Study: Cutting Spending Hurts Brands Long Term
Following Boom/Bust Cycle Flirts With Danger
By Jack Neff Published: April 06, 2009

BATAVIA, Ohio (http://www.adage.com/) -- Household and personal care might once have seemed recession-resistant, but last year U.S.-based personal-care marketers actually cut ad spending faster than the general market. That could be potentially damaging for their brands, according to one study that shows that marketers that cut spending during a downturn lost share to private labels -- share they didn't regain.

Smaller, Nonpremium Brands at Risk? According to TNS Media Intelligence data analyzed by Sanford C. Bernstein last month, eight U.S.-based household and personal-care marketers covered by the company cut measured media spending an average of 8.8%, compared with a 5% cut among advertisers overall. The fourth quarter, in particular, was the culprit, according to separate research by Goldman Sachs based on TNS data, which found that U.S.-based household, personal-care and beauty marketers slashed spending 14% on average in the quarter, reversing a 3% year-on-year increase in the third quarter.

The reasons behind this surprising turn of events vary, but the implications are potentially dire. Research presented by University of North Carolina marketing professor Jan-Benedict E.M. Steenkamp in a Bernstein conference call last month indicates that companies that maintained or hiked ad spending generally, and TV spending in particular, lost limited share to private labels in recessions between 1985 and 2005.

MARKETING IN A RECESSION Ad Age explores what marketers, media and agencies are doing to survive and even thrive in the downturn.Companies and brands that went with the flow of the boom-bust cycle by cutting ad spending -- as data suggest household and personal-care players did last year -- tended to lose more share to private labels both immediately and longer term.

Companies whose ad spending didn't vary according to economic cycles -- based on an analysis of Ad Age data on global ad spending -- also tended to increase their stock prices an average of 1.3 percentage points annually ahead of others from 1986 to 2006, said Mr. Steenkamp, who analyzed global results of 26 marketers across multiple industries.

'Takes courage'"Companies and categories that are able to turn a recession into an advantage are [those] going against economic trends," Mr. Steenkamp said. "Ultimately, it takes courage. But it pays off in share and in terms of the stock market."

About half the share lost to private labels in past recessions has never been recovered, he said.
A variety of factors likely played into last year's spending retreat by package-goods marketers, and some contend the U.S. measured-media numbers don't tell the whole story.

The pullback by U.S.-based marketers in the fourth quarter was likely prompted in part by the sudden strengthening of the dollar, which drained earnings from overseas almost overnight and spurred cuts in one of the only budgets that can be cut quickly: marketing. By contrast L'Oréal, a French company for which a stronger dollar boosted U.S. earnings in the fourth quarter, hiked media spending in the quarter.

TNS data showed only a 3.6% spending decline for personal-care marketers overall last year, according to an Information Resources Inc. presentation in March, vs. the 8.8% decline for the U.S.-based group covered by Bernstein. That suggests spending by foreign multinationals lifted results pulled down by U.S. companies.

The Goldman report showed some signs of strategic spending hikes in the fourth quarter. Procter & Gamble Co. -- and, to a lesser extent, Kimberly-Clark Corp. -- upped measured spending in paper categories facing the most erosion from private labels. And P&G hiked spending on laundry detergent, particularly on Gain, a midtier value brand that can benefit from trade-down but also is more vulnerable to private labels.

Advertising During a Recession

By Jake Swearingen

Article from: http://blogs.bnet.com

January 31st, 2008 @ 3:33 pm

What should marketers in a flat lining economy do? It’s clear that consumers are going to be watching their wallets a bit closer, and advertisers will have to try harder to pry pocketbooks back open in order to justify their budgets.

On Monday, the Times ran a story on how marketers are quickly moving to capitalize on consumer worry. Wal-Mart went back to focusing on Every Day Low Prices with the slogan, “Save money. Live better,” and became one of the few retailers to post growth in the holiday season. Nissan has taken to hyping the Altima’s miles per gallon over style or performance. But Avi Dan at Ad Age points out in his tips to CMOs that focusing on price for a campaign can have short-term benefits and long-term drawbacks. “Reliance on price incentives as a marketing tool is dangerous — it devalues the brand, and it’s hard to wean consumers off it.”

CEO Drew Reisser of marketing consulting group Renegade offers sound advice to MediaPost on what marketers can do during a recession:

• Focus on advertising with clear and proven return on investment, such as Internet and promotional advertising.
• Be prepared to cut budget bloaters like trade shows, which have a harder time proving ROI.
• Focus on a brand’s core base, instead of going after more expensive new customers
• If a brand has made its bones on humor, don’t be quick to change that. “Acknowledging bad times might feel right, particularly if a recession is protracted, but consumers may not want to be reminded of that fact. And a little entertainment can go a long way, Neisser says. ‘If humor was right for your brand in good times, it’s even more right for your brand in bad,’ he says.”

Online advertising could be one bright spot, with a bevy of news sources declaring that Google, and by extension Internet advertising, seems to resilient to economic downturns. The Times UK expects online advertising growth to perhaps slow down, but not even begin to touch the depths of the 2000 crash, while Wired News declares Google may be recession proof, comparing their AdWords program to direct mail:

“We looked at all the past recessions from 1950 on and we found that direct mail — Google’s most direct predecessor — actually grew during six recessions,” Cowen and Company’s Friedland says. “Given the current environment, there’s no reason to think Google will outperform. But there’s no reason to think it will underperform.”

Thinking that Internet advertising will be the industry’s savior is a bit rosy, however. While Internet ad spending is growing incredibly rapidly, it’s forecasted to slow to 30 percent in 2008, and it still makes up less than 10 percent of total ad spending.

(Image of the killer deal at Gray’s Papaya from flickr user aturkus, CC 2.0)