Retailers: Think Twice Before Cutting Back Your Ad Spending

Picture for Blog #9A new study by ThinkVine, a Cincinnati analytics firm, offers evidence that cutting out ad spending during a recession can have harmful consequences.  

The firm that does predictive media modeling for marketers such as PepsiCo, and Colgate-Palmolive, found that although companies can usually get away with cutting media spending in the short term; cutbacks over 16 weeks can start to erode sales volume. 

The firm analyzed the effects of turning off all advertising entirely for a year on one unnamed brand.  It then studied the effects of turning it back on the next year at prior levels.  Here’s what they found: 

  • For about 16 weeks, sales volume was about the same. 
  • By the end of year one, however, sales volume was about 20% lower without advertising than with it. 
  • Turning the advertising back on in year two, reversed the sales decline as the brand began growing again at the same rate before the advertising was stopped. 
  • However, the advertising was not able to close the gap in sales compared with what it would have achieved had it maintained media spending for both years. 

Different brands respond differently to media cuts, but for many – getting back sales and share lost from cutting budgets can be a lengthy and an expensive process. 

ThinkVine CEO, Damon Ragusa, said it best:

“The cost of getting back what you lose is often greater than the savings of not advertising.”

 

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