Transcript The Danger of Cutting Marketing - July 2012 (1)

The Danger of Cutting
Marketing
“I was asked what I
thought about the
recession. I thought
about it and decided not
to take part”
Sam Walton
Wal-Mart Founder
Don’t waste a
good recession
The market has fallen by
42%
Ad spend swings more dramatically than GDP
in recessions & upturns
Source: UK Treasury, ZenithOptimedia (Year-on-year % change in constant prices)
The correction this time is disproportionate
GDP Vs Ad spend since 2007
USA
EUROPE
Source: Govt statistics / Core Media 2007-2012
IRELAND
Time of great
opportunity
Brand count
is down
Cost of media
is down
The worst is over
Source: National Bureau of Economic Research (USA)
….and recessions are always followed by
expansions and prosperity
Source: National Bureau of Economic Research (USA)
Investing in a
recession works
“The rationale that a company can afford to
cutback in advertising because everybody else is
cutting back is fallacious. Rather than wait for
business to return to normal, executives should
cash in on the opportunity that rival companies
are creating for them”
The evidence is overwhelming
The actions taken during a
recession decide the future
growth or decline of a
company
25% of companies see an opportunity to expand
market 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,
R&D, product launches & acquisitions
75%
Less than 30% of these will
ever regain the market share
and profitability lost during
the recession
Source: Duane Sprague, Bain & Co., Coopers & Lybrand, McGraw-Hill, The American
Business Press, Strategic Planning Institute/Cahners Publishing, Fortune Magazine
“3 years after the 81-82 recession, sales of
companies that were aggressive recession
advertisers had risen 256% over those that didn't
keep up their advertising”
Based on the performance of 600 industrial companies in USA for 6 years from 1980 to 1985
The evidence from the U.S. is clear
Sales Indices 1980-1985 (1980= baseline of 100). ‘81 and ‘82 were recession years
© 2009 Larry H. Miller Communications Corporation / McGraw Hill
…and from the UK
Source: IPA Business Effects Paper (UK)
Data collected on 1000 businesses during periods of market downturn and subsequent market recovery
Understand how
much to spend
Share of voice has a
direct impact on
market share
For every 10 points that SOV exceeds SOM you can
expect to gain 1 point of market share per annum
The opposite is also true – a brand can expect
to lose 1 point of market share for every 10
points it allows its SOV to fall below its SOM
Source: IPA Datamine (UK)
“The short-term result of cutting expenditure looks
attractive for a short while but hides the
considerable damage being done to longer-term
profitability“
Drawn from analysis of 880 case studies from the IPA Databank
Let’s look at an example where panic set in &
the budget was cut completely
Year
2007
2008
2009
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%
Source: IPA Datamine (UK)
2010
5.7%
The 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,
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)
Why do 75% of
companies ignore the
evidence?
The answer.....
human nature
The next 3
years
The next 3
months
Many business leaders cut back on variable costs, including marketing, in order to meet
the profit expectations of their shareholders and financial markets
“Businesses that maintain aggressive marketing
programmes during a recession, outperform
companies that rely more on cost cutting
measures”
Government has a
role to play
“Advertising fueled about 15% of growth in GDP for
the major G20 economies over the past decade, yet
it only accounted for 2% of economic spend”
WFA study proved the positive impact of
advertising on global economy
Advertising
speeds up the
spread of
innovation
Advertising is a
multiplier of
economic
growth
WFA Findings
Advertising is
essential for
competition
Source: World Federation of Advertisers (France)
There is a strong correlation between
ad spend & household consumption
Source: WFA, World Bank, Ad Barometer, WARC
Averages for the period 1991 - 2000
....and GDP
Source: WFA, Ad Barometer, WARC
Our view
“The Government should introduce a scheme
where advertisers receive a tax credit on
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
Top Ten things to
remember
Top 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