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Downturn Brings Opportunities Along With Risks

by Alf Nucifora

Current economic indicators, business media punditry and personal observation all point to an economic downturn verging on a mild-to-moderate recession. Corporate America tells us that it started in 4th Quarter 2000 and will probably continue through 2nd Quarter 2002. In short, we may be seeing a less damaging repeat of 1989-1991. For small business, a looming recession presents serious risks but surprising opportunity.

One such opportunity, presented in the guise of a conundrum is whether or not to cut marketing and advertising spending during a downturn in order to prop up short-term profitability. Defending the "no-cut" point of view is Jamie Turner, Founder and CEO of the Atlanta-based marketing communications firm, Turner Fernandez Turner. "Last month," says Turner, "IBM increased their advertising budget 17%. I also saw that their sales have increased 8.9%. Was it totally as a result of increasing advertising spending? No. But, is it safe to say that the two are related? Absolutely."

History Tells An Interesting Story

Research on the subject would seem to verify Turner's contention. A slew of historic studies all point to a definitive relationship between increased ad spending and growth in long-term market share (S.O.M.) and profitability. Although the studies originated from sources with a vested interest in claiming the primacy of advertising as a preferred marketing tool, even the most cynical and jaded among us would have to concede that historically, the data does in fact make the case. The American Association of Advertising Agencies (AAAA) reports the following findings in a commissioned study Advertising in a Recession by Bernard Ryan Jr.

  • Advertising executive Roland S. Vaile tracked some 200 companies through the recession of 1923. In the April 1927 issue of Harvard Business Review, he reported that the biggest sales increases throughout the period were rung up by companies that advertised the most.

  • In 1947, Buchen Advertising tracked advertising dollars versus sales trends before, during and after the recessions of 1949, 1954, 1958 and 1961. Not only did it find that sales and profits dropped off at companies that cut back on advertising, it also found that, after the recession had ended, these same companies continued to lag behind those that had maintained their ad budgets.

  • A jointly-sponsored ABP/Meldrum & Fewsmith study of the 1970 recession again showed "that sales and profits can be maintained and increased in recession years and in the years immediately following by those who are willing to maintain an aggressive marketing posture while others adopt the philosophy of cutting back on promotional efforts when sales appear to be harder to get."

  • A follow-up 1979 study by ABP/Meldrum & Fewsmith revealed "that companies which did not cut advertising expenditures during the 1974-75 recession, experienced higher sales and net income (during those two years and the two years following) than those companies which cut in either or both recession years."

  • Following the 1981-82 recession, McGraw-Hill Research's Laboratory of Advertising Performance reported "that business-to-business firms that maintained or increased their advertising expenditures during the 1981-82 recession averaged significantly higher sales growth both during the recession and for the following three years than those which eliminated or decreased advertising."

  • Cahners Publishing Company, together with the Cambridge-based Strategy Planning Institute (SPI), released a report in January 1982 outlining the results of an extensive study of the PIMS database. The Report disclosed that during recessionary periods, those businesses (who spent more) tended to gain a greater share of market. The underlying reason is that competitors, especially smaller, marginal ones, are less willing or able to defend against aggressive firms." The study also pointed out that businesses that increased media advertising during the recessionary period gained an average of 1.5 points of market share.

  • MarketSense compared 101 household name brands during the recessionary period 1989-1991. Jell-O, Crisco, Hellman's, Green Giant and Doritos saw sales drop by as much as 26-64%. Jiff peanut butter raised ad support and sales went up 57%; Kraft salad dressings saw a rise of 70%. In the beer category, overall spending was down 1% while Bud Light and Coors Light, each spending ahead of the category, saw sales increases of 15% and 16% respectfully. Pizza Hut sales rose 61% and Taco Bell's 40% thanks to strong advertising support, with McDonald's volume down approximately 28%.

What To Do

For the average small business, the instinctive reaction is to spend less and protect profits, and the best way to do that is to make the easiest cuts, normally in advertising and marketing support. Nobody has to be fired and nothing has to be closed down. But for those who seek to be aggressive, there are a number of proactive tactics that will optimize brand performance during bad times. From Advertising in a Recession, the following:

  • Concentrate on core values: Reinforce brand values by demonstrating strong consistency of message.

  • Increase spending and share of voice: The data clearly validates the connection between increased spending and increased S.O.M.

  • Market to your constituency: Concentrate on your loyal customers and, if need be, invest in database marketing/CRM as a means of developing and maintaining the communication.

  • Hang in with your ad agency: That long-standing relationship will help them provide a real understanding of the brand vision and how it should be communicated in tough times.

  • Start sponsoring: Events, cross-promotions, cause marketing…anywhere the brand message can be spread.

  • Command premium price: Strong brands can do it. The consumer rationale is in how you explain the value message of the brand.

  • Introduce new products: The advantage of being "first in" with an innovation and entering a market with weakened competition may offset or outweigh the possibly longer period of start-up investment in waiting until good times return.

  • Negotiate media deals: As media prices soften, it becomes a buyer's market. At that point, lock in on long-term deals. Take advantage of the weakened market to gain exponential value from the media buy. (As much as 30% +)

Says Saatchi & Saatchi's Kevin Roberts, writing for Advertising Age Magazine, "Consumers don't stop buying when economies go though down cycles. They look harder for value." TFT's Turner has a more compelling take on the subject. "Think of it this way. If you're in a room with 20 people and they're all talking, all you hear is noise. But if 19 stop talking, suddenly the one person who's still talking can be heard loud and clear."

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