Why Advertise?

Many business owners are under the false impression that during a down economy cutting their marketing budgets will save them money. What they don't realize is the catastrophic effect it will have on their business once the economy stabilizes. Take for example the story of Kellogg and Post:

"In the late nineteen-twenties, two companies—Kellogg and Post—dominated the market for packaged cereal. It was still a relatively new market: ready-to-eat cereal had been around for decades, but Americans didn’t see it as a real alternative to oatmeal or cream of wheat until the twenties. So, when the Depression hit, no one knew what would happen to consumer demand. Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. (Snap, Crackle, and Pop first appeared in the thirties.) By 1933, even as the economy cratered, Kellogg’s profits had risen almost thirty per cent and it had become what it remains today: the industry’s dominant player." (www.thenewyorker.com, 'Hanging Tough' by James Surowiecki)

Interesting, huh? It makes perfect sense. If you're currently controlling 20% (same as your other four competitors) of your market locally and decide to cut your marketing budget, less people will find you, you become less relevant, and some might even think you went out of business. This gives your competitor(s) a great opportunity to gain market share. See, you cut your marketing, your competition increased theirs, and once the dust settles, you'll have lost clientele. Your competitors now all have an extra 3%-5% of what used to be yours.