Dec 12, 2008

Making lemonade

According to a recent Gallup poll, two-thirds of Americans don’t see the economy turning around anytime soon. In fact, most think any sort of a turnaround is still two years away. 29% say it will be two years until the economy starts to recover, 20% say three to four years, and 17% say five or more years. Just 15% think it will be within a year. As consumer confidence drops to historic lows and sales plummet, marketers are cutting back their ad budgets. Big time.

TNS Media Intelligence also released data the other day that showed that despite the billions in ad dollars that flowed into the market thanks to the XXIX Olympiad and a fiercely-contested (and protracted) presidential election season, total media still managed to decline 2% in the third quarter of 2008. In the first nine months of the year, total measured media spend declined 3.7%.

Studies by American Business Media examined the relationship between advertising and sales in 143 companies during the severe 1974/1975 downturn. They found that companies that did not cut advertising either year had the highest growth in sales and net income during the two study years and the following two. Companies that cut advertising had the lowest sales and net income increases during that same period. A subsequent study by The Wall Street Journal and another by the University of Utah confirm that companies that advertise during a recession gain market share by taking it away from competitors unable to adjust to shifting market conditions, and tend to maintain a stronger cash stream throughout the downturn, in contrast to other companies that may have liquidity problems. Amazingly, B2B companies that continue to advertise have three times the sales growth as those that cut back on advertising during a recession.

Some companies pull their ad budgets in an effort to cut back or maintain capital during lean times. At the extreme end, the Arena Football League is canceling next season in an effort to conserve capital, yet promises to come back in 2010. I don't fully understand how by closing operations and not generating any revenue will help you be better off one year from now. Same with marketing.

The fact is that consumers still need to consume. We no longer live in a world where a family can sustain itself for a few years by living off the goods they themselves produce (think farms and mom and pop businesses of 50-60 years ago). They cannot produce their own goods, they need to buy them. And a brand that disappears during a recession runs the very high risk of disappearing from the minds of consumers forever.