Advertising spend in tough times

As Access Economics put it yesturday ‘The Budget is Buggered; this is the sharpest deceleration Australia's economy has ever seen”.
But it is not all doom and gloom. Australia is actually in a good starting position to weather the storm:

• Australians have more cash in the bank than ever before (credit card payments up 19.2% YOY)
• The unemployment rate is at its lowest in 33 years
• The price for oil is half of what it was this time last year
• Interest costs on mortgage repayments are down $100/month vs. last year
• Rudd’s just given Aussies $9bn X-Mass cash bonus

There is a range of research that shows there are opportunities for brands to endure - even prosper - amid the coming downturn.

From a media perceptive we know that tumultuous times usually mean people and advertisers will revert back to traditional media, such as newspapers and television. Consumers will turn to the media that they trust. Source: Newspaper Marketing Agency UK, based on survey of marketing & advertising leaders 2008

They will also seek brands they trust. Consumers will be more thoughtful in their purchase decision making – they will investigate, research and compare when buying; more so than they do in boom times. Iconic brands, those that offer value to consumers and “innovators” will triumph over luxury brands and “me too” labels.

When stress goes up, so does stress release. People are seeking relief, comfort & security. Brands that provide this will prosper.

Brands that show empathy will also go a long way right now. All the car manufacturers are not in a great position at the moment, the current Holden ads do make some effort to empathise with their line “Holden’s are tough but Australians are tougher”…to some it may be a bit soppy but it does acknowledge tougher times.

At a December 2008, Financial Crisis and Consumer Behaviour seminar hosted by Colmar Brunton they presented 3 ways to grow in 2009 – underpinning all of them is staying close to your consumer & demonstrating empathy.

• Innovation & NPD – e.g. Sainsbury’s in the UK did a “feed your family for a 5er” promotion that went gangbusters. Unilever & Kraft in the UK are partnering to provide consumers with cross-category value promotions
• Brand communications – e.g. Virgin air, premium economy is benefiting from business class travellers downgrading. They’ve also released “tighten your seatbelt” $45 flights with Virgin Blue
• Customer experience & Optimization – e.g. Westpac “how is the financial crisis affecting my savings” promotion

A UK seminar held in July 2008, three months before the world financial crisis began, investigated the most profitable response for advertisers is during an economic downturn. The seminar, whose proceedings have been published by the IPA (the professional body for advertising agencies in the UK), proves that it pays to advertise during a recession.

Australian research by Milward Brown supports these UK findings, showing that budget cutting is liable to reduce consumers' `bonding' with the brand. Cutting budget in a downturn will only defend profits in the very short term.
The longer-term improvement in profitability is likely to greatly outweigh the short-term reduction.

Buying Share of Voice is effective in terms of both costs and branding. The heightened share of voice leads to increases in consumer preference, and in sales and profitability post-downturn.
It is better to maintain share of voice (SOV) at or above share of market (SOM) during a downturn.

Ultimately the brand will emerge from the downturn weaker and much less profitable if not supported.

If other brands are cutting budgets the longer-term benefit of maintaining SOV at or above SOM will be even greater. A recession provides a window of opportunity for inexpensive gains in market share for those brands which increase marketing investment during this time.

But at a time when every area of the business are being asked to cut costs it is imperative to justify any expenditure.
At OMD our econometrics offering can demonstrate the direct impact of marketing activities on sales. Further to that it can isolate the sales impact of each of the channels allowing us to optimise those that are moving products most cost effectively.
Marketers that can show ROI of their marketing expenditures have strong case to hold on to their budgets.

To summarise OMD’s top 5 tips for 2009 are;

1. Consumers will be more thoughtful in their purchase decision making – they will turn to brands they know and trust.
2. Talk to the consumer’s emotion. Empathy is key. Show them you understand they are struggling and show you can offer them “value for money” or an escape.
3. It is important to continue to have long term focus – continued or consistent spending now will set up brands for the growth cycle that will be coming.
4. It is better to maintain SOV at or above share of market during a downturn, as there is an opportunity for inexpensive gains in market share for those brands which increase marketing investment when others are decreasing theirs.
5. Really know which marketing activities provide you with a return – evidence that marketing spend shows both short-term and long term returns for the business will help protect your marketing budget.