Procter & Gamble shows that increasing spending during a recession is…

Buried in Procter & Gamble’s knockout earnings report today is a lesson for all businesses in this tumultuous economy: In tough times, the most successful companies don’t just cut costs; they actually increase spending in areas where they have advantage, pounding down competitors fighting the high-stress environment.

P&G stock plunged in the pandemic’s early days, as most stocks did. Then investors realized that the marketer of Mr. Clean, Comet, Swiffer, Tide, Safeguard, and other top cleaning brands stood to gain in the pandemic. It helps that when consumers are worried about the health of themselves and their families, they gravitate toward brands they know. P&G owns many of them.

Remember that P&G is the world’s largest marketer, as it has been for decades. It spent $10.1 billion on marketing in 2018, the most recent year for which information is available, according to Ad Age Datacenter.

Now imagine you’re this marketing behemoth when the pandemic hits. It might have been tempting to cut or at least stop increasing marketing spend, especially as ad rates were falling in the shattered economy. That’s what two of P&G’s biggest competitors, Unilever and L’Oréal, did in the year’s first quarter. But P&G pressed its advantage, spending more on marketing while competitors cut—and it has continued to do so. As CFO Jon Moeller explained the decision to investors on this morning’s earnings call: “This is not the time to hold back.”

Research supports that decision. A study of past downturns by Harvard Business School researchers found that the least successful companies coming out of a recession are those that reflexively cut costs across the board. Those that crank up investment broadly do better but not great. The few most successful companies, the authors found, “reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest relatively comprehensively in the future by spending on marketing, R&D, and new assets.”

That’s what P&G did. It cut selling, general, and administrative expenses (SG&A) overall as a percentage of sales in the latest quarter, even while increasing marketing spend, which is included in SG&A.

Research from the Boston Consulting Group agrees, finding that marketing in particular can be key. “Companies that injudiciously slash marketing spending [in a recession] often find that they later must spend far more than they save in order to recover,” it reports.

No single factor accounts for success or failure in a company as big and complex as Procter & Gamble, but it’s noteworthy that the company responded to the pandemic by balancing cost cuts and spending increases in favor of its core strength, marketing. The payoff: The stock is up about 15% year to date, almost twice as much as the S&P 500.