When financial pressures hit or a brand’s net profit needs boosting, advertising spend is often one of the first budgets to be cut. The Covid-19 pandemic has been no different, with numerous marketers pulling advertising and cutting spend for months or longer.
However, research by the Ehrenberg-Bass Institute proves that an advertising hiatus not only leads to notable sales declines, but cannot easily be recovered from.
Conducted in 2018 by Professor Byron Sharp, Professor Rachel Kennedy, Dr Virginia Beal, Dr Nicole Hartnett and Adam Gelzinis, the study uses 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.Just 7% of brands ‘seize the opportunity’ to invest more in marketing during Covid-19
The Institute finds 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 reaches 36%, though as the years continue the steady decline eventually tapers off.
However, according to the report 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.
In the sample used within the study, all big and medium-sized brands that were growing prior to their advertising hiatus continued to grow for one to two years. In contrast, all previously growing small brands stopped accelerating and declined to below their base-level sales.
According to the report, 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.
“Stopping advertising means brands cannot build or refresh mental networks through mass communication, but other nudges come from buying or using the brand, seeing other people buy or use the brand, or seeing in-store displays and activations (which typically also favour bigger brands),” the report says.
“The upshot is that bigger brands’ greater mental and physical availability will likely better insulate sales from decline after stopping advertising compared to smaller brands.”
Meanwhile, brands that were previously stable prior to cutting advertising largely managed to remain somewhat stable within the next two years, though they did begin to experience “substantial” decline if they continued to go without advertising after that point.
“The initial stability may be due to investment in marketing activities other than advertising, but it is also likely because of the largely habitual purchasing of consumers,” the report explains.
Yet, falling sales among larger brands becomes more common and “greater in magnitude” as brands go longer without advertising, and after four years without advertising, there are no instances of any brands still reporting sales higher than their last advertising year.
Every brand that was in decline before it stopped advertising continued to decline in the following years, irrespective of its size. If advertising was not restarted, sales on average halved within two years.
Pausing for just a year
Of the 57 brands included in the study, 14 stopped advertising for only a year before restarting. Before they stopped, five of those brands were growing, five were stable and four were in decline.
After just one year of not advertising, three of those brands were still growing, while six were in decline.
Crucially, the study found that resuming advertising the next year did not stop this trend. The number of brands growing continued to fall and more began to see their sales decline, such that only two of the growing brands and three of the stable brands managed to maintain their sales trend after resuming advertising for a year.
The other five initially growing or stable brands were unable to return to their previous sales trend after restarting advertising, suggesting it takes longer than 12 months to recover from a year’s hiatus.The best marketers will be upping, not cutting, their budgets
“While it may be tempting to withdraw the advertising budget for a boost in profits, the evidence suggests that doing so risks putting the brand on a downward sales trajectory,” the report argues.
“Without refreshment, mental availability erodes. Silent periods extend the gap between consumers making a category purchase and them last seeing brand advertising. In this gap they may be nudged by a competitor’s advertising, or your critical memory-based brand linkages will erode, and so they are less likely to think about you, especially if they are a light buyer.”
As previous research by the Ehrenberg-Bass Institute has proven that light buyers are the biggest group of any brand’s customer base and the most important for growth, risking this mental availability could be a costly strategy – for smaller brands in particular.
“[However], big growing brands may escape serious negative consequences in the short term when advertising is paused, though they might have grown even faster with advertising support,” the report concludes.