When financial pressures hit, advertising spend is often the first budget to be cut. The COVID-19 pandemic has been no different, with numerous marketers pulling advertising and cutting spends.
However research by the Ehrenberg-Bass Institute proves that an advertising hiatus not only leads to notable sales decline, but also cannot be easily recovered from.
Conducted in 2018 the study used existing data tracking the media spend and volume sales of 70 Australian consumer goods brands for more than two decades. There are 57 cases in which a brand cut all mass media spending for a year or longer, with some not advertising for up to a decade.
The Institute found that on average brands saw their sales fall 16% after one year without advertising compared to the last advertised year, and by 25% after two years. By three years the drop reached 36%, though as the years continued the steady decline eventually tapered off.
There is “wide variation” around this average, as not all brands experienced immediate sales drops. In fact, bigger brands tend to continue to grow or remain stable after advertising stops for a year or two, whereas small, growing brands see their trajectory quickly reverse and suffer greater declines.
This “size advantage” for bigger brands coincides with the Institute’s research into the effect of the greater mental and physical availability of bigger brands. Even with no advertising other factors are still there from buying or using the brand, seeing others buy or use the brand, or seeing in-store display and activations which tends to favour the bigger players. Therefore bigger brands are more insulated from decline after stopping advertising compared to smaller brands.
Brands that were previously stable prior to cutting advertising managed to remain stable within the next two years which could be due to investment in marketing activities other than advertising and habitual purchasing of consumers, though they did begin to experience substantial decline if they continued without advertising after that point.
The Institute has follow-up research underway and expects to release their findings next year.
It will be interesting to see how brands who have cut back significantly on their advertising spend during the pandemic will fare as we emerge from this crisis, particularly smaller less insulated ones.
Source: Ehrenberg-Bass Institute of Marketing Science (Australia)
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