Recession? It’s Time to Spend, Says Carat

Aug 13, 2008  •  Post A Comment

With recession in the wind and corporate America looking for ways to cut costs, one major media agency is urging marketers not to trim their advertising spending.
Obviously, cuts in media spending aren’t good for media-buying agencies, who are still, partly at least, paid on commission, which means the less clients spend, the less agencies make. Cuts in spending aren’t welcome news for the media, either.
But the main point of the “Advertising Progression Through a Recession” report from Carat is that maintaining a marketing presence during economic downturns pays big dividends when better times return. And the report assumes business will get better at some point in the not too distant future.
“Multiple studies have confirmed that the best strategy in terms of long-term ROI [return on investment] is to increase marketing expenditure during an economic downturn,” according to the Carat report.
Cuts in marketing spending often create long-term problems that are hard to fix once the recession has ended, the Carat report states, citing a report released earlier this year by research company Millward Brown.
One national brand that stopped advertising in one region of the country lost 2% of market share in that region. The next year, when it resumed advertising, market share continued to lag behind its level in the markets where ad spending continued, the report said, citing Millward Brown research.
Another study by Paul Dyson of D2D Limited found that increased ad spending during a recession contributed to the marketer’s financial performance for up to three years after the recession has ended. The same study found that cutting ad spending caused financial damage that affected the marketers for three years. For the company to regain its pre-recession sales levels, it needed to spend 60% more money after the recession than it saved by cutting its ad budget in the first place.
Of course, not all brands can afford to maintain ad spending levels as their sales and profits are going south.
“If a brand cannot increase spending, it should attempt to at least maintain share of voice relative to other competitors,” the report said. Share of voice is defined as a brand’s percentage of advertising weight compared to its defined market segment.
A brand’s share of voice will increase if the competition cuts spending while the brand maintains its spending level, the report notes.
Carat also cites studies showing that if a company absolutely must cut spending and has multiple brands in its portfolio, the best strategy is to maintain spending on the strongest brands, rather than cutting across the board. Across-the-board cuts tend to weaken all brands, the report said.
Marketers looking to save a few bucks during rainy days also can re-evaluate their media mix.
They often can improve efficiencies by moving to less expensive TV dayparts or shifting from expensive media to less costly outlets, Carat said.
The agency added, “In doing this it is critical to consider the potential negative impact from moving out of a medium/daypart which more effectively reaches your target from a media consumption standpoint, just to save on CPM [cost per thousand viewers] efficiencies.”
During recessions, media costs are likely to decrease as well, making it more efficient to maintain or increase share of voice, Carat added.
Maintaining a brand’s ad spending is important because only about 10% of consumers are motivated by price alone. The advertising helps reinforce the perceived value of a brand.
A recent Millward Brown study cited by Carat found that consumers are more likely to purchase a known and trusted brand rather than a cheap one if the gap between their prices is small.
Carat is currently projecting ad spending will rise only 2% to 3% this year from 2007. That forecast has already been lowered twice since December. What growth there is in the ad market will be driven by the Summer Olympics and the presidential election, Carat said.
The agency pointed to recent studies of marketing executives showing that three-quarters expect their budgets to be flat or shrink. On average, a Forrester Group survey found executives predicted marketing budgets would decline by 3%.
For 2009, Carat said, spending growth is not likely to improve much.


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