With dealers under enormous pressure to control costs and maintain liquidity in the current pandemic crisis, advertising budgets often appear to be a dispensable luxury in the struggle to survive. Principals and General Managers who succumb to that temptation, however, put the long-term future of their dealerships at risk, according to Wharton and advertising experts.
“The first reaction is to cut, cut, cut, and advertising is one of the first things to go,” says Wharton marketing professor Peter Fader, adding that as companies slash advertising in a downturn, they leave empty space in consumers’ minds for aggressive marketers to make strong inroads. Today’s economy “provides an unusual opportunity to differentiate yourself and stand out from the crowd,” says Fader, “but it takes a lot of courage and convincing to get management on board with that.”
According to Wharton marketing professor Leonard Lodish, with demand slack for advertising services, the cost of these services goes down, making advertising expenditures all the more defensible in a bad business climate. “If your company has something to say that is relevant in this environment, it’s going to be more efficient to say it now than to say it in better times,” says Lodish.
Research shows that dealers that consistently advertise even during recessions perform better in the long run. A McGraw-Hill Research study looking at 600 dealerships from 1980 to 1985 found that those dealers which chose to maintain or raise their level of advertising expenditures during the 1981 and 1982 recession had significantly higher sales after the economy recovered. Specifically, those that advertised aggressively during the recession had 256% higher sales than those that did not continue to advertise.
For dealerships that do stay the course and continue to advertise during noticeable downturns or increase their promotional activities, the key is to craft messages that reflect the times and describe how their vehicles or service benefits the consumer. For example, dealers might be tempted to emphasize price in a recession, but that only works for dealers like Drive Time and Carvana that are built around a core strategy of providing lowest prices focused on volume over gross.
We are advising dealerss in a downturn to rally to protect and preserve brand equity that has been nurtured for years, with continued investment in and support of a dealer’s brands and products. The worst thing you can do is cheap-out on delivering services and value they have come to enjoy, or in other words put less coffee in the cappuccino and not expect your customers to take notice, as many have in the past.
While price is important in a recession, the majority of price-driven consumers still factor in the importance of branding. Clear brand association and leadership comes through communication. If dealers cut the communication, they will have a major problem.
Dealers must make sure they understand the “elasticity” of their brand, which would be a gauge of how much — or how little — advertising is necessary to sustain sales. It is not a science. There is a lot of competing messaging out there, but you must be supporting your dealership and sales.
Also, dealers should head caution knowing that in today’s networked, digital marketplace, consumer buzz about disappointments with a product can metastasize quickly and widely. You must give people good things to talk about by continuing to have good products and communication. The biggest lesson is that recessions come and go, but hopefully your dealer brand is for life. So be careful how you react because the downturn is not going to be forever.
If dealers cut deeply into advertising and communications in a down period, the cost to regain share of voice in the market once the economy turns around may cost four or five times as much as the cuts saved. It is critical that dealers really keep a balance in times like this. DO NOT go dark when customers and consumers need you because they need you as much as you need them.
A downturn is a natural time to focus on core strategy. A recession can be an opportunity disguised as a problem. Big Time can help position the brand as an ally to consumers in tough times with product and service development or sponsorship programs so the consumers will see by your actions that your dealer’s brand is on their side. That will pay dividends not only during a recession but beyond.
Advertisers in all categories must be in tune with consumers in the current climate. They need to fine-tune messaging to be sensitive. In challenging times, marketers must also work harder to segment consumers with specific messages. If, in the past, you used mass media, you probably want to be more targeted now to make sure the message gets to the right people with the right message. Dynamic Digital Marketing helps to make this happen.
Research indicates that combative advertising which targets competitors escalates during an economic downturn. When the marketplace is shrinking, you tend to become a little more competitive in your tone. We advise caution as this approach can backfire. If you say your competitor is bad and your competitor says you are bad, ultimately the customer thinks both are probably good and bad. They tend to be indifferent. Even in a downturn, if you want to create loyal customers, you do not want to be overly competitive. It is so much better to highlight what you do best and be sensitive to the needs of your customers rather than bashing the competition.
An economic slump may be a time to reconfigure the advertising mix heavily to strong digital marketing outlets that can target with precision, depending on the product, brand positioning and overall dealer strategy. Dealers do not have to put a huge amount of money in the marketplace. The lower-cost digital marketing techniques such as banners, remarketing, retargeting and so much more might merit new attention. When times are flush, it is easy to pay a premium for more expensive established media. Instead speak with Big Time Advertising about how to stay on course during economic downturns and then be way ahead of the competition when the economy fully returns.
Yes, all forms of advertising can be successful even in a recession, although the impact of digital marketing might be easier to quantify and therefore able to withstand the close scrutiny of demanding justification for any spending while dealer principals are under recessionary pressures.
The current recession will offer an opportunity for dealers to provide integrated campaigns meshing a full court digital marketing press. In the last downturns, in 2001 & 2007, digital marketers were operating out of separate agencies, but today Big Time Advertising is able to construct fully integrated digital campaigns. We all have been talking about integration for years, but it has been a much slower process than we expected. Yes, the coming pandemic driven recession will accelerate that integration, but those who are the most well-integrated will start to see some of the biggest benefits.