
So why does this work?
Before we dive in, do you know the customer acquisition cost (CAC) and lifetime value (LTV)? If not, now is a good time to do the calculation. Here is a tool to get you started.
Excess Share of Voice = Market Share Growth
Share of Voice (SOV) is defined as the company’s share of paid (e.g., advertising) and unpaid (e.g., publicity) marketing in its category. In some groups, you might have most of the category to yourself, while in others, you might compete fiercely.
Research has shown the following relationship between SOV and Market Share:
- Brands that have a share of voice greater than their market share will (all things equal) grow as they speak to potential new customers (in addition to their own).
- Brands that have a share of voice that is less than their market share will (all things equal) shrink, as competitors pick off customers because their voice dominates.
Brands should seek Excess Share of Voice (ESOV). For example, if the brand has a 7% market share, a 10% share of voice provides 3 ppt. ESOV. In B2B, every 10% ESOV typically generates a 0.7 ppt. increase in market share. Among categories, this is most pronounced in non-commodities.
Magic Power of ESOV During a Recession
In a recession, brands accrue two additional benefits before they even spend a dime more on marketing.
First, because competitors are reducing their spending, merely remaining in the market increases share-of-voice. For instance, if your share were 20% before the recession and all your competitors cut their spending by 30% while you maintained yours, your share of voice would jump to 26%. In April, 50% of brands either reduced marketing expenses or eliminated them entirely.
Second, the cost-per-unit of advertising is cheaper. As ad revenues have fallen 8-10% across the world, so have costs. For example, CPMs are 32% lower than last year. As a result, advertising dollars go further. In the case above, the same spend would allow you to capture an additional 6 ppt. share-of-voice.
Putting those together by simply keeping spending the same would propel you from 20% to 34% share-of-voice. If your market share was 20%, the 14 ppt ESOV puts you in an excellent position to grow it.
Your Window, However, Is Narrow
In the Biel and King study cited above, they found that the share gain opportunity fell quickly once the recession ended. It is imperative to achieve the market share gains now so that you are set up well for the recovery period that will follow.
One classic example comes from the early days of Salesforce. As the tech bubble collapsed and the economy slumped, Salesforce was bullish on disrupting the status quo. Largely through its “End of Software” campaign (which famously included mock protestors outside an Oracle user conference picketing), the company grew over 300% in 2002 while others struggled to simply maintain growth. It set Salesforce up for a terrific run in the ensuing years.
As you consider the above, below are some resources to help you act now:
- Calculate CAC and LTV with this tool and find the ratio for each of your products.
- In this infographic, my colleague Jenny Sung notes the five moves CMOs are making now to their budgets. We dive deeper into these topics and discuss emerging best practices in this webinar, hosted by Josh Horstmann, Laura Hall, and myself.
- Join SBI’s LinkedIn community group Inspire Others, where you can connect with other leaders like yourself on this topic.
- Do you still have questions? Submit it to the SBI Help Desk and an expert will respond within 24 hours.