REDUCED MARKETING SPENDING LEADS TO A DROP IN SALES23. 3. 2023
Reduced marketing budgets during the crisis have a negative impact on sales in subsequent years. A survey by Behavio Research for the Association of Communication Agencies (AKA) shows that 4 out of 5 brands that have cut marketing budgets in the last three years have not yet returned to their original sales. Brands that have boosted communications, on the other hand, have seen sales increase by 256%.
Reducing the communications budget, which is usually one of the first items companies cut back on during a crisis, usually has long-term consequences. According to the survey, 80% of brands that have cut marketing spending in the last three years have not yet returned to their previous sales levels. Brands that cancelled mass media advertising saw 16% lower sales after one year and 58% after five years. Large corporations are the least affected by the spending cuts, while smaller brands in particular are facing the harshest impacts.
"We hear from top company executives that they have to cut back on their marketing budgets because the company is not doing well. It turns out that this approach is short-sighted and very often leads to a significant drop in sales. In extreme cases, it can even lead to a loss of market position to competitors who have decided to maintain or even strengthen their communication budget, thanks to which they have managed to reach customers who would otherwise have chosen a different path," says Adéla Krausová, head of AKA's digital section.
Increased marketing spending accelerates growth
Historical data shows that brands that increased their marketing spend in the recession and took a more aggressive approach to communications achieved 256% higher sales compared to brands that cut communications altogether. At the same time, maintaining communication increased customer loyalty and reduced price sensitivity. Consequently, long-term profitability grew. Conversely, the reduction in spending led to a decline in market share.
"With other brands reducing their marketing activities, there is room for us to take advantage of the situation and fill the space they leave behind in the public space with our own communications. The increased availability of media space provides a great opportunity for brands to reassure customers that they are still there for them. Companies that take a proactive approach to this opportunity will ensure a much better starting position for the post-crisis period compared to their thrifty competitors," explains AKA Director Kateřina Hrubešová.
"As an example of how to quickly take advantage of the situation, a Czech company operating in the segment of operating leases increased its investment in brand communication by 50% in 2021, despite the continuously declining market value. This led to incremental sales growth in 2022, even though the market was still in decline," says Hrubesova.