When the going gets tough
January 2, 2002 | 12:00am
Are we due for a tougher time in 2002? Will it creep on us or slam us unexpectedly, as if our backs were turned against a tsunami? Will it be mild or brutal, short or long? Will it be business as usual or not? For sure, these thoughts have been running through everybody’s mind as we enter the new year.
Optimistic business analysts believe that we are not headed for a downturn or a true recession, and that in all likelihood, the national economy will turn around nicely at the start of the second semester. By definition, a recession is two consecutive quarters of negative GDP, which we have not yet had, and if we are reading things right and believe government pronouncements, we are not going to have it this year. As the economists will tell us, a downturn varies greatly from market to market. It will also vary relative to your position in the food chain. While manufacturers may adjust with new products and services, resellers adjust to the specific demands of their individual geographic and market segments.
During tough times, as with any situation, awareness as a result of consistent communication is an imperative. If we assume therefore that an economic crisis looms, we must examine our place in the industry with jaundiced eyes, and see how our corporate or brand positioning will get affected. The question that comes up relates to the appropriateness of doing advertising at this time. Is it the wise thing to do? Would it be prudent to take a breather until the downturn is arrested and the economy bounces back to health?
Surprisingly, when the economy slows down, it pays to keep communicating. Studies cited in the American Association of Advertising Agencies’ (AAAA) booklet show that companies that maintain or increase their ad spending will emerge from a downturn ahead of their competition. That gain – measured in sales, net income or market share – will continue to grow in the years following the tough days.
In the 1981-1982 US recession, McGrawHill evaluated the performance of 600 industrial companies. The study revealed that firms that maintained or increased their advertising expenditures during tough times grew their sales 275 percent from 1980-1985, and those that cut their ad spending averaged a measly 19 percent growth during the same period.
Another study in 1990 examined 339 consumer businesses to determine the relationship between advertising investment and market share during a recession. It found out that companies which aggressively increased their ad spending from 20 to 100 percent gained 0.9 percent share of the market. Those that moderately increased ad spending, from 1 to 19 percent, generated an average of 0.5 percent, while those that reduced ad spending gained 0.2 percent.
These studies, and a lot of other researches on the subject, debunk at least two dangerous assumptions. One, that customers will be spending less when money is tight, and therefore budgets allotted for advertising will be wasted; and two, that it is safe to reduce, or worst strike out the advertising investment, if competition is reducing or canceling theirs.
Can advertisers expect an immediate increase in return on investment (ROI) as a reward for their advertising aggressiveness? No, not always. But capturing market share from their more timid, risk-averse competition is very likely. It provides an opportunity for companies to dominate their market. The desired increase in share is expected to pay out in greater profitability over the long term, as a result of the cumulative familiarity the target markets have developed with a company or a brand.
As Robert Wilson of the Newspaper Association of America says, "Cutting back during a downturn is like throwing away precious investment. Maintenance today costs much less than rebuilding tomorrow."
So what does this mean for marketing communicators and advertisers today? What else can we do during tough times to keep our businesses afloat?
Put our ears to the ground and listen. What do customers care about right now? What do they want to know? Stay in touch with target market mindset through regular research. We should be more consumer-centric than ever since tough times can give birth to a new language that reflects a new psyche. While advertising is measured as a business, it is built on psychology and lifestyle. We therefore need to stay close to stay relevant.
Focus on "As If" planning instead of "What If." As Carolyn Carter of Grey Worldwide opines, "The tendency to meet hard times with ‘What If’ or worst-case scenario planning has a real downside –when the worst case becomes the objective, it can become a self-fulfilling prophecy as well. We need ‘As If’ planning – not failing to recognize that the situation has changed, but planning as if long-term success is still the real objective, as if the basic opportunity for the brand is still there–but the way to seize the opportunity may have changed."
Sharpen our prospecting skills. The problem with a steady flow of economy-driven business is that we slow down our prospecting efforts. We become complacent. When business comes marching through the door, we slacken and avoid going out to generate more. We lift our ear from the track and take our finger off the market pulse. When business takes a downward spiral, we look around, confused and dismayed.
Have faith in the fundamentals of the business of advertising–they have not changed. Focus and the drive for efficiency are our fuel to make us move. We should do more with less, and do what makes a difference. We need to come face to face with our consumers. Integrated marketing communication programming is basic. We can expect relationship marketing, publicity, events sponsorship, and other below-the-line activities to grow. These can be the new tools that can buoy us up.
And lastly, keep communicating. Overall, we don’t want to run and hide when the going gets tough, but we don’t want to get overextended either. The trick is to implement a holding pattern until we know which way the situation is going to turn. Those who cut back too fast and too far can be caught off guard if the turnaround comes quickly. But if the slowdown worsens, those in the holding mode should be able to adjust very quickly as well.
Shake off the cobwebs and buckle down to work...
For comments and suggestions, please e-mail bongo@vasia.com. Happy New Year!
Optimistic business analysts believe that we are not headed for a downturn or a true recession, and that in all likelihood, the national economy will turn around nicely at the start of the second semester. By definition, a recession is two consecutive quarters of negative GDP, which we have not yet had, and if we are reading things right and believe government pronouncements, we are not going to have it this year. As the economists will tell us, a downturn varies greatly from market to market. It will also vary relative to your position in the food chain. While manufacturers may adjust with new products and services, resellers adjust to the specific demands of their individual geographic and market segments.
During tough times, as with any situation, awareness as a result of consistent communication is an imperative. If we assume therefore that an economic crisis looms, we must examine our place in the industry with jaundiced eyes, and see how our corporate or brand positioning will get affected. The question that comes up relates to the appropriateness of doing advertising at this time. Is it the wise thing to do? Would it be prudent to take a breather until the downturn is arrested and the economy bounces back to health?
Surprisingly, when the economy slows down, it pays to keep communicating. Studies cited in the American Association of Advertising Agencies’ (AAAA) booklet show that companies that maintain or increase their ad spending will emerge from a downturn ahead of their competition. That gain – measured in sales, net income or market share – will continue to grow in the years following the tough days.
In the 1981-1982 US recession, McGrawHill evaluated the performance of 600 industrial companies. The study revealed that firms that maintained or increased their advertising expenditures during tough times grew their sales 275 percent from 1980-1985, and those that cut their ad spending averaged a measly 19 percent growth during the same period.
Another study in 1990 examined 339 consumer businesses to determine the relationship between advertising investment and market share during a recession. It found out that companies which aggressively increased their ad spending from 20 to 100 percent gained 0.9 percent share of the market. Those that moderately increased ad spending, from 1 to 19 percent, generated an average of 0.5 percent, while those that reduced ad spending gained 0.2 percent.
These studies, and a lot of other researches on the subject, debunk at least two dangerous assumptions. One, that customers will be spending less when money is tight, and therefore budgets allotted for advertising will be wasted; and two, that it is safe to reduce, or worst strike out the advertising investment, if competition is reducing or canceling theirs.
Can advertisers expect an immediate increase in return on investment (ROI) as a reward for their advertising aggressiveness? No, not always. But capturing market share from their more timid, risk-averse competition is very likely. It provides an opportunity for companies to dominate their market. The desired increase in share is expected to pay out in greater profitability over the long term, as a result of the cumulative familiarity the target markets have developed with a company or a brand.
As Robert Wilson of the Newspaper Association of America says, "Cutting back during a downturn is like throwing away precious investment. Maintenance today costs much less than rebuilding tomorrow."
So what does this mean for marketing communicators and advertisers today? What else can we do during tough times to keep our businesses afloat?
Put our ears to the ground and listen. What do customers care about right now? What do they want to know? Stay in touch with target market mindset through regular research. We should be more consumer-centric than ever since tough times can give birth to a new language that reflects a new psyche. While advertising is measured as a business, it is built on psychology and lifestyle. We therefore need to stay close to stay relevant.
Focus on "As If" planning instead of "What If." As Carolyn Carter of Grey Worldwide opines, "The tendency to meet hard times with ‘What If’ or worst-case scenario planning has a real downside –when the worst case becomes the objective, it can become a self-fulfilling prophecy as well. We need ‘As If’ planning – not failing to recognize that the situation has changed, but planning as if long-term success is still the real objective, as if the basic opportunity for the brand is still there–but the way to seize the opportunity may have changed."
Sharpen our prospecting skills. The problem with a steady flow of economy-driven business is that we slow down our prospecting efforts. We become complacent. When business comes marching through the door, we slacken and avoid going out to generate more. We lift our ear from the track and take our finger off the market pulse. When business takes a downward spiral, we look around, confused and dismayed.
Have faith in the fundamentals of the business of advertising–they have not changed. Focus and the drive for efficiency are our fuel to make us move. We should do more with less, and do what makes a difference. We need to come face to face with our consumers. Integrated marketing communication programming is basic. We can expect relationship marketing, publicity, events sponsorship, and other below-the-line activities to grow. These can be the new tools that can buoy us up.
And lastly, keep communicating. Overall, we don’t want to run and hide when the going gets tough, but we don’t want to get overextended either. The trick is to implement a holding pattern until we know which way the situation is going to turn. Those who cut back too fast and too far can be caught off guard if the turnaround comes quickly. But if the slowdown worsens, those in the holding mode should be able to adjust very quickly as well.
Shake off the cobwebs and buckle down to work...
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