Will Marketing, Advertising Continue to Fall Together?

If you want to know what the current economy holds in store for the advertising industry, you might consider what happened after Galileo made his famous climb to the top of the Leaning Tower of Pisa in 1590. Dropping two cannonballs of unequal weight, the scientist proved that gravity exercises the same effect on everything. Hence, a modern corollary for marketers: When the economy takes a fall, advertising tends to fall right along beside it.That's what happened during the last recession back in 2001 when, according to Nielsen Media Research (Brandweek is a Nielsen property), global ad spending fell 5 percent. Now, seven years later, despite ad bonanzas like the Olympics and the Presidential race, the sputtering of the country's economic engine are already sending tremors through the ad industry. For the first quarter of this year, spending declined 1.4 percent, per Nielsen. Considering that 2009 will be a year without a White House race or an Olympiad, it's no surprise that many are predicting a dismal time of things.Even so, no one knows for certain how 2009 will play out. The current circumstances of the economy—including a $700 billion bailout of the financial industry and the possible bankruptcies of one or more of the Big Three U.S. automakers—have led many to believe that the next recession will be a particularly deep and long one.At the same time, there are patterns that emerged in the ad industry during the recent economic downturns showing that some of the worst assumptions of ad industry execs may be unfounded. In short, while ad agencies are likely to lose business in 2009, if things play out as they did during the last recession, those agencies are less likely to lose accounts. If you're a CMO, though, you may have some reason to worry. Few enjoy solid job security during recessions; CMOs in particular.LESS BUSINESS, BUT LESS TURNOVER When the economy tanks, many companies go into soul-searching mode, but does that mean they also go into ad shop-searching mode? Not necessarily. Although it's logical to assume that, as sales falter, marketers will begin making changes for changes' sake, executives who run advertising search firms say that, if anything, ad-search activity slows down during a recession. The reason? Such searches can be expensive, and companies often find their energies are better spent looking at other aspects of the business. Though no one keeps figures on the exact amount of ad searches, experts say usually down times mean fewer of them."When we had the difficult economic times after the dot-com bust and after 9/11 in 2003 and 2004, which were probably the worst economic times for the industry, people stopped running reviews," said Judy Neer, president of Pile & Co., a Boston-based search firm. Neer, however, added that there have been a lot of reviews lately, but "these reviews are not about 'The times are dire, we've got to find a new agency,'" she said. "The dire times aren't impacting the decision." Instead, Neer said, the reviews are driven by brands entering new markets.Though Neer didn't cite examples, some recent searches both underscore and contradict her point. Pepsi's decision to part with 48-year partner BBDO last week, for instance, was driven by lagging sales, new management and a score of new initiatives set for 2009. Similarly, a shootout over Nokia was driven by that company's looming launch of its Nseries smart phone.Meanwhile, Outback Steakhouse's decision to hand its $80 million account over to Lowe, New York, may have been driven by a slowness in the casual-dining segment. (Dan Dillon, Outback's vp of marketing, declined comment on the issue.) But if Outback's switch was based on declining foot traffic, the company may be the exception. Ann Billock, principal of New York management consultancy Ark Advisors, said that when sales fall, companies are actually blaming agencies less. "That's one thing clients are getting smarter about," she said.Another reason for fewer reviews may be more systemic: New-product launches are often the impetus for a brand to take a fresh look at its marketing via an agency review, and during economic slips there are simply fewer new products in the pipeline (see "Now Hold Everything," page 18). As Dick Roth, principal of Roth Associates, New York, observed: "It seems like people are less likely to [switch agencies] because they can't tell exactly what their plans might be."In fact, according to Arthur Anderson, managing partner for MorganAndersonConsulting, a New York-based marketing consultant, agencies might even be able to take some solace when the economy goes south. "There's more stability in tough times," he said. "[Reviews] cost money and take time—and time is money, too."Anderson compared the idea of an agency search to a family contemplating an exotic vacation. If a far-continent getaway is not an affordable option, "they may find another vacation close to home that's just as fun but in a different way," he said. In other words, a company may desire new creative approaches, but it'll try to get them via its existing agency.THE ITINERANT CMO One wild card in this economic poker game is the stability of the chief marketing officer. It is, after all, a new CMO that often triggers the search for a new agency. And indeed, companies that track these sorts of things find that, during bad economic times, CMOs tend to move around. According to Los Angeles executive-search firm Korn/Ferry International, while CMO turnover remained steady (and sometimes even declined) during the boom years, execs packed their bags when the going got rough. During the 2001 dot-com bust, for example, CMO turnover rose 40 percent.While Spencer Stuart wasn't able to offer data on the subject, Thomas Seclow, an analyst with the marketing consultancy in San Francisco, pointed out a key correlation: Chief executives tend to have less job stability during recessionary periods, and CEO switches are historically related to CMO switches. "Anecdotally, [tough economic times] bring about change," Seclow said. "When indicators like same-store sales are down, that would be something that would prompt changes in C-Suite execs."Often, a change at the top brings about a personnel shuffle in general, though the effect is often delayed. Studying the top 100 advertisers, Seclow found that 36 percent of new CMOs were appointed within 24 months of a new CEO, though 20 percent were appointed within 12 months of the new chief's arrival. "Without knowing for sure," Seclow said, "we speculate that the CEO may hold off on making a change within the first year."If he's right, it doesn't bode well for chief marketers; CEOs seem to be leaving their posts more frequently. According to statistics from Challenger, Gray and Christmas, 125 CEOs stepped down in October—down 11 percent from September, but 30 percent higher than the same time in 2007. (Nevertheless, according to a 2007 report by Booz & Co., CEO turnover actually spiked around 2005-06 for various reasons, most notably consolidation.)Still, a CEO's exit isn't the only reason for a CMO to get his resume ready. Samantha Allen, managing director of Boyden UK, a London-based executive recruiting firm, said recessions often cause internal friction that's resolved in the CMO's ouster."There is often a boardroom tension between nonmarketers and marketers in that nonmarketers often see the marketing function as a large overhead that does not always provide a good return on investment," she said. "Therefore, in a recession, many businesses which are led by nonmarketers tend to look first to the marketing function as a way of cutting cost. It is rather a short-sighted view, but one that many businesses adopt in difficult times."Though not all companies behave that way, Sprint Nextel's svp of corporate marketing Bill Morgan said that a down economy puts more onus on the marketing department to perform. "There's increased pressure during tough economic times and that's understandable," he said. "[Marketing] is the most consumer-facing area of the business."Allen said that another reason CMOs are often shown the door is that they are not necessarily wired to deal with the austerity imposed by an economic downturn. "The marketing director that is able to operate in a 'boom' market is very different to the one that can operate in a recession," she said. "Some CMOs are able to make this transition and some are not. The decision to retain CMOs is heavily focused on short-term commercial return. If this cannot be demonstrated, then there is a danger that they are positions that are disposed of or repositioned."Now Hold Everything Looking for some hot new product launches? You might be waiting awhile. By Kenneth HeinAs store shelves fill up in anticipation of the holiday shopping season, a little-known fact lurks behind those rows of shiny new products: There are hundreds of new cars, high-tech consumer electronics and premium packaged goods that consumers will never even get to see.The freefalling economy has prompted executives in the C-Suite to do some serious rethinking about what products are now appropriate to launch, given the lack of discretionary income and, often, marketing dollars. And when it comes to those products that do make it to their debut, most experts agree that value and durability will be the test they must pass to get there. Products currently in development that do not fulfill a basic necessity may need to be scrapped."The normal expectation used to be, 'Tomorrow will be better than today.' Now the expectation is, 'Tomorrow will be worse than today,'" said Marc Babej of Reason Inc. "Your company, your category and the product you have are going to have to be viewed in light of what's going on out there. Just because something is in the pipeline, [that] doesn't make a difference. You have to consider the pipeline was developed when assumptions were different than they are now."While some categories like beverages and fast food will probably come under less scrutiny, marketers in other sectors such as cars and consumer electronics will have to re-evaluate entire product cycles.And with good reason, according to a just-released report that's found consumers' recall of new products has fallen to an all-time low. The Most Memorable New Product Launch Survey, released last week by Schneider Associates, Mintel International and IRI, revealed that no fewer than 69 percent of American consumers couldn't remember a single new product that appeared in the past year.Why the collective amnesia? The report's authors speculated that with today's dismal headlines—the banking meltdown and subsequent fiscal crisis that's starting to ripple through most American households—consumers have plenty to think about, and that new brand of athletic shoes isn't one of them. In fact, as the economy continues to worsen, some suggest that the attractiveness of a newly launched brand or extension may simply boil down to what a buyer can afford, marketing be damned. As Martyn Tipping of marketing consultancy TippingSprung put it: "When it comes to whether I could have the latest toys with the latest features versus am I able to pay my mortgage, the choice is clear."That maxim may even apply to the hottest growth segments, such as smart phones. According to international research firm Strategy Analytics, growth in new unit sales for those gadgets is expected to decline from 82 percent to 24 percent during the next year."Companies are going to need to consider the price sensitivity of consumers as we continue to see the impact of the changes within the economy," added Ross Rubin, director of industry analysis for NPD Group. "Features will need to be considered carefully to see if the price requirements they add will place them out of reach." Slackening demand is expected to extend to high-end electronics like liquid-crystal TVs and digital-networking devices (often a favorite of Bill Gates at the Consumer Electronics Show). Meanwhile, Blu-Ray DVD player and movie sales have already missed forecasts.Still, according to Villanova School of Business professor William Madway, the affluent will continue to buy. "Early adopters are less concerned about price; look at the new Blackberry Storm," he said. "There is still a segment that has to have that."When it comes to rollouts in the beleaguered U.S. auto segment, the future's not hard to predict. Detroit is already looking to either alter or eliminate the launches of many models. Ultimately, what'll hit showroom floors will "depend how far along in the development process the car is," said Todd Turner, president of consultancy CarConcepts. "If it's next year, it will probably go forward. But for 2010, 2011, General Motors has already announced delays and is scrapping plans. The redesigning of the Corvette, new full-size trucks and SUVs, the rollout of the Cruze—everything is in limbo."Of course, innovation's a bit more straightforward when you're not making a two-ton product with a thousand moving parts. When it comes to lower-cost items like burgers and cola, it's expected that major brands such as McDonald's and Coke will continue to innovate. In fact, in the quick-service sector, a down economy can drive sales, as consumers reach for cheap eats."There will be lots of motivation [for fast-food brands to] call attention to themselves," said Ron Paul, president of Chicago-based restaurant consultancy Technomic. Since the chains are duking it out for what the industry is fond of calling "share of stomach," Paul added that fast-food players are trying harder than ever to differentiate their brands. "One of the ways you do that," he said," is with new products." Fortunately for the burger and chicken boys, innovation's not rocket science. Just add a different cheese and—wham—you've got a different product. "It's not a big expense to mess around with ingredients," Paul said.It's much the same story for the beverage giants, though right now they're playing with a secret ingredient—their own "special sauce," if you will—that they hope will drive sales in 2009. It's called rebaudioside A (better known as "Reb A"), a natural sweetener for diet drinks that has a clean, sweet flavor profile and reportedly no aftertaste. Both Coca-Cola and PepsiCo are eyeballing it."So far, the flow of new products in beverages seems little abated, both from startups and from beverage giants," said Gerry Khermouch, editor, Beverage Business Insights. Pepsi in particular is planning to launch a zero-calorie Sobe Life Water, Starbucks Frappuccino Lite and Tropicana 50. "While Pepsi's pipeline is full, it is also re-emphasizing carbonated soft drinks in the coming year, which may presage a back-to-basics shift down the line," says Khermouch. Pepsi pledged $1.2 billion over the next three years to help resuscitate soda sales.As household budgets tighten, Tipping added, brands that fall in the so-called "affordable luxury" category will stand to benefit. "It's the lipstick phenomenon," he said. "The economy goes bad and lipstick sales go up. [Women] treat them like little treats."On the flip side, line extensions for the sake of line extensions will suffer, Tipping said. "The focus will be placed back on money and performance. The Gillette Venus will have a harder time convincing consumers to run out and spend another $15 for a new razor because it has a red handle versus a black handle."No matter the brand or sector, however, most marketers will have to do some reprogramming in 2009—and probably beyond. "It is incumbent upon a company and marketer to have a clear, well-founded and realistic expectation of how the economy is going to impact anything they do," Babej said. "If you can't make a realistic honest case that your product is something that your audience won't be able to do without, then it might not meet the bar."

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Will Marketing, Advertising Continue to Fall Together?

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