When in a slump, keep advertising

Whenever economic conditions deteriorate, the advertising budget is always one of the first to be cut. This type of managerial thinking exists worldwide and Korea is no exception. An examination of advertising spending of Korea’s top 100 companies during the 1997 currency crisis, the credit card crisis of 2003 and the 2008 global financial crisis shows they felt there was little to be gained from normal spending on advertising. But the better response is the counterintuitive one.

During a downturn, communication with consumers is actually even more important. In his book “The Affluent Society,” John K. Galbraith, one of the most influential economists of the last century, wrote that ever-increasing desire for additional consumption is, in a sense, “manufactured” by companies’ communication activities (e.g., advertising) rather than a person’s own desire. Therefore, during tough economic times, implanting the idea of the necessity of a product in consumers’ minds is important for a company’s survival.

Although companies may be forced to trim advertising over the short term, they need to be committed to getting the maximum effect that advertising can deliver over the long term, albeit at reasonable costs. The prevailing view is that the Korean economy will see slower growth, given the stiff headwinds in the U.S. and Europe and a cooling off in China. Watch how companies advertise and you will get a sense of their acumen and long-range thinking. They may select one of the three proven strategies that maximize advertising during a downturn.

The first strategy employs advertising messages that soothe customers who are grappling with the difficult conditions. When the economy slumps, consumer anxiety rises, especially when their desires to buy clash with their shrinking purchasing power. So, a cheerful and hopeful message is effective; it consoles potential consumers and perhaps provokes a purchase, especially if the advertisement emphasizes the value a product can provide. A water softener is a non-necessity that can be deferred during tough economic times, yet local manufacturer Woongjin has coped well with recent turbulence by portraying a water softener as an investment in a family’s children.

Second, companies should diversify their advertising channels in a comprehensive manner. For example, an ad campaign can integrate traditional media like TV and newspapers with technology-driven media, brands can be promoted through promotional activities together with advertising, and companies could team up to promote their products in one advertisement. Especially with joint advertising, companies can share advertising expenses and synergy is achieved.

The third strategy for a low-growth period is more active communication with consumers. Since rival companies reduce their advertising during a slump, it may be the best time for companies to make a differentiated impression on consumers. Companies that increased advertising during economic slumps, when rivals reduced advertising, enjoy better sales during the period of economic recovery.

There are many cases in which companies find they have lost their competitiveness once the economy recovers. The companies that emerged in better shape are the ones that turned the crisis into an opportunity. In Korea, companies that increased advertising spending by more than 10 percent during the 1997 currency crisis saw their sales double in two years and triple in 2002 when the economy recovered. They did much better than companies that slashed advertising.

If companies are focused only on survival in difficult times, they may lose an opportunity. Once the economy recovers, they may find they have lost their competitiveness. Companies that emerged in better shape from the crisis are the ones that sensed changes in consumer behavior and adjusted their communication strategies. Thus, when the economy is weak, companies should think of future growth and continue to invest in communication.

*The writer is a research fellow at the management department of the Samsung Economic Research Institute. For more SERI reports, please visit www.seriworld.org.

By Kim Kyung-ran