Recessions have been fueled by underconsumption, wrote author Nariman K. Dhalla. Caution snowballs as inventories build up, production is reduced, and workers are laid off.
“The most suitable way to get out of this vicious circle is to go to the source and stimulate demand for goods and services,” wrote Dhalla. “To accomplish this task, what is a better tool than advertising, the mass-selling equivalent of mass production.”
Companies that raised ad budgets during recessions gained market share and increased sales or at least prevented erosion, said research published in the Harvard Business Review. Those that cut advertising experienced sales drops and loss of share.
Advertisers cited these common reasons for cutting ad budgets during hard times:
• Advertising would be wasted because people don’t have money
• Competitors are slashing ad spending, so we can do likewise
• Money saved on ad spend can help pay dividends
Each argument is fallacious, Dhalla wrote.
“Rather than wait for business to return to normal, top executives should cash in on the opportunity that the rival companies are creating for them. The company courageous enough to stay in and fight when everyone else is playing safe can bring about a dramatic change in market position.”
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