How McDonald’s Handled the Early 1990s Recession
Why businesses should be increasing their advertising spend right now
In 1983, David Ogilvy—known as the “Father of Advertising”— published his classic book Ogilvy on Advertising. The chapters cover everything from getting a job in the industry to creating successful TV, and direct mail campaigns. But, perhaps the most relevant part for today’s COVID-19 pandemic is a tiny section titled “marketing in recession.”
Marketing in Recession
If you stop advertising a brand which is still in its introductory phase, you will probably kill it — forever. Studies of the last six recessions have demonstrated that companies which do not cut back their advertising budgets achieve greater increases in profit than companies which do not cut back.
— Ogilvy on Advertising
The common strategy would suggest that during a market downturn, the first expenditures to cut would be marketing and advertising costs. Virgin Money USA CEO Asheesh Advani told Entrepreneur: “The natural thing for business owners to ask is, ‘do you cut marketing, overhead or staff?’ I think the right answer is to do a little bit of all three…” in a December 2008 article titled “Recession Cost-Cutting No-Nos.”
Or, as an executive white paper named “10 Secret Strategies To Recession-Proof Your Business” from Coupa says, “Start where your spending is the highest, whether on marketing and advertising, IT equipment, travel, or facilities maintenance.”
However, data from several recessions have shown that companies that maintain or increase their advertising actually perform better during and after the unfavorable period.
The above charts from Ogilvy on Advertising explain the discrepancy in sales and net income between the companies that did not cut their advertising budgets and those that did cut their advertising budgets in the years 1972 through 1977, with the recession years being 1974 and 1975.
McGraw-Hill Research conducted a study looking at 600 companies during the 1981–1982 recession. The businesses that maintained or raised their advertising expenditures had higher sales, and the ones that advertised aggressively produced sales 256% higher than those who did not continue their advertising programs.
McDonald’s, Taco Bell, Pizza Hut, and a Piece of the Pie
Similar to the 2007–09 Great Recession, the 1990–91 recession was caused by increased oil prices, a war in the Middle East, and a weakened real estate market. Unemployment rose to 7.8%.
During that time, McDonald’s cut its advertising budget and Pizza Hut and Taco Bell strengthened theirs. As a result:
- Pizza Hut increased sales by 61%.
- Taco Bell increased sales by 40%.
- McDonald’s decreased sales by 28%.
At the time of writing, U.S. unemployment is estimated to be at 5.5% and a record 3.28 million Americans filed for unemployment benefits. Some economists say that the rate could rise to the 30–32% range — beating the Great Depression’s peak of 24.9%.
Nick Dew, the chief creative officer at Covington, KY-based design agency BLDG, told me: “The smartest brands realize it’s a long game, so they see the opportunity in challenging times. A lot of people are wondering what will happen next to them, but the most creative leaders will lean in and be better for it. I imagine you’ll also see a lot of brands rediscover what they truly are at their core coming out of this. We are fortunate to have a diverse range of clients and projects that are going full steam. We’re busy…”
Keeping a brand on the top of consumers’ minds reminds them of the value, emotion, and comfort their products give — regardless of how the markets are performing.