The Danger of Cutting The Danger of Cutting MarketingMarketing

““I was asked what I I was asked what I thought about the thought about the

recession. I thought recession. I thought about it and decided not about it and decided not

to take part” to take part”

Sam WaltonWal-Mart Founder

11

Don’t waste a Don’t waste a good recessiongood recession

The market has fallen by The market has fallen by 42%42%

Ad spend swings more dramatically than GDP Ad spend swings more dramatically than GDP in recessions & upturns in recessions & upturns

Source: UK Treasury, ZenithOptimedia (Year-on-year % change in constant prices)

The correction this time is disproportionateThe correction this time is disproportionate

USA EUROPE IRELAND

Source: Govt statistics / Core Media 2007-2012

GDP Vs Ad spend since 2007

Time of great Time of great opportunityopportunity

Brand count Brand count is down is down

Cost of media Cost of media is downis down

The worst is overThe worst is over

Source: National Bureau of Economic Research (USA)

…….and recessions are always followed by .and recessions are always followed by expansions and prosperityexpansions and prosperity

Source: National Bureau of Economic Research (USA)

22

Investing in a Investing in a recession worksrecession works

““The rationale that a company can afford to The rationale that a company can afford to cutback in advertising because everybody else is cutback in advertising because everybody else is cutting back is fallacious. Rather than wait for cutting back is fallacious. Rather than wait for business to return to normal, executives should business to return to normal, executives should cash in on the opportunity that rival companies cash in on the opportunity that rival companies

are creating for them” are creating for them”

The evidence is overwhelmingThe evidence is overwhelming

The actions taken during a The actions taken during a recession decide the future recession decide the future

growth or decline of a growth or decline of a companycompany

25% of companies see an opportunity to expand 25% of companies see an opportunity to expand market share in a recessionmarket share in a recession

25%70% of these companies

will maintain their growth for 5 years after the

recession. The majority reach a new & sustained

high

Source: Duane Sprague, Bain & Co., Coopers & Lybrand, McGraw-Hill, The American Business Press, Strategic Planning Institute/Cahners Publishing, Fortune Magazine

75% will cut staff, advertising, customer service, 75% will cut staff, advertising, customer service, R&D, product launches & acquisitions R&D, product launches & acquisitions

Source: Duane Sprague, Bain & Co., Coopers & Lybrand, McGraw-Hill, The American Business Press, Strategic Planning Institute/Cahners Publishing, Fortune Magazine

75%Less than 30% of these will

ever regain the market share and profitability lost during

the recession

Based on the performance of 600 industrial companies in USA for 6 years from 1980 to 1985

““3 years after the 81-82 recession, sales of 3 years after the 81-82 recession, sales of companies that were aggressive recession companies that were aggressive recession

advertisers had risen 256% over those that didn't advertisers had risen 256% over those that didn't keep up their advertising”keep up their advertising”

Sales Indices 1980-1985 (1980= baseline of 100). ‘81 and ‘82 were recession years© 2009 Larry H. Miller Communications Corporation / McGraw Hill

The evidence from the U.S. is clearThe evidence from the U.S. is clear

Source: IPA Business Effects Paper (UK) Data collected on 1000 businesses during periods of market downturn and subsequent market recovery

……and from the UKand from the UK

33

Understand how Understand how much to spendmuch to spend

Share of voice has a direct impact on Share of voice has a direct impact on market share market share

ForFor every 10 points that SOV exceeds SOM you can every 10 points that SOV exceeds SOM you can expect to gain 1 point of market share per annumexpect to gain 1 point of market share per annum

Source: IPA Datamine (UK)

The opposite is also true – a brand can The opposite is also true – a brand can expect to lose 1 point of market share for expect to lose 1 point of market share for

every 10 points it allows its SOV to fall below every 10 points it allows its SOV to fall below its SOMits SOM

““The short-term result of cutting expenditure looks The short-term result of cutting expenditure looks attractive for a short while but hides the attractive for a short while but hides the

considerable damage being done to longer-term considerable damage being done to longer-term profitabilityprofitability““

Drawn from analysis of 880 case studies from the IPA Databank

Let’s look at an example where panic set in & Let’s look at an example where panic set in & the budget was cut completely the budget was cut completely

Source: IPA Datamine (UK)

Year 2007 2008 2009 2010

Brand X Spend £7.9m £0m £0m

Competitor Spend £117m £120m £123m

Market Spend £125m £120m £123m

Share of Voice (SOV) 6.3% 0% 0%

Excess SOV -0.7% -7.0% -6.3%

Share Growth -0.07% -0.7% -0.6%

Share 7.1% 7.0% 6.3% 5.7%

The loss in share slashes profits over timeThe loss in share slashes profits over time

Year 2007 2008 2009 2010

Brand X Sales £317m £314m £282m £269m

Fixed Costs (ex mktg) £68m £70m £72m £74m

Variable Costs (ex mktg) £202m £200m £180m £171m

Mktg Spend £7.9m 0 0 £7.9m

Total Costs £278m £270m £251m £253m

Operating Profit £39m £44m £31m £16m

Source: IPA Datamine (UK)

Even with a more moderate 20% cut, Even with a more moderate 20% cut, the profit is hit hard the profit is hit hard

Year 2007 2008 2009 2010

Brand X Sales £317m £314m £306m £313m

Fixed Costs (ex mktg) £68m £70m £72m £74m

Variable Costs (ex mktg) £202m £200m £195m £200m

Mktg Spend £7.9m £6.3m £6.3m £7.9m

Total Costs £278m £276m £273m £281m

Operating Profit £39m £38m £33m £32m

Source: IPA Datamine (UK)

44

Why do 75% of Why do 75% of companies ignore the companies ignore the

evidence?evidence?

The answer.....The answer.....human naturehuman nature

Many business leaders cut back on variable costs, including marketing, in order to meet the profit expectations of their shareholders and financial markets

The next 3 months

The next 3 years

““Businesses that maintain aggressive marketing Businesses that maintain aggressive marketing programmes during a recession, outperform programmes during a recession, outperform

companies that rely more on cost cutting companies that rely more on cost cutting measures”measures”

55

Government has a Government has a role to playrole to play

““Advertising fueled about 15% of growth in GDP Advertising fueled about 15% of growth in GDP for the major G20 economies over the past decade, for the major G20 economies over the past decade,

yet it only accounted for 2% of economic spend”yet it only accounted for 2% of economic spend”

WFA Findings

Advertising speeds up the

spread of innovation

Advertising is a multiplier of

economic growth

Advertising is essential for competition

Source: World Federation of Advertisers (France)

WFA study proved the positive impact of WFA study proved the positive impact of advertising on global economyadvertising on global economy

There is a strong correlation between There is a strong correlation between ad spend & household consumptionad spend & household consumption

Source: WFA, World Bank, Ad Barometer, WARC Averages for the period 1991 - 2000

....and GDP....and GDP

Source: WFA, Ad Barometer, WARC

““The Government should introduce a scheme The Government should introduce a scheme where advertisers receive a tax credit on where advertisers receive a tax credit on

incremental spend for one year”incremental spend for one year”

There is a precedent for this.A similar scheme was introduced in 2008 whereby companies received a tax credit of 25% on incremental R&D investment

Our viewOur view

66

Top Ten things to Top Ten things to rememberremember

Top ten things to rememberTop ten things to remember

1) Consider marketing spend as an investment and not an expenditure

2) Take a leadership position in the media that you use, the share of voice that you achieve and how you phase your activity

3) Have a consistent level of activity throughout the year

4) Take advantage of lower media costs

5) Gain a deep understanding of who your target consumer is

6) Have a specialist examine your website to ensure that it is optimised to improve its ranking in search engines

7) Look overseas for inspiration

8) Up-skill your team in idea generation techniques

9) Invest time in analysing the effectiveness of your marketing communications

10) Learn from the large retailers – they know the power of advertising

“There are only two things in a business that make money - innovation and marketing.

Everything else is cost.”

Peter Drucker