Research Paper in Finance About Recession

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How Does Recession Influence Promotional Activities in Your Country?

A speculative bubble, formed in the world financial markets at the beginning of the 21st century and burst in 2008, entailed a full-scale financial crisis, as well as a widespread economic recession – the latter, according to popular belief, continues to this day. Many years of economic stimulation, both through monetary and budgetary policies, has led to less than satisfactory results: economic growth is below historical standards, inflation balancing on the verge of deflation, and a prolonged normalization of the unemployment rate is noticed.

In fact, it should be taken into account that the external environment is constantly changing, and it is important that the marketing strategy is prepared for the new conditions. Effective marketing strategy involves the development of measures to respond to a changing market environment by identifying market segments and positioning offers for these segments. In addition, to succeed in the market, companies should use active strategies – that is, not react to events, but create them.

Regarding these thoughts, it can be stated that the benefits of advertising to businesses are already well established. However, in the academic and business communities there is a dispute for advertising around recession times. In economics, the declining portion of a business cycle is called a recession. In general, economists have some disagreements on the general definition of a recession. The standard textbook definition considers two or more consecutive decline in GDP as a recession. This definition of a recession makes it difficult to identify the beginning and end of a recessionary period. Additionally, it ignores other economic indicators such as unemployment and consumer confidence. That is why within this paper the National Bureau of Economic Research’s definition will be used. Thus, the recession is “the time when business activity has reached its peak and started to fall until the time when business activity bottoms out” (Ayşen and Ercilasun 2).

Based on the explanation provided above, it is obvious that during an economic downturn, it may seem logical for organizations to cut off expenses. In other words, companies adhere the principle that in those times savings are much more important than spendings. The practice shows that expenses that a company usually cuts first come from the advertising budget (Ayşen and Ercilasun 3). The logic of this decision can easily be explained despite its argumentativeness. On the one hand, there is a negative economic environment where because of the negative media reporting, there would be a decline in demand for the products and services and eventually, companies would want to save more than they spend. But on the other hand, when the companies cut back advertising expenditures, they become less visible to the public.

The experts concluded that in economic downturns, marketing could provide important functions with beneficial effects mainly because of the competitive advantages that are received by companies. There is a dynamic environment, constantly changing, therefore it is important for marketers to understand the changes and know how to react to them. Firms may view the recession as an opportunity that they have control over the situation and outcome and continue to invest. On the contrary, the companies, which view recession as a threat, end up with conserving their resources.

The history shows us numerous examples when companies have ignored these “commandments” and enlarged the list of negative examples. According to John Zhang, the professor of marketing at Wharton, advertisers in all categories must be in tune with consumers in the current climate. He cites the famous slogan of LG Electronics firm “Life’s Good” that do not reflect the mood of people at the current state of their lives: “That’s not the mood people are in. If you do that, it will generate resentment. You need to fine-tune your message to be sensitive. In challenging times, marketers must also work harder to segment consumers with specific messages” (Forbes 2008) – they cannot continue to use mass media as they used to in the past since there is a need in being more targeted and to make sure that the message gets to the right people with the right sense.

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The practice, as well as theories based on the empirical studies, showed that the financial crisis would not immediately hit customers economically – a psychological shock will occur much faster: through job cuts, weakening of the currency, rising prices, and others signs of economic instability. People start to think about the future more, and it is more difficult for them to enjoy shopping. For example, customers can limit the volume of purchased premium products (although the incomes of these people have not yet been reduced). Moreover, during the financial crisis, people think more about the appropriateness of spending: the audience tries to purchase only necessities, goes over to budget brands and is more skeptical about advertising. Considering the issues above, it can be summarized that companies should review their marketing strategies that have been effective in the past, and adapt them to the new situation. In a crisis, people buy differently but do not stop buying in general.

Keeping in mind this truth about recession time, the first issue that companies should address to is the product (or the line of goods to be more precise). As it was already stated, at the beginning of the financial crisis, people inevitably start to think more about their savings – this may be due to both a real decrease in incomes and a build-up of psychological stress in society. People start to look narrowly at cheaper brands and buy only necessary goods. To understand how firms should react in such cases an example of several Swedish companies can be cited. Barbara Hruzova (2009) pointed out that Axfood, Coop, and ICA took into account the knowledge and each of the companies offered cheap alternatives to popular expensive brands in all segments of the trade. In addition, during a recession, customers pay more attention to the quality and durability of the product. Therefore, Swedish retailers launched their own labels, positioning them as similar in quality to the market leaders (Hruzova 35). That is why it can be stated that low price was achieved due to the lack of intermediaries between the manufacturer and the buyer.

At the same time, concentration on the new products or cheaper substitutes of the expensive ones cannot be a solution during the time of recession. If a company wants to be or remain to be successful, the whole promotional strategy should be reviewed. Numerous experts insist that the first step is to change the promoted values. Nevertheless, there is no single idea about what values will be the most advantageous – mainly because it depends on the product and the general values of the company (its vision, mission, objectives, and reputation). The testimony of this idea is the good results of Nissan campaign that was focused on ideas like mileage per gallon rather than road trips despite the prevailing thought that changing focus on prices and discounts is a risky strategy due to the fact that consumers usually get accustomed to price cuts (Binet 2009). Much greater unity can be observed regarding the family and community values. There are pieces of evidence that the best promotion strategy is to sell a sense of community in the advertisements and to use the approach that claims “We’ll get through this together because we are a family.” The basis of this lies in the sense of security that is provided by family: people tend to retreat to their village when the economic hard times starts (Quelch 2008). This is the reason why recession leads to the reducing the number of images of sports, adventure, and extreme individualism in the advertising materials – all of this elements are replaced by cozy and home family scenes (home furnishings and the same entertainment). The promotion of specific values reflects not only in the advertising pictures and video, but the types of activities also are affected. Thus the best tactics will be to use greeting card and telephone sales that appeal directly to the final user.

Along with the shift of accents within the traditional advertising channels, it is worth not to forget about the modern digital channels (that are cheaper and easier to control). The latest indexes reveal that while revenues from most advertising media are declining, online and search marketing are showing growth, particularly as their costs can be changed very quickly depending on the response rate, while TV advertising time should be booked for few weeks. It is much cheaper to use PR teams to place clips on video sites or to attract bloggers to cover new products than to buy time for television advertising. This confirms by Dentsu Aegis Network’s forecasts according to which “digital technology continues to disrupt and drive innovation in the way brands connect with their consumers” (Dentsu Aegis Network 2017). The most perspective direction is believed to be mobile advertising with the 56% of the share of global Digital advertising spend. That is why the latest trends in the promotional activities of the most successful companies are centered around digital marketing channels. Along with the cheap and quick access to the millions of the potential customers, modern mobile applications allow covering the most hard-to-reach groups of the population. For example, Millennials (the multitudinous category that is now actively entering the labor market, and consequently has a high purchasing power) who do not watch traditional TV and thus commercials giving preferences to the social media sites are active users of Snapchat. The latter is a perfect advertising tool, and channels as “Snapchat offers a prime way to reach coveted “millennial” consumers on their home turf, with the app boasting 100 million daily active users” (Perlberg 2016). The statistics provided by Nielsen study showed that this application has 41% coverage among people in the age gap between 18 to 34. That is why companies including Taco Bell, Nike Inc., and General Electric Co. (all of the cited works in completely different industries) uses the platform to communicate directly to the customers.

Finally, it should be stated that recession also influences the physical space of advertising and sales. Without doubts, the location of the store is significant in retailing food products, and many rental specialists are trying to find the most suitable, ideal place for the point of sale. This factor does not change even in the conditions of the financial crisis – the correctly found location for the store, based on studying the habits of the target audience, will also make a profit during the recession. At the same time, the Internet remains a simple and cost-effective way to reach customers. There are many companies that use it to inform, encourage and inspire the audience to buy. But in the retail industry, online marketing in a crisis is especially important for attracting customers to offline stores. According to many studies, during the Great Depression of the 1930s, buyers in the United States were more disposed to self-service shops that allowed themselves to compare goods and save (Hruzova 17, 37). It is at this stage when in-store promotions are becoming a more significant part of the promotional activities. This decision is based on the fact that in the period of recession, decisions about purchases are more often taken at the very point of sale and therefore companies need to be more competitive there.

Concluding, it can be stated that companies in the United States learning from the past experience learn a lesson – in times of financial downturns, it is not recommended to cut spending on promotion. During economic crises, communication with regular customers becomes especially important. Taking into account the previous and the fact that people at such times pay more attention to real information about the product and the company, rather than advertising fantasies. Companies built their promotional activities around the desire of buyers to be completely sure of the choice before buying. In these conditions, direct mailings are becoming more relevant – with their help people can independently compare offers and make a weighted decision. In addition, print advertising – an inexpensive channel, also allows reaching a large audience. At the same time, the conducted analysis of promotional activities of the American companies during the time of recession confirmed that digital marketing entered the lives of people and became one of the most perspective channels for promotion regardless of economic conditions.

Works Cited

Ayşen, Akyüz and Mustafa Ercilasun. “The Role of Advertising during Recession.” International Conference on Eurasian Economies, University “Ss. Cyril and Methodius. 2014.
Binet, Les. “Marketing in a Recession: 10 Things to Remember.” Adweek. N.p., 2 Feb. 2009. Web. 10 Sept. 2017. .
Dentsu Aegis Network “Global ad spend to hit $563.4 billion in 2017 with digital driving growth.” Dentsu Aegis Network Official Site, 15 June 2017. Web. 10 Sept. 2017 .
Forbes. “Don’t Skimp On Ad Budgets.” Forbes Magazine, 1 Dec. 2008. Web. 10 Sept. 2017.
Hruzova, Barbara. “Marketing Strategies during Financial Crisis: A Case Study of ICA, Coop & Axfood.” Halmstad University, 2009. Print.
Perlberg, Steven. “Snapchat: How Brands Reach Millennials.” The Wall Street Journal. N.p., 22 June 2016. Web. 10 Sept. 2017. .
Quelch, John. “How to Market in a Recession.” Harvard Business Review. N.p., 24 Sept. 2008. Web. 10 Sept. 2017. .