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.