Let’s hear it for advertising

By Michael Cullen on 01/03/09

Let's hear it for advertising
Harry Leech on why slashing ad spend in hard times is unwise

All this talk of global economic recession and doom and gloom is enough to drive a marketer to drink. It calls for a pint of Guinness in Doheny & Nesbitt's or perhaps even an ice-cold bottle of Schlitz, ‘the beer that made Milwaukee famous', straight from the fridge.

Marketing managers across most industries are under pressure to cut budgets in the wake of what has been described as the worst global recession since the Wall Street Crash of 1929. But is this the best way to protect your brand, stave off the economic slump and emerge stronger than your rivals as the global economy recovers?

Truth is, marketers simply don't know. Many, including this writer, were not around during the bad old days of the 1980's or any of prior recessions. The text book for marketing in the last ten years has been Don't Worry, Be Happy: Why Marketing is Great Craic and a replacement tome has yet to hit the shelves in Hughes & Hughes.

The question is this: What has been successful in times of recession and what can marketers learn from such stories in previous global downturns? Given recent events, there is a need to analyse history and turn the recession to one's advantage.

The FT launched an outdoor campaign late last year where billboards were stripped bare with the question: ‘Global Downturn. What's the first mistake businesses make?' They shared the same ethos as David Ogilvy, founder of Ogilvy & Mather, who said “the man who stops advertising to save money is like the man who stops the clock to save time”.

Building brand awareness and brand equity is the best way forward. Research to back this up is well documented and a series of six studies conducted by Meldrum & Fewsmith over the last 50 years proved that advertising aggressively during recessions not only increases sales but increases profits. What is fascinating is that this fact has held true for every post-World War II recessions studied by American Business Press, starting in 1949.

McKinsey published a report in 2002 which looked at the recession in the US during the early 1990's and how over 1,000 companies reacted to it. Of the companies that either maintained or improved market position, all held similar principles: Increase R&D, look to strategic mergers and increase ad spend while competitors reduce theirs.

For the first half of the 20^th century, Kellogg's main rival was Post. Founded in the late 1800's by Charles Post, who once said that “The sunshine that makes a business plant grow is advertising”, Post was making a million dollars a year in 1903. But in the wake of the Great Depression in 1929, Post slashed budgets through the early 1930's. Kellogg's maintained their spends through the period and Post never regained their foothold in the market.

P&G has weathered recessions well. It is well documented in both Proctor and Gamble: the House that Ivory Built and Rising Tide. P&G's history of maintaining ad spends during tough times dates back to the years from 1929 to 1941. During this period, P&G doubled ad spend every two years in a bid to build market share and emerged as market leader.

During the recession in the early 1990's P&G was the only top five marketer in the US to increase ad spend in 1991, but managed to increase sales and earnings as a result. As Ira Matathia of Y&R's Brands Future group said: “P&G's progress in every one of the last major recessions is no accident. Everyone let up the gas on spending and P&G was smart.”

But what of the bottle of Schlitz mentioned at the outset? Well, Schlitz was the top brewery in the US between 1900-1950 (barring the prohibition period, but their competitors did not fare too well then either). As recently as 1976, it was the second biggest brewery in the US.

All was not well though and some costly decisions hurt the brand including an ill-advised change of formula, as well as some tampering with the packaging. The death-knells began to ring when ad budgets were slashed in order to save costs.

By 1982, the company was acquired by the Detroit-based Stroh Brewery and almost consigned to history. The brewery became a business park. Schlitz was lately re-launched as a niche brand in Milwaukee, but it is unlikely to regain its once dominant position.

In hindsight, it seems clear that cutting back on spending during a recession is short-sighted and that maintaining ad spends is the key to weathering the economic storm, but doing this when all around you are slashing and burning is easier said than done.

Changed economic times mean that in 2009 marketers can demand greater coverage, frequency and quality for the same budgets and build stronger brands that can prosper through an economic downturn and beyond.

Even the most blinkered accountant should be able to understand this.