Does Advertising Pay During Recession?
Does Advertising Pay During Recession?
Does Advertising Pay During Recession?
DOES ADVERTISING PAY DURING RECESSION?
by
Mrs. A.Bharathy
Research Scholar ( Dravidian University) &
Lecturer, Dept. of Management
Pondicherry University Community College , Pondicherry
Advertising it is said creates magic in the market place and on the other hand it bears the unfair burden of being directly linked to sales performance. Though it performs a multitude of functions from creation of awareness , to building brand comprehension, to enhancing band image, to boosting the morality of the workforce etc..This paper "Does advertising pay during recession?" deliberates on the much debated board room question especially during recession. A question that has been raised many times over the years by agencies and clients alike since the 1920's "Does your company view advertising as an expense or an investment?" and "How have others succeeded during a soft economy?" This paper brings to fore through an in depth analysis of the past and present data to augment the credibility of using advertising as a tool for reaching out to one's target market during recession or not.
Advertising the magic wand in the market place is important for brand building and its successful marketing. It is important for tangible products like mobile phones, refrigerators , television and computers. It is equally important for services like hotels, holiday resorts , airlines and even state tourism .The same is true for ideas and causes. All marketers want consumers to buy their brand. Firms advertise with just this objective in mind .But it is here that one has to remember "Isn't it not an unfair burden on advertising?" when the final sale is dependent on many other factors and there is no direct relationship between the firm's sales and advertising expenditure. This is in contrast to distribution and personal selling or even customer service , where one can establish a direct relationship between any of them and sales.
Hence the role of advertising is limited to awareness creation or providing information and favourable attitude development to say so. While its role is limited, the marketer has to compare the costs of different elements of his /her communication mix. One yardstick is cost per thousand of people. This is lowest in advertising. However, we must bear in mind that people are generally biased against advertising and many still believe it is a waste of organizational resources , particularly in a country like India. The very concept of advertising is highly debated even in normal economic circumstances , say
"Money spent on advertising is a waste!"
"Advertising is an economical waste!"
"Advertising misleads consumers!"
So it is very natural that companies feeling the heat of reduced revenues and eroding net worth during recession , one of the first things that CEO's decide to " Save Money" is to put forth their axe on the advertising budget. Now this primarily depends upon whether the company views advertising as an expense or an investment?
THE KEY ISSUES AND OPPORTUNITIES
The question of advertising during a recession is one that has been asked many times over many years. Interestingly, the answer still does not seem clear enough to marketers.
The answer to the question is that advertising during a recession provides a unique window of opportunity for investment purposes to:
1) Build equity;
2) solidify your customer base;
3) Gain new customers; and
4) Make inroads on your competitors who have cut their advertising during the recession period. This window of opportunity is created by the understanding that advertising is an investment, not an expense.
However, it is easily understood why many people do not view advertising as an investment, but treat it as an expense. It is because advertising frequently does not represent a fixed cost, like capital expenditures, which are investments. Given the above stated opportunities it is logical to deduce that advertising in times of recession should not be axed.
ADVERTISING DURING RECESSION IS NOT AN OPTION
These are challenging times for businesses. Many local operations -- big and small -- are struggling to face the difficult losses sustained during this year. And companies everywhere are faced with tight budgets and tough decisions. Small retail stores are struggling to stock their shelves, meet the cost-cutting tactics of competitors, and draw in now-frugal consumers whose purchases they scrutinize more so now than ever. But the reality stands that everyone still needs petrol for his or her cars. Families need to eat. Children returning to schools need clothes and supplies. And, people still need supplies from light bulbs to gardening tools. Businesses, large and small, who sit back and weather the storm with the belief that, once the economy picks up, so will business are missing out on tremendous opportunities. Companies must show the consumer that they are stable enough to withstand hard times. Now is the time for smart companies to seize market share and position themselves to lead the inevitable economic turnaround. Business owners must remember what it was like to start a new business, gain name recognition and entice customers. Withdrawing from the public until the economy picks up and cash-flow increases will mean having to reinvent the company all over again. A cost that will weigh far more than a few quarters with lower than average profits.
PESSIMISM OF ADVERTISING DURING RECESSION
The three most commonly believed myths for not advertising during a recession are:
"People don't buy much during recession , so our advertising would be wasted";
" All the companies are reducing their advertising budgets and hence the competition doesn't demand doing so much of advertising"; and
"The money saved on advertising helps us to pay dividends to stockholders."
Myth 1 :" People don't buy much during recession , so our advertising would be wasted". Wrong - People don't buy much during recession and hence we should do more aggressive advertising to get people to buy .The pessimism among advertisers is mainly a myth, hardly warranted by facts. Also some of the recent studies have shown that recessions have only about 2% reduction in people's disposable income but despite that people tend to sit back and maintain liquidity .For eg: Study done by McGraw-Hill's showed that a 13 page advertising during recession increased company's recognition from 32 to 45%. For 1980-85 recession all those companies which did not reduce their advertising budgets increased sales by 16 to 80% & most important was the fact that the increase in sales was not a temporary thing but permanent.
Myth 2: " All the companies are reducing their advertising budgets and hence the competition doesn't demand doing so much of advertising". Wrong This is just the right time for you to take charge and go one up against your competition and so if your competition is not doing advertising during recession you have an opportunity to bring about a dramatic improvement in market position. for eg: In 1975 GM and Ford used two different strategies and where GM kept with the same budget and Ford reduced budgets so while GM increased the sales and Ford's sales went down by 14%.
Myth 3: "The money saved on advertising helps us to pay dividends to stockholders." Wrong -attempting to regain a favorable position lost during a recession costs more in the long run than to retain it by continuing to advertise. There is likely to be a fast erosion of the consumer franchise that the advertiser has taken years, even decades, to build. It is near impossible to regain the old customers once they have adopted competitive brands. And, of course, firms can more readily explain a drop in dividends if the money was used as an investment to protect market share.
Now this leaves behind a question "wouldn't continuing or increasing advertising budget during recession isn't by itself a mechanism of controlling the recession.
HOLDING /INCREASING ADVERTISING BUDGET FOR BETTER PAYOFF
In spite of the clutter, great advertisements have broken the clutter and have worked wonders to build brands and their market shares during recession / slowdown. Some of the examples are interesting.
Vodafone's series of Zu Zu commercials released during the second IPL-20 cricket matches in South Africa were so much a hot favourite among the viewers that the man of the series trophy must have been given to it. Ariel's advertisement series featuring Madhavan and Vidhya Balan very well communicated the various services provided by it to the consumers. This went a long way in brand recall and increasing its sales in the Indian market in spite of recession.
Though Online Travel and Finance categories saw a slowdown, there was an upsurge from Insurance clients. Even in the recession, insurance companies - Bharti AXA, ICICI Prudential, Metlife - stepped up their advertising. Also, new categories emerged in the recession - Auto became more active and increased their spends . The overall spends, despite the recession, went up in India in year 2008. Education is a category that was stable and growing, consumer electronics grew with Nokia spending significant marketing dollars online.
Another example is General Motors' Chevrolet division, which faced mounting inventories in 1975 due to the recession and high fuel prices. The company abandoned its traditional practice of setting its advertising expenditures as a fixed percentage of sales. While volume fell 10 percent because of the economic slowdown, Chevrolet maintained its ad budget and actually increased advertising for its fuel-saving economy models. Ford Motor Company, on the other hand, slashed advertising by 14 percent in an attempt to shore up profits. That may have achieved its goal, but it permitted Chevrolet to increase its market share by 2 percent.
According to ADEX (a division of TAM media research) an overview of the ad spends in our country in 2008 indicates
26 per cent rise in TV ad volumes during 2008* compared to same period in 2007.
'Food & Beverages' was the Top sector in TV advertising during 2008*.
'Cellular Phone Service' category had maximum TV ad volumes during 2008*.
'HUL' maintained its first rank in both the years 2008* and 2007.
Data for 2008* available till 27th Dec '08
During 2008*, TV advertising has recorded growth of 26 per cent compared to 2007.
Cellular Phone Service', 'Social Advertisements', 'Toilet Soaps' and 'Cars/Jeep' categories maintained their respective ranks in 2008* and 2007.
Other companies across the globe that have taken advantage of advertising during a recession to establish strong market positions while developing brand equity include such diverse company names as Bristol Myers, Campbell Soup, Coca-cola, Gillette, Pillsbury, Apollo Hospitals, Paramount Airways, Procter and Gamble, R.J. Reynolds, Rubbermaid, Levi Strauss, Stroh Brewery, United Airlines and Welsh Foods-among others.
ADVERTISING DURING RECESSION
Statistics from the past US recessions show that it is short . On an average , they are mild. During a recession GNP typically declines by about 3%. The exception of course is the unusually severe 1973 to 1975 recession , when the GNP declined by 4.3 %.Further we see that recessions are selective. Recessions impact some industries, products and regions of the country hard and bypass others entirely. Studies reveal that among the industries and products most affected are: automobiles, home furnishings, large appliances, travel and airlines, convenience foods, aluminum, steel, petrochemicals and synthetic fibers. Relatively unaffected are: liquor and wine, tobacco, small appliances, packaged goods, computer and service industries.
It is here that one should ponder on the bird strategy , just as a high flying bird, however high it flies, comes down to rest for a while before it begins to fly high again , so also recession is just a phase in the economic cycle of the world. In this present scenario of recession 2008 going on as depression 2009 many of the business houses are strategising on measures like cost cutting , downsizing , revamping business on core competency and the like cutting down one's advertising budget seems to be in top priority in the wish list of many a corporate.But actual studies confirm that advertising aggressively during recession not only increases sales but increases profits. As Sir John Hegarty , Chairman and Worldwide Creative Director , Bartle Bogley Hegarty says " Recession is good for advertising" . However the key ingredient for advertising success in recessionary times would be:
"Thinking has to be inventive , especially when the going gets tough" as
Dabur's Sitaram says if we keep our ad spends intact in this time and keep coming out with innovations we can gain the market share. Their strategy is to deliver value and create delight.
"Select the most compelling offers and advertising must bring them to center stage in the most persuasive, inviting and memorable ways"
Sandeep Singh , Deputy Managing Director , Toyota Kirloskar Motor , says getting in direct touch with the customers and offering them special prizes on a new car coupled with innovative awareness campaign.
"The way for companies to maintain their market share is simple: to advertise"
Take, for example, the real estate and development industry. Despite a decrease in revenue, The Ritz Carlton continues to rise, realtors continue to show property , Why? Because these businesses continue to advertise. Construction is beginning to pick up, the availability and need for owner occupied homes has not waned.
So finally we can say that advertising does pay during recession but in selecting advertising, you can ask yourself two key questions: Does it say the right, bright thing about the product, service or offer? Does it say it in the right, bright way in words and pictures that feature the product, instead of subordinate the product, and that are appropriate to the brand?
You must also, of course, run the advertising with the right, bright media plan, so you can reach your target audience in the most effective and cost-effective ways. When you have such advertising, your clients can invest in it with the knowledge that it is far more likely to succeed. In fact, the clients can know that their advertising is doing as much for them as advertising can do. Why? Once the advertising is saying the right thing in the right way in the right places, you've done everything you can to maximize its effect.
As this is the time to be aggressive and not do what many business people do , which is the fastest and easiest route to cutting overhead by slashing their advertising budget. These advertising secrets are especially valuable in tough times and extraordinarily profitable in good times. As I emphasis " recession is good for advertising"
References:
"Advertisement an expense or an investment" ,www.yourstory.in, article by Manik Kinra , CEO , Creadivity
"Recession is good for advertising", The Hindu Businessline , on 16 April 2009 , article by Sir John Hegarty , Chairman and worldwide Creative Director , Bartle Bogley Hegarty
"Business News" , July 2009 , in Nanayam Vikatan
"Marketing in a slow down" , The Economic Times, 19 February 2009 , article by Vinay Kamath et al
"The Secrets of Successful Creative Advertising." Book written by Tom Attea
"Advertising management" book written by Novee , Bovel , Thill and Wood
Adex India (A division of TAM Media Research)
"Smart marketing in times of slowdown", The Economic Times, 25 November 2008 , article by Amit Sharma & Reshmi R Dasgupta
Oracle Advertising works with a team of ambitious and motivated individuals Effective Advertising Opportunities Large format print advertising Bold Ways to Advertise with Postcards Facebook Advertising - Essential Do's and Don'ts Are You Making These Mistakes With Facebook Advertising? 3 Nice Methods to Advertise on Facebook Getting the Most Out of Your Pay-Per-Click Advertising Your 5 Point Plan To Successful Solicitors' Advertising Finding your Advertising Voice How to Slash Your Advertising Costs Advertising Your Event for Free The Key to Effective Poster Advertising