- Andrew McMains

NEW YORK No signs of client-spending cutbacks. That's the hopeful stance taken by the holding company bosses, even as evidence of a recession mounts. Well, two new studies involving marketing leaders paint a different picture -- and it isn't pretty.

More than three-quarters of the 202 U.S. marketing executives polled by Reardon Smith Whittaker said the economy has moderately to greatly affected their companies in the past six months, with just 23 percent saying it has had no effect. And 77 percent of nearly 100 global marketing chiefs expect their budgets to be flat or shrink this year, according to a Forrester Research report.

On average, the marketing budgets among Forrester's sample will decline 3 percent in 2008. Although 23 percent expect to spend more on marketing, they generally represent smaller companies and relatively small budgets to begin with. "The bullish marketers control only a fraction of the budgets that their bearish peers have -- an aggregate $55 million versus $5 billion," wrote Forrester analyst Jaap Favier. "This means that the largest advertisers are anticipating the largest cuts, resulting in an expected 3 percent average marketing spending decline in an economic downturn."

Favier declined to identify the companies represented in the report but said they cover a broad spectrum of categories -- from telecommunications to finance. The respondents steer their respective marketing departments and half are based in North America, a third in Europe and the rest in other parts of the world, according to Favier.

Reardon Smith Whittaker's domestic sample ranged from senior brand managers on up to chief marketing officers at companies such as Procter & Gamble, Novartis, L'Oreal, General Electric, Coors, Mattel, Kellogg, Shell, Kraft, Nissan, PepsiCo, Citigroup, General Mills, Nestlé, Arby's, Goodyear and Gateway.

The Reardon Smith respondents are feeling the downturn beyond their own four walls, with 64 percent reporting the slowing economy has hurt their sector's sales performance since the fall. Still, 69 percent of the group made no changes in agencies in that period, and 76 percent don't expect to make changes this year. That means they're either not blaming agencies for the macroeconomics at play or they are hesitant to make changes amid the storm.

"There seems to be this general sense of inertia," said Mark Sneider, managing director at Reardon Smith Whittaker, a Cincinnati firm that helps agencies hone their new-business approaches. "It's kind of this wait-and-see attitude that seems to be playing out here: 'I don't want to make major moves, I don't want to make major cuts, I don't want to be overly aggressive.'"

So, what does that mean for advertising agencies? "They've got to get very aggressive," said Sneider. "They've got to put smart ideas out in front of people and give people reasons why they should be considering looking at alternatives."

With creative reviews not that plentiful so far this year and some big clients tightening purse strings, agencies face the prospect of significant layoffs in 2008 -- even if they don't lose clients. And since some spending cuts are strategic -- i.e., shifting dollars out of advertising and into online efforts -- that money is not likely to be restored, making it critical for agencies to finally reinvent themselves.

"What is 'better' for CMOs is 'less' for the advertising and media industry, as the cuts by large advertisers will hit them hard," Favier wrote. "Ironically, the savings in branding, advertising and media will set the wheels in motion for a long-needed change in these industries. And when the dust settles, smart advertisers will never have to raise these budgets again."