Cost of living crisis: increasing adspend during recession boosts ROI

Brands that sustain adspend see lower sales losses during recessionary periods [Getty Images]
Brands that sustain adspend see lower sales losses during recessionary periods [Getty Images]

Consultancy Analytic Partners warns brands against cutting advertising budgets because 60% will achieve higher ROIs by spending more.

Advertising budgets should be maintained in the face of escalating cost of living pressures because most brands that continue spending in recessions achieve a higher return on their investment, a marketing analytics consultancy has said.

Analytic Partners told delegates at the Cannes Lions Festival of Creativity that despite costs for consumers and companies rising due to high energy bills, a global food shortage and a potential recession, marketers who avoid cutting media spend can expect to be protected from sales losses.

The consultancy’s chief executive, Nancy Smith, said: “Media investment can lessen price sensitivity during times of price increase. 

“We have seen that brands with high media investment in media are experiencing a lower sensitivity to price increases, less loss in sales.”

Analytic Partners' latest report on ROI data, gathered from clients across the globe, showed that 60% of the brands that raised their marketing investment during the 2007-08 recession saw improved ROIs.

Meanwhile, those brands that increased their media investment during that period saw an uplift of about 17% in incremental sales, according to the ROI Genome report, which includes data from the past two decades.

However, among those companies that reduced media investment during the last recession, there was a loss in incremental sales of about 18%.

Analytic Partners acknowledged the current inflationary period in which the cost of media space is going up and said its data showed a “strong case” for tackling this with a multichannel approach . 

Combining offline and online channels is 45% more efficient than offline alone, and more efficient than online alone, said the consultancy. 

It also recommended harnessing the “halo” effect – advertising one product to improve the awareness of others, which typically contributes half of the marketing impact – after its data showed that this approach can increase ROI by up to 10 times, if executed “effectively”.

Smith said: “Using our insight, brands do not have to fear these crisis periods – the data is on their side for a level-headed approach that involves continued brand and advertising investment. Cut your media spend, and you’ll cut your ROI. 

“What our figures show is quite clear: look to the past to inform your future and don’t go dark in times of crisis.”

She added: “As we’re experiencing a period of media inflation there are two golden rules for brands: multichannel approaches are the most effective; and the halo effect – how advertising one product boosts others in your portfolio – is significant.”

Earlier this month, revised adspend forecasts by Group M predicted the UK market will grow by 9.3% in 2022.

Globally, Group M expects ad sector spending to increase by 8.4% this year. The economic impact of the war in Ukraine, cost of living crisis and other uncertain conditions have not been as great as feared due to a flood of new business created during the pandemic and a thriving digital advertising market, according to experts behind the forecasts.

Tags

Start Your Free 30-Day Free Trial

Get the very latest news and insight from Campaign with unrestricted access to campaignlive.com , plus get exclusive discounts to Campaign events.

Become a subscriber

GET YOUR CAMPAIGN DAILY FIX

Don’t miss your daily fix of breaking news, latest work, advice and commentary.

register free