October 2000
                                                                                      www.coneq.com




     ...
ADVERTISING DURING A RECESSION OR EXPANSION




       Marketing to your
       audience is fundamentally
       simple, i...
Business-to-Business Advertising
When Your Market is in a Recession or Expansion Period
By Susan Mulcahy




I
      n our...
ADVERTISING DURING A RECESSION OR EXPANSION




                                            Every analyst is being asked, ...
How Average Business ROI is Affected by Market Conditions
                                                                ...
ADVERTISING DURING A RECESSION OR EXPANSION




          Recession periods hit us hardest when we don’t
          manage ...
Average Revenues Spent on All Marketing
During Various Business Cycles
                                                   ...
ADVERTISING DURING A RECESSION OR EXPANSION




                                 As competition increases in all
         ...
Average Business Awareness and Preference Relationship
                 100

                 90

                 80

   ...
ADVERTISING DURING A RECESSION OR EXPANSION




     When creating marketing messages, think like
     the customer. The o...
Average Awareness Levels of Businesses
During Business Cycles (Based on 50% Awareness During Normal Cycle)
               ...
Cahners Business Information, Cahners Research, October 2001
         275 Washington Street, Newton, MA 02458
            ...
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Cahners B2 B Recession Advertising

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Cahners B2 B Recession Advertising

  1. 1. October 2000 www.coneq.com Exclusive Test! Finding the Right Backreamer...80 ® INFORMATION AND IDEAS FOR MANAGING EQUIPMENT AND TRUCKS The Heavies Of 2001 Our model-by-model analysis of the construction truck market...64 Paying More for Diesel May Cost You Less...53 t! en 25 Trailers Meet Heavy lem 00 Hauling Challenges...92 pp Su 20 ial T Periodical Rent the Perfect Work ec Sp G H Platform for Your Job...88 I L Sponsored by: A Study of more than 23,000 Businesses Prepared and conducted by: Cahners Research
  2. 2. ADVERTISING DURING A RECESSION OR EXPANSION Marketing to your audience is fundamentally simple, it’s all about getting the right message, to the right person, at the right time — it’s the execution of that goal that’s the challenge. Expansion and recession periods make marketing 2 difficult and complex, but understanding the impact of these business cycles is critical to understanding how to be an effective marketer.
  3. 3. Business-to-Business Advertising When Your Market is in a Recession or Expansion Period By Susan Mulcahy I n our highly competitive business environments, we are all trying to meet the challenges and opportunities set forth by our customers and at the same time, obtain our revenue goals. This year, many businesses have faced tough business conditions and declining profits. Shrinking revenues and sluggish buying habits have forced businesses to make tough decisions to cut jobs and budgets all across their organizations. Often times these cuts are primarily made in marketing and sales, which is actually one of the least effective strategies a company can implement. This report demonstrates various business cycles in our history and shows the relationship of marketing efforts to ROI, awareness and preference levels. To understand periodic business behavior it is necessary to understand the definition of “recession” and “expansion”. While some businesses defy convention and are counter-cyclical to normal business, most companies experience periods of expansion and recession. When your business is growing at a slower rate than the long term trend of the market you serve, the market is said to be in a “recession”. When businesses grow at a faster rate then long-term trend, we consider that the market is in “expansion” mode. Growth rates that are within five-percent of the long-term trend of the market you serve are said to be “normal” business periods. As the markets we serve become more global and connected to each other, the impact of these “recession”and “expansion” periods have wider implications on economies throughout the world. By taking a closer look and analyzing these periods, we can deter- mine what type of marketing strategies produce what kind of results. Methodology: The sample for this research was selected from the Cahners database of businesses. More than 88,000 businesses were selected for this research. Results are based on the responses of 23,341 businesses who participated in this survey and had non-zero media advertising expenditures. The businesses all described themselves as one of the following; building/construction, communications, electronics, entertainment, food, manufacturing, packaging, printing, publishing, retail and/or science. Cahners Research conducted this survey from July-September of 2001. For more information about this study, please contact Susan Mulcahy, Vice-President of Research, Cahners Business Information at s.mulcahy@cahners.com or visit www.cahnerscarr.com CARR Reports & Technical Notes: The Cahners Advertising Research Reports are a continuing series of media research reports 3 that study business-to-business marketing and trends. This study is based on a 1982 report, entitled, “Media Advertising When Your Market is in a Recession,” which was conducted by Cahners Research and the Strategic Planning Institute (PIMS). This report has been updated to include additional industries, advertising mediums, and correlation between awareness and preference levels. For more information see www.cahnerscarr.com. The base size for this study was 23,341 businesses in North America and the data in this report is accurate within a 96% confidence level.
  4. 4. ADVERTISING DURING A RECESSION OR EXPANSION Every analyst is being asked, when will the economy turn around, when will we pull out of this recession period? There’s only two ways out of a recession, spend your way out of it or innovate your way out of it, and believe me, this one will take some of both. 4
  5. 5. How Average Business ROI is Affected by Market Conditions Using the Cahners database, we see the 29% impact of several economic periods. This 26% chart shows the impact of ROI during dif- ferent stages of various business cycles, 22% including normal, recession, and expan- sion periods. During a recession, businesses typically experience on average a 4% lower rate of return relative to normal times. Expansion times tend to generate a higher level of profits than normal periods but do not increase exponentially versus a recession as might be expected. This is because it is Recession Normal Expansion increasingly more difficult to gain market share during expansion periods. Average Return on Investment (%) How the Average Business Market Share is Affected by Market Conditions Increased market share in a recession happens due to smaller businesses 0.75 and major competitors decreasing their marketing budgets. Thus, normal to increased marketing efforts in a recession have a higher return on share than they would in normal or expansion business cycles. 0.35 Many businesses erroneously believe that others are being hit as severely by 0.15 market recessions and lows, and blame their loss of sales on the severity of the downturn. These companies do not realize that their Recession Normal Expansion 5 market share and preference is eroded from these cycles and actually costs Average Point Change in Market Share them more when business returns to a normal or expansion period. During expansion cycles, some businesses have difficulty meeting the growing demands of the market and their customers. This allows for a more competitive landscape and less overall profit on goods and services during these up-turns. Subsequently, in our study we do not see the share growth increase as high as when in a recession cycle.
  6. 6. ADVERTISING DURING A RECESSION OR EXPANSION Recession periods hit us hardest when we don’t manage our businesses well in expansion periods. Many companies just take a simple approach to down-cycles by cutting costs and hoping for the best. Hope is not a viable strategy over any business cycle and costs-cuts 6 need to be analyzed over specific business models so they can have sustained value.
  7. 7. Average Revenues Spent on All Marketing During Various Business Cycles Our study of businesses reveals that most 13% companies do the opposite of what they need to do during recession periods. Since market share and ROI decrease 11% more substantially during a recession, marketing dollars that decrease on aver- age 4% during down-cycles have a much larger effect on brand awareness and 7% preference levels. When we investigate expansion periods, an the average business increases their marketing budget 2% for a slight increase in ROI (on average 2%-4%). To capitalize ROI during expansion cycles, businesses need to increase marketing spending at a higher percentage than they cut during a Recession Normal Expansion recession period to capitalize on their ROI. Average Percentage of Marketing Budget Expenditures Marketing strategies go across all mediums. Currently these percentages are Print Advertising 33% driven by a given company’s needs and Sales/Promotion Materials 22% objectives. Percentage fluctuations can also occur based on the market a specific Television 11% company serves. Trade Shows 10% Percentage decreases and/or increases 8% Web Advertising occur exponentially across all mediums at 6% Direct Mail (Print) roughly the same rate. No one medium is substantially cut more than another 3% Direct Mail (Email) during a recession. And no one area is 3% Seminars increased at a higher rate than others 2% Newsletters during an expansion period. 2% Billboards 7 2% Other
  8. 8. ADVERTISING DURING A RECESSION OR EXPANSION As competition increases in all business sectors, brand awareness and preference becomes imperative. We’re all searching for the secret on how to be the next Intel, Xerox and 8 Kleenex in terms of recognition.
  9. 9. Average Business Awareness and Preference Relationship 100 90 80 70 Preference % 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70 80 90 100 Awareness % The chart above plots the relationship between awareness and preference for all businesses. Each point represents a single company or companies with a given awareness and preference rating A line is drawn through these points to represent the trend of the data. The upward slope of the line to the right illustrates that the relationship is a positive one. That is, as aware- ness increases preference increases. Notice also that the line is curved in a slight u-shape. This implies that as higher levels of awareness are reached, the conversion to preference comes more quickly. For example, as awareness increases from 25% to 35%, preference increases from 10% to 15% (a 5% difference). As awareness increases from 35% to 45%, the leap in preference is greater, from 15% to 23% (a difference of 8%). The largest jump occurs between 85% and 95% awareness, where preference increases from 56% to 71% (a difference of 15%). Companies located near the lower end of the line should work toward increasing awareness to take advantage of the increasingly greater rate of conversion to preference that is likely to result. Companies at the upper end of the line must, at a minimum, maintain their current level of awareness to prevent a sharp decline in preference. 9
  10. 10. ADVERTISING DURING A RECESSION OR EXPANSION When creating marketing messages, think like the customer. The only messages that have impact are the ones that your audience(s) think are important. It’s really about understanding the customer, something a recession period allows us to do. In addition, expansion periods should not be the opportunity to exploit our position within our markets. Managing and assessing customer needs is important in all business cycles. 10
  11. 11. Average Awareness Levels of Businesses During Business Cycles (Based on 50% Awareness During Normal Cycle) High awareness levels are more important than ever due to continually 59% increasing competition. Recession 53% Expansion periods are unique opportunities to 48% increase awareness levels versus com- petitors. This chart shows the average 55% awareness rate when a company has 52% Normal 50% awareness in a normal cycle. 50%* Companies who have lower awareness rates can expect an even more 61% dramatic increase from these levels by increasing marketing initiatives. 54% Recession 52% * Based on average awareness level of 50% during a normal cycle No Change in Ad Budget Up to 20% Increase in Ad Budget 20% to 60% Increase in Ad Budget Average Revenues Spent on All Marketing Volatile business cycles in the past 5 14% years have had huge effects on 13% marketing budgets and dollars. 11% Average marketing percentages have 10% declined to a five year low in 2001, where a seven percent decline in 8% budgets will undoubtedly have a large impact on ROI, awareness and prefer- 6% ence levels. By 2005, businesses expect an all time high in what percentage of revenues will be spent on marketing efforts. This projection is assuming that the busi- ness cycle will be in an expansion or normal mode at that time. 1997 1998 1999 2000 2001 2005* 11 *Projected
  12. 12. Cahners Business Information, Cahners Research, October 2001 275 Washington Street, Newton, MA 02458 www.cahnerscarr.com

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