Advertising in a recession economy

Most ad agencies and marketers are expecting a significant reduction(4-6%) in US ad spending in 2009 after being flat/ slightly down in 2008 (click here for Dec 8 Bloomberg article). McClatchy, a leading US newspaper company, reported a 17% decline in ad revenues for the first 10 months of 2008 (click here). Most experts are anticipating at least 5% growth in internet spending and more than 5% decline in magazine and TV ads.

I personally think the 2009 number could be closer to the lower end of expectations. Let me explain. Advertising Age has tracked US ad spend for the top 100 marketers in a report called Marketer Trees 2008. The split of the $105 BN spent by the top 100 marketers shows that financial services and automotive were key spenders (22% of total). These industries have been badly hit by the recession and can reasonably be expected to cut advertising spend significantly.

Other key sectors such as Drugs, Retail,Personal care, and Telecom (specifically mobile) are also experiencing slow down and are likely to slow their spending. One of the biggest spenders, P&G, has reduced its ad spending by 6% YTD till September 2008. As such I think ad spending is likely to reduce significantly

Another interesting angle is that of ad spends as a percentage of sales. Many top consumer brands currently spend more than 10% of US sales on US advertising. These companies will surely see the need to cut advertising spends and use the savings to reduce pricing during the recession.


Brand marketers are facing a vexing problem: How should we change advertising spends and media mix in the recession economy, without reducing communication to the consumer? Can we rely on historical RoI data and historical Media Mix models in a rapidly changing marketplace?

Here are my thoughts:

• Many marketers will be able to reduce media spending significantly without reducing brand exposure and communication due to falling ad rates (for TV ads, newspapers, magazines). Online advertising rates are also falling (click here for article).
  
• Marketers need to seriously assess the need to reduce brand exposure (Rating points, online clicks, etc) based on continuous monitoring of the competition. Any sudden changes in 'share of voice' could have adverse impact on market share.
  
• Although internet advertising had immediate and measurable impact on brand communication (and sales), marketers should not underestimate the long-term impact of traditional media (TV, magazines). Any dramatic reductions in brand exposure through traditional media could have adverse long term impact.
• Analytical models (media mix models, media RoI models) based on historical data need to be relooked based on the changing circumstances. RoI measures need to broken down into 'sales impact per rating point' and 'price per rating point'. The new media pricing for 2009 can be factored into the analysis to re-adjust RoI estimates for 2009.

Send me your thoughts...