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DID ADVERTISING JUST SNEEZE?
Agencies Need Better Arguments
To Weather A Recession
____________________
Do recessions loom like a rock or spread like a virus? By most accounts
they're a virus. Behavioral economists tell us the fear of economic insecu-
rity infects the minds of consumers before it breaks-out as red splotches
in the quarterly numbers. Apparently people can catch more bad news
than Greenspan can medicate away.
The advertising business is not immune. It han-
dles the fear of recession badly. A major TV
network, spooked by softness in the scatter mar-
ket, reportedly cancelled all departmental
Christmas parties to protect the bottom line.
And well it might. If it comes, this is will not be the recession of 1991,
when agency white papers encouraged advertisers to "stay the course."
Wall Street, they reasoned, would accept lower profits if there were a sen-
sible long-term strategy in place. That's naive. Today's stock markets take
no prisoners.
So when sales soften, costs must be cut and unfortunately advertising is
one of the least painful cuts for a brand to make. The New York Times
reports major agencies have fired 2,000 employees since December. One
wonders what would have happened if those agencies had large ad
budgets to cancel instead?
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Ad Budgets are
Ideal for Cutting
Ad budgets are vulnerable to cuts and they are ideal for cutting. There is
no immediate risk, because in most cases the incremental sales or in-
creased margins produced by advertising do not cover its cost. Turning
that around, a dollar saved in media means less than a dollar lost in sales,
so cutting advertising will increase profits for most brands, immediately.
The issue is short-term versus long-term. Agencies have always main-
tained advertising needs the long-term to make its case. Their experience
is advertising pays out only when lingering effects are considered. Ad-
vertising keeps a brand's share from eroding.
Advertising attracts new users who becomerepeat purchasers. Advertising helps
to support the high unit volume that creates economies of scale. Advertising
builds largebrands that havehigher repurchaserates and lower marketing costs.
By this kind of careful reckoning most of advertising's contribution to a
brand's bottom line occurs over several years. But in a recession a quicker
fix is needed.
Package Goods are
the Wrong Model
Of course those cherished facts could be wrong. Almost everything we
know about brand advertising comes from the study of consumer-
packaged goods, because scanner sales data permit careful analysis. But
packaged goods are the worst place to look for advertising effects. They
are mature and stable markets, characterized by already known brands
and sophisticated competition. Here you advertise to stay in place.
Brands in growing markets where news and information are important
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are far more responsive. For example, DTC, finance, Wireless, Retail,
Movies. Here advertising often pays in the short-term. Agencies need to
makes the case for advertising by looking where response is strongest,
not just where the data are familiar.
"Now or Never"
Opportunity
There is a good reason for any brand, packaged goods or other, to spend
during a recession. A higher share of voice will usually result in a higher
share of market, and a higher share of market will usually result in
greater profitability. Hard times present the perfect "now or never" op-
portunity. Share of voice as the driver means it's not how much you
spend it's how much more than the competition you spend, that makes
the difference. It's easier to spend more than the competition when
they're cutting back.
There is convincing evidence that strong, continuous advertising helps to
build brands. There is ample proof that these brands have substantial dol-
lar value in mergers and acquisitions. But it is unrealistic (and self-
absorbed) for advertising to defend ad spending and ignore the larger
issues. As revenues fall there is a survival imperative to cut back. What is
cut reflects the brand's understanding and its priorities.
Without a broader perspective and constructive recommendations, adver-
tising's arguments for maintaining budgets seem irrelevant to problem at
hand. Agencies sound more like the Pentagon, than the School Board.
Instead of protecting the budget, agencies need to help the brand refocus
its marketing priorities for tougher times. There are many helpful reces-
sion strategies for a brand's advertising. These include moving weight to
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lower pricing periods (TV) and taking advantage of the brand's seasonal
purchase patterns. It also may make sense to move some national dollars
into spot areas (higher purchase, higher share, higher growth), where ad-
vertising is more likely to produce an immediate effect. But probably the
most important recommendation is to reduce weekly weight instead of
cutting weeks of advertising.
Better information on the short-term effects of advertising effects is neces-
sary and should soon be available. Many agencies and research firms are
working on the problem. But until then we'd better pray for a quick cure.
The idea of spending scarce dollars now to increase profits tomorrow is
tough to sell during a recession.
- February 26, 2001 -
Originally published in Advertising Age