Coping With Crisis

The last time the word "sluggish" stuck to the U.S. ad business was 10 years ago. True, good things have happened since then, but ironically, that very progress may make coping with the present downturn tougher. Consider four key factors.Who's on first? With the passage of time, policy-level executives with little responsibility for their agency's profitability the last slowdown are in the hot seat today. Presumably, veterans have already made their mistakes; rookies are on a learning curve and more apt to screw up. In truth, an agency is not the toughest of businesses to run, but experience helps.Second, the advertising industry learned to watch costs over the past 10 years. Profit margins on the eve of the current downturn are fatter than they were in 1990. Managers then had obvious places to scrimp, scrape and cut—and they did. For most of the past decade, expenses remained buttoned-down. As a result, there are fewer easy cuts to be made this time around. The challenge: How do you trim expenses and maintain quality? The third significant difference revolves around clients. We can't get client-side industry information on a consistent basis stretching back to 1990. The leading data providers make frequent changes in classification and presentation. But the stretch between 1995 and 2000 is presented in a fairly coherent way, and provides some interesting insights. One noteworthy fact that jumps off the spreadsheet is the significant changes among the ad industry's top client categories. Two of 1995's top 10 spenders have dropped off the list: resorts and travel, along with cereals. Both have been replaced by prescription drugs and the Internet. All advertising grew by 65 percent in the five-year period, and six major categories (not counting the Net) grew by double that rate, 130 percent—or more—over the past five years. The upshot? Any agency not well represented with a business retailer, insurance company, department store or apparel retailer, on top of the prescription drug and financial-services categories, isn't coupled to the industry's growth engine. Factory-sponsored car ads are still the largest category, accounting for roughly 9 percent of all media spending. But after adding in dealer ads and other spending, the automotive ad category grew only 40 percent over the past five years, below the industry's 65 percent average. An agency with clients in the faster-growing segments—such as prescription drugs—may have the best medicine to immunize against the industry blahs.Finally, consider the upheaval in media. Spending on broadcast TV, which many see as a glamour medium, grew only 47 percent in the 65 percent growth environment of the past five years. Outdoor ads more than doubled, and cable TV advertising nearly tripled. Clearly, these "upstarts" were the places to be and could still grow faster than industry averages. If an agency's media recommendations and creative output favor glitz over value, it may win awards but lose clients. Since ad budgets are increasingly being entrusted to shops that get more for less, smart agencies will demonstrate they can excel in any economic climate.

Brand Marketing

Coping With Crisis

Alan Gottesman

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Alan Gottesman