May 18, 2023May 30, 2023

Despite Economic Uncertainty, Now Is the Time to Invest in Advertising

In the face of economic uncertainty, rising inflation, and smaller advertising budgets, many agencies and brands are understandably hesitant to invest in advertising. However, the reality is that advertising is still an essential tool for building brand awareness, driving sales, and growing a business.

Forbes reported that although the U.S. advertising market is expected to grow by 5.9 percent in 2023, this figure is significantly lower than the 9 percent growth seen in 2022. Numbers presented by Arete Research at this years’ AdExchanger Industry Preview predicted an even grimmer outlook, forecasting ad spend declining by 8 percent (-5 percent for digital). This lower ad spend can be attributed to several factors, but most commonly discussed is the looming economic uncertainty that has sparked massive tech layoffs and tighter marketing budgets across the industry.

Why Invest in Advertising?

First, let’s look at why investing in advertising is still essential in the first place, regardless of economic conditions. Advertising is a proven way to build brand awareness and reach new audiences. It allows you to get your message in front of potential customers and create a connection with them. Without advertising, your brand may struggle to stand out from the competition and reach its full potential.

In addition, advertising can be a powerful tool for driving sales and generating revenue. Whether you are running a small e-commerce store or a large multinational corporation, advertising will help you reach new customers, increase sales, and grow your business. In fact, studies have shown that businesses that invest in advertising during tough economic times often fare better than those that cut back on advertising. With many cutting back on advertising, companies who invest can engage with customers to maintain relationships with loyal customers and have the potential to build brand loyalty with new prospects.

Why the Time Is Now

Advertising and finance share many similarities, such as buy and sell models, trading desks, and bids/auctions. To draw a comparison, let’s consider investing in advertising versus investing in the stock market. Peter Lynch, the former manager of the Magellan Fund, famously said, “The best time to invest in the stock market is now.” However, timing the stock market is notoriously impossible due to too many factors at play. Consistent value investing over time, like Charlie Munger’s approach, is what works.

In his book The Psychology of Money, Morgan Housel explained that missing even a handful of the best-performing days in the stock market can dramatically reduce long-term returns. Trying to time the market and avoid short-term losses by staying on the sidelines can be extremely costly in the long run. Therefore, the best strategy is to focus on long-term investing and resist the urge to make short-term predictions or adjustments based on market volatility.

Similarly, investing in advertising requires a long-term approach. During the COVID-19 pandemic, some companies were afraid to invest in advertising, while others who invested heavily saw massive valuation increases. For instance, Etsy increased advertising spend by 80 percent in the second quarter of 2020 and saw a 300 percent increase in stock price. Peloton’s 65 percent increase in ad spend during the same period resulted in a 400 percent surge in valuation. Even Amazon, a company with massive brand awareness and customer loyalty, increased ad spend by over 50 percent and realized a 70 percent stock price increase.

As Warren Buffet said, “Be fearful when others are greedy, and greedy when others are fearful.” In other words, while it may be tempting to pull back on advertising during times of economic uncertainty, investing in advertising can pay off in the long run.

Best Practices for Advertising on a Small Budget

Although we’ve established why advertising remains important, we must also acknowledge the reality of the concerns mentioned earlier. It’s likely that advertisers will face budget cuts as a result. With that in mind, it’s essential to invest only what you can afford, like having an emergency fund. Investing everything you have may sound great in theory, but there are many other factors to consider, including taking care of employees and dealing with human elements.

Ramit Sethi, a personal finance author and investor, stresses the importance of having an emergency fund while investing for long-term returns. Sethi believes that the emergency fund should not be treated as an investment that will make you rich. Instead, its purpose is to keep you safe during difficult times. Therefore, it’s crucial to pad those funds while continuing to invest for long-term success. The objective is to keep investing, even if that investment is smaller.

To thrive, not just survive, with smaller budgets, some brands may choose to take big risks, which can pay off significantly. So, what are some best practices for advertising on a smaller budget?

Define (and redefine) your target audience. One of the keys to successful advertising, regardless of budget, is to define your target audience. By understanding who your ideal customer is and what they are looking for, you can create ads that are more relevant and effective. This will help you get the most out of your advertising budget and maximize your return on investment.

Focus on your unique selling proposition. Your unique selling proposition (USP) is what sets you apart from the competition. By focusing on your USP in your advertising, you can create ads that stand out and resonate with your target audience. This will help you attract more customers and drive more sales, even on a smaller budget.

Test and refine your ads. It’s important to test and refine your ads regularly. By tracking your results and adjusting based on what works and what doesn’t, you can improve the effectiveness of your advertising campaigns over time. We are all human and our preferences and interests change constantly. If certain ads aren’t resonating with audiences, ensure your messaging is personalized to the audience you are trying to reach. By regularly testing and refining their ads, advertisers can ensure their limited budgets are being used effectively and efficiently to maximize the impact of their campaigns.

Lock in your measurement. To achieve your desired outcome, whether it’s increasing brand awareness or achieving a higher return on ad spend (ROAS), it is crucial to measure the right metrics. You should ensure that your attribution models align with the key performance indicator (KPI) you are prioritizing. It’s important to note that relying solely on last-touch attribution is not accurate, so it’s recommended to incorporate some level of multi-touch attribution (MTA) into your strategy. By now, it should be clear that MTA is essential for measuring the effectiveness of your marketing efforts.

Lean into vendor support. Relying on vendors for support can be a smart move to navigate through reduced budgets and labor shortages. Vendors often have brand strategy teams who can provide valuable insights and guidance to advertisers. These teams can act as an extension of the advertiser’s agency, providing them with additional resources to help drive results. Advertisers can also gain a fresh perspective and benefit from the vendor’s knowledge of the market and consumer trends. This approach can lead to more effective campaigns and ultimately help advertisers achieve their goals while operating within budget constraints. Ultimately, advertisers who recognize the value of vendor support in tight budget situations can make the most of their resources and drive better business outcomes.

In the current economic climate, many brands and agencies are hesitant to invest in advertising due to the economic uncertainty, rising inflation, and smaller budgets. However, investing in advertising is still essential to build brand awareness, drive sales and grow a business. The best time to invest in advertising is now, taking a long-term approach and resisting the urge to make short-term predictions or adjustments based on market volatility.

Brands on a smaller budget should define their target audience, focus on their unique selling proposition, and test and refine their ads regularly, lock in key measurements, and lead into vendor support to maximize their return on investment. Although investing in advertising can be daunting, the payoff can be significant in the long run, and brands must keep investing, even if it is smaller, to thrive and not just survive.