With tough times on the horizon, many commercial real estate businesses are cutting costs wherever they can. Find out why your marketing budget should be last on the chopping block.
By James Maile || December 15, 2022
“The Sky is Falling!”
We’ve all been reading the headlines… with rising interest rates and high inflation taking up most of our newsfeeds, the recession is top of mind for everyone in commercial real estate.
Broker confidence is low, rents are slowing, property values are declining, people are losing their jobs, and there’s a general hesitancy from both buyers and sellers.
With all of this going on, it seems like everything’s going to hell in a handbasket.
As we stand on the precipice, puckered, and with our eyes shut, it can be difficult to determine the right move to make.
Some have taken drastic measures to soften the coming blows to the bottom line, most notably JLL and CBRE cutting costs and giving many of their employees the boot.
Beyond cutting jobs, one of the most common cost-cutting tactics is slashing the old marketing budget.
It seems (unsurprisingly) to be a popular one as overall ad spending has been declining for five consecutive months as of October.
Although it’s popular, cutting back on your marketing is not a good idea for your business. In fact, it can be catastrophic.
Don’t feel like reading? Watch our CREview episode to learn more about commercial real estate marketing during a recession (don’t forget to subscribe!).
What Happens When You Cut your Marketing Budget During a Recession
“Those who stop marketing to save money are like those who stop a clock to save time” – Henry Ford.
Cutting your marketing budget during a recession seems like a risk-free way to protect your wallet but historical evidence says otherwise.
The Great Depression
During the recession of the 1920s/30s, companies that continued to invest in marketing saw increased sales and growth compared to those that didn’t. Additionally, these companies experienced continued growth for years after the recession, unlike their competitors who slashed their advertising spending.
A great example of this can be seen with Kellogg’s. During the great depression, Post was the industry leader in the ready-to-eat cereal industry but cut its advertising budget in fear of the recession. On the other hand, Kellogg’s doubled their advertising budget and released Rice Krispies.
Kellogg’s saw profits increase by 30%, became the industry leader, and has maintained the position for close to a century.
The 1973-75 Recession
This recession showed similar results. Those that increased or maintained their marketing budgets had significantly higher growth and sales during and after the recession than their competitors that decreased advertising.
At the time, there was a serious energy crisis, and the Toyota Corolla was second to the Honda Civic in fuel efficiency. When the economy started to look worse for wear, Honda slowed their advertising and Toyota stuck to its strategy.
By 1976, Toyota (the less fuel-efficient car) became the top imported car manufacturer in the U.S., surpassing VW and leaving Honda in the dust.
The 1990-91 Recession
We’re starting to see a pattern here…
In the early 90s, McDonald’s decided to drop their marketing budget and both Pizza Hut and Taco Bell saw this as an opportunity and increased theirs.
As a result, Taco Bell’s sales grew by 40%, Pizza Hut’s sales increased by 61%, and McDonald’s sales declined by 28%.
The 2008 Financial Crisis
There’s definitely a pattern…
In 2008/09, Amazon decided to continue to heavily innovate and market its products. Following the release of the Kindle, they managed to exponentially grow their market share. During Christmas in 2009, Amazon sold more e-books than printed books, the first time this has ever happened.
By the end of the recession, Amazon had increased its sales by 28% and cemented its brand as an innovative company that provides lower-cost alternatives to price-sensitive customers.
Okay so these examples have little to nothing to do with commercial real estate, but they do show that regardless of your industry, maintaining or increasing your marketing activity will not only help your business survive during the recession, but will allow your business to thrive.
It also indicates that a recession is a perfect time to use marketing to gain some market share.
According to a survey by ZoomInfo, 40% of marketers plan on reducing their marketing spending.
While your competitors slash their advertisements, take advantage of the opportunity, and ensure that you’ll be top of mind when your prospects are ready to make a purchase decision.
Now that we understand what you have to gain by maintaining or increasing your marketing budget, let’s take a look at what you could lose if you don’t.
The Cost of Cutting Your Marketing Budget During a Recession
Again, historical evidence shows that cutting your marketing spend during a recession will do more harm than good. Let’s have a look at a few studies… how exciting.
According to a study by Kantar Millard Brown, 60% of the brands that stopped marketing during the 2008 Financial Crisis experienced a 24% reduction in ‘brand use’ and a 28% reduction in ‘brand image.’
The study also highlights that those who cut their marketing budgets more than their competitors are at a greater risk of losing market share.
Kantar estimates that when businesses stop marketing during a recession as a cost-saving measure they will see a 39% reduction in brand awareness.
A McGraw-Hill Research paper studied 600 companies from 1980 to 1985 and showed that the businesses that kept consistent or increased marketing spending during the 1981 recession had sales figures 256% higher than those that didn’t by the end of 1985.
It is also evident that cutting marketing budgets provides a false sense of security in the short term.
The Institute of Practitioners in Advertising released a study in 2008 that found that those who cut their marketing budget will still benefit from the marketing investments that were made in the past.
Although this mitigates any negative short-term effects, it results in dangerously misleading short-term sales figures. The considerable harm is only felt further down the line.
Businesses that maintain marketing efforts and activity during an economic downturn have a longer-term profitability improvement that outweighs short-term savings.
We understand that it can be difficult to tell yourself that you need to still do marketing when things aren’t looking good, but you still need to be visible to your audience. Get that market share before one of your competitors does!
If you are one of the only businesses that have remained visible during tough economic times, when it ends and your target audience has its purchasing power back, you will be top of mind.
And in marketing, if you are top of mind – you make sales.
The best quote about advertising during a recession probably comes from Walmart founder, Sam Walton. When asked, “What do you think about a recession?” he responded, “I thought about it and decided not to participate.”
You should have the same mentality for your commercial real estate business!
As always,
Stay ATYPICAL 😉