Companies Are Spending More on Ads With Lower Return on Investment

By Thomas Price Friday, November 20, 2020

As the COVID-19 pandemic continues to shape so much of how the world operates, businesses have made major adjustments to the way they are run and therefore spend their money in order to sustain themselves. Of course, a major part of this is advertisement spending and investment. Although each brand allocates a different dollar amount to their advertising budget, the trends across different companies during COVID-19 have sustained long enough to take a genuine look at. With revenues being a mixed bag, to say the least, how companies have reallocated their money in order to try and alleviate the strain of the pandemic is extremely telling. Considering the importance of this type of business expenditure, here are a few different companies across different lines of direct sales worth exploring.

Nike

Nike has had an interesting year. While overall retail sales for clothing have decreased, athleisure clothing has held steady due to the influx of people staying at home. In its most recent quarterly report, Nike generated $10.59 billion. In comparison to 2019, this equated to a .62% decline in overall revenue. While the dip in revenue may be small, Nike increased its investments and debts up to $18.63 billion, which translates to a return on investment (ROI) of 17.52%. This is a small dip from the first quarter of 2020, which saw an 18.32% ROI, but is significantly down from the same quarter in 2019, which had a solid rate of 34.58%. Nike essentially invested more money and accrued more debt while watching their ROI get cut nearly in half; however, this is not a trend unique to Nike.

McDonald’s

Similarly to Nike, McDonald’s has seen a tough 2020, perhaps with even more sharpness. With so much of McDonald’s sales coming from those commuting and driving, the fast food chain has had difficulty maintaining revenue. In fact, in their most recent quarterly report, McDonald’s suffered a 30.47% decline in overall revenue, coming out to $3.762 billion. However, unlike Nike, McDonald’s decreased its investments and debts in the quarter. This segment of the company has shrunk to $25.21 billion, leading to an 18.33% ROI. This is a stark dropoff from the previous quarter, which had 22.16% ROI. Compared to the same quarter in 2019, the ROI decline is even steeper, with the company seeing a 23.1% ROI that year. Despite each company taking different strategies, both Nike and McDonald’s saw its ROI slip down despite their best efforts.

General Motors

Car manufacturers have had a particularly hard time during the pandemic. While fewer cars in a drive-thru may be a symptom of fewer cars on the road, the main issue is no new car purchases. In the most recent quarter for General Motors, the company was absolutely obliterated, making a paltry $16.778 billion. While the number itself does not look particularly awful, the 53.47% decline in revenue it represents is. Despite this historic drop in revenues, General Motors actually increased their investments and debts in the quarter up to $130.64 billion, which was the highest for the company this decade. In the meantime, General Motors saw its ROI reach 1.25%, which is the lowest the company has had since 2018. Unfortunately, purchasing a new vehicle is an apparent unnecessary purchase during an economic downturn. This is further exacerbated by the number of people working and learning from home instead of commuting in the first place.

Final Conclusions

Each of these companies took losses in their most recent quarterly reports despite being major landmark American companies. Two of them opted to increase their investments and debts only to see their ROI decrease. McDonald’s reduced their own investments and debts and saw the ROI lower as well. Many companies’ advertising efforts have underperformed during the pandemic, and while the evidence indicates that increasing one’s advertisement budget may not help these days, it is not to say that advertising and brand awareness are not worth it — but instead for established companies, not as worth it as it has been in the past.

About the Author


Headshot for author Thomas Price

Tom Price is a writer focusing on Entertainment and Sports Features. He has a degree from NYU in English with a minor in Creative Writing. He has been previously published for Washington Square News, Dignitas, CBR, and Numbers on the Boards.

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