Tuesday, February 10, 2009

Advertising & Recession- Why should it coexist? ...Part I

My article as appeared in The Advertising Express FEB 09....


It is recession time and the bad word has suddenly become a reality all over. The marketer is the worst affected among the various parties in business. This statement is not disregarding the fact that layoffs are happening, stocks are piling up and salaries are cut. Come a dull season, but the first thing to get affected however is Marketing and in Marketing it is Advertising- the most non-measurable of the 4 P’s. The reason as always explained is that recession connotes lower sales and hence lower net income.

Decision makers believe that reducing discretionary expenses such as promotion can be easily made, and there won't be any negative result. This however is not the case when the whole issue is seen in a long term perspective and if the past has taught us, the marketing world, any lessons it is largely that it is suicidal to be cutting ad budgets without any raison d'ĂȘtre.

This article intends to go into this issue that grips the marketing fraternity and to offer reasons as to why it is required to keep the ad budgets on, even in a recession time. It will also underline what Bruce Burton- the founder of BBDO and a great advertising legend once said -In good times people want to advertise, in bad times, they have to.

In a study of U.S. recessions, McGraw-Hill Research analyzed 600 companies from 1980-1985. Those who maintained or increased their advertising expenditures during the 1981-1982 recession achieved considerably higher sales growth, both during the recession and for the following three years, than those firms who decreased advertising. By1985, sales of companies that were aggressive recession advertisers had risen 256% over those that didn't keep up their advertising.

Another study documented a 1.5 point increase in market share among businesses increasing ad spending during recessionary periods. On the contrary during good times , 80 percent of all competition heaved up advertising budgets but resulting in no major growth in market share, because that is what most of the other competitors also did.

This is not to suggest that Advertising has to go on, no matter whether it is useful or not, whether it pays back or not. This is to suggest that advertising should not be seen as just a tool for short term sales, and even if it is before the cuts are made, think as to whether your objectives are defined? And whether with a reduced ad budget these objectives will be fulfilled? Think whether you have done a cause and effect studies on those in the past have done the same and their results?

Think whether this cut will allow competition to overtake you, even if they just maintain their current ad spend? If you are not doing this and just on a cost cutting spree with recession as a reason, disaster will be the result. Sergio Zyman lampoons such companies like Samsung who in 2001 decided to “eliminate unnecessary costs by seeking ways to reduce travel, traffic, advertising and miscellaneous expenses”. When advertising becomes as negligible as other miscellaneous expenses, it is only natural that it gets to see the axe first, when remote signs of a recession appear.

Past recessions have shown that marketers who have taken the approach of “going through this together” with their customers have been more successful at maintaining share and revenue during a recession than their competition. Not surprisingly, value driven brands tend to do better than brands positioned as premium. It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good times. This is simply indicating that advertising and recession can co exist at the same time and can turn to be coming out with flying colours as well.

This year as the overall financial year has seen superior growth and with the allocated marketing budgets for the financial year almost exhausted, the slowdown is more of a concern for the imminent financial year than for the present year. But having said that the crisis that is looming us and can get worse according to observers can last long and can go on till April next year and even more, is sending shock waves across industries particularly the marketing one. Ad agencies across are gearing up for a change, with cost cuts by clients about to happen the good ones have realized that in trouble times they too are ready to cut costs and co operate.

To be continued >>>>>>>>>>>>>

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