Cutting Spending Hurts Brands Long Term
Posted: June 7, 2009 at 5:54 pmBATAVIA, Ohio (AdAge.com) — Household and personal care might once have seemed recession-resistant, but last year U.S.-based personal-care marketers actually cut ad spending faster than the general market. That could be potentially damaging for their brands, according to one study that shows that marketers that cut spending during a downturn lost share to private labels — share they didn’t regain.
Smaller, Nonpremium Brands at Risk?
According to TNS Media Intelligence data analyzed by Sanford C. Bernstein last month, eight U.S.-based household and personal-care marketers covered by the company cut measured media spending an average of 8.8%, compared with a 5% cut among advertisers overall. The fourth quarter, in particular, was the culprit, according to separate research by Goldman Sachs based on TNS data, which found that U.S.-based household, personal-care and beauty marketers slashed spending 14% on average in the quarter, reversing a 3% year-on-year increase in the third quarter.
The reasons behind this surprising turn of events vary, but the implications are potentially dire. Research presented by University of North Carolina marketing professor Jan-Benedict E.M. Steenkamp in a Bernstein conference call last month indicates that companies that maintained or hiked ad spending generally, and TV spending in particular, lost limited share to private labels in recessions between 1985 and 2005.
Companies and brands that went with the flow of the boom-bust cycle by cutting ad spending — as data suggest household and personal-care players did last year — tended to lose more share to private labels both immediately and longer term.
Companies whose ad spending didn’t vary according to economic cycles — based on an analysis of Ad Age data on global ad spending — also tended to increase their stock prices an average of 1.3 percentage points annually ahead of others from 1986 to 2006, said Mr. Steenkamp, who analyzed global results of 26 marketers across multiple industries.
‘Takes courage’
“Companies and categories that are able to turn a recession into an advantage are [those] going against economic trends,” Mr. Steenkamp said. “Ultimately, it takes courage. But it pays off in share and in terms of the stock market.”
About half the share lost to private labels in past recessions has never been recovered, he said.
A variety of factors likely played into last year’s spending retreat by package-goods marketers, and some contend the U.S. measured-media numbers don’t tell the whole story.
The pullback by U.S.-based marketers in the fourth quarter was likely prompted in part by the sudden strengthening of the dollar, which drained earnings from overseas almost overnight and spurred cuts in one of the only budgets that can be cut quickly: marketing. By contrast L’Oréal, a French company for which a stronger dollar boosted U.S. earnings in the fourth quarter, hiked media spending in the quarter.
TNS data showed only a 3.6% spending decline for personal-care marketers overall last year, according to an Information Resources Inc. presentation in March, vs. the 8.8% decline for the U.S.-based group covered by Bernstein. That suggests spending by foreign multinationals lifted results pulled down by U.S. companies.
The Goldman report showed some signs of strategic spending hikes in the fourth quarter. Procter & Gamble Co. — and, to a lesser extent, Kimberly-Clark Corp. — upped measured spending in paper categories facing the most erosion from private labels. And P&G hiked spending on laundry detergent, particularly on Gain, a midtier value brand that can benefit from trade-down but also is more vulnerable to private labels.
COMMENTS:
By daphne | london April 6, 2009 11:45:21 am:
There is also a truth to the proverb that you must spend money to make money. By cutting back, you send a message that your business is hurting and that there is reason to be afraid. That belief creates a self-fulfilling prophesy. However a captain steers, he takes his whole ship with him.
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By paynetaylor | ANDOVER, MA April 6, 2009 10:05:41 am:
What part of building brand equity while others are sticking their heads in the sand, don’t marketers understand? Media is being reduce to belly fat ads, so renting space only gets more affordable. Competitive presence is lessening, so it’s easier to cut through the clutter.
There are only two real obstacles to building brand equity in a down market: actual lack of cash (hard to imagine even in the current downturn from the likes of P&G), or plain, old-fashioned fear.
If there ever was a brand opportunity to take advantage of, this is it. But, unfortunately, a majority of brands seem to prefer ducking for cover and waiting for the economic clouds to break over a sunnier landscape. They don’t seem to know, or want to acknowledge, what a lot of fishermen have always known; rain brings out the fish. You just have to be willing to brave the wet and the cold to go reel them in.