Francisco Havas Media Mpg

How to manage marketing budgets in economic crisis situation Managing communications: opportunities and threats in the current media environment Vilnius, 14th October 2008

Back to (other) recessions

Back to (other) recessions Source: google search

“ By any common-sense definition, we are in a recession.” Warren Buffett Source: NY Times, March 8, 2008 Back to (other) recessions

Source: WARC Online for UK market (*Constant price figures before 1988 are adjusted by the Retail Prices Index; from 1988 onwards by the Consumer Prices Index), Laura James, Aug.2008 Back to (other) recessions
The advertising sector has experienced at least one recession / growth slowdown in each of the last four decades

- “Cut the budget!” - “Reduce the number of agencies!” - “Call a pitch!” - “Ask everyone to take an automatic 15% reduction” With crisis comes opportunity It has long been established that those brands which continue to communicate their values in recessionary times receive long-term sales benefits. Cutting marketing spend in a recession delays eventual recovery. Crisis

What do we know about recessions?
Recessions tend to be short
Source: Havas Media US Recession Duration 1953-54 10 months 1957-58 8 months 1960-61 10 months 1969-70 11 months 1973-75 16 months 1980 6 months 1981-82 16 months 1990-91 8 months 2001 8 months Median 10 months
Recessions tend to be mild
Recession % Change Real Annual GDP 1953-54 -3.0% 1957-58 -3.5% 1960-61 -1.0% 1969-70 -1.1% 1973-75 -4.3% 1980 -2.4% 1981-82 -3.4% 1990-91 -3.0% 2001 -1.4% Median -3.0%
Recessions are selective
Recessions impact some industries, products and regions of the country hard and bypass others entirely. Non-durables and services are least affected during recessions
Among the industries and products most affected are : automobiles, home furnishing, large appliances, consumer electronics, travel and airlines, home improvement
Relatively unaffected are: liquor and wine, tobacco, gambling, small appliances, packaged goods, restaurants

What’s known about other past recessions? Source: Havas Media US A strong marketing program enables a firm to solidify its customer base, take business away from less aggressive competitors, and position itself for futures growth during the recovery. Cooper’s & Lybrand/ Business Science Intnal. 1990-1991 Used PIMS (Profit Impact of Marketing Strategies) database of consumer businesses: Businesses that increased media investments (between +28% to +80%) during a recession period “gained an average of 1.5 points of market share.” Cahner’s Publishing / Strategic Plann. Institute (SPI) not specified periods Companies that maintained or increased advertising averaged sales growth of about 275% over the next 5 years. Conversely, those companies that eliminated or decreased advertising averaged sales growth of about 19% over the next 5 years McGraw-Hill Research Lab. Advertising Performance 1981-1982 Companies that did not cut advertising expenditure during the recession experienced higher sales and net income than those companies that cut in either or both recession years ABP/Meldrum & Fewsmith 1974-1975 Sales and profits can be maintained and increased in recession years and in the years immediately following by those who are willing to maintain an aggressive marketing posture ABP/Meldrum & Fewsmith 1970 Sales and profits dropped off at companies that cut back on advertising Buchen Advertising 1949, 1954, 1958, 1961 The biggest sales increases throughout the period were rung up by companies that advertised the most Roland S. Vaile (HBR) 1923 Conclusions Author Recession

Companies that increase their advertising investment in times of recession emerge clearly reinforced (Spain) Sources: Infoadex, Havas Media 11,2% 65,4 % Pre-recession 98-00 28,0% 12,0% 60,0% Recession 01-03 Post-recession 04-06 32,0% 12,3% 55,7% 23,5% 100% % Ad investment in the automobile market pre, during and post recession Spain, 1998 – 2007 Losers Neutrals Winners 2 10,9% 66,3 % 26,8% 10,1% 63,1% 31,9% 11,2% 56,9% 22,9% 100% Share of market pre, during and post recession Spain, 1998 – 2007 -9,4% +9,0% Pre-recession 98-00 Recession 01-03 Post-recession 04-06

The risk of reducing SOV
Data from Millward Brown show a strong correlation between a brand’s market share and its level of “bonding” with consumers.
Achieving high levels of brand image and brand usage can help brands “bond” with consumers.
If a brand cuts its advertising budget relative to its competitors, it is at higher risk of losing market share
Source: WARC (Stephen Whiteside) / Millward Brown, April 2008

Winning business strategies
Malik PIMS analysed data from 1,000 business units in developed economies during previous economic downturns and the first two years of following recovery from both pre- and post-2000 to identify the best business strategies.
Its assessment of their return on capital employed (ROCE) and changes in market share during the first 2 years of recovery found that while maintaining or reducing fixed costs was beneficial during times of economic uncertainty, an increase in investment in marketing spending was generally linked with business success in the long term.
Downturns provide an opportunity for a brand to improve its market share as media costs and competitor spending can both decline, allowing advertisers who do increase their spend to build customer preference and help maintain a product’s relative price.
Source: WARC (Stephen Whiteside) / Malik PIMS, April 2008

1990 and 1991 were difficult years for the frozen recipe meals market . As non-essential foods, they suffered in the recession ; sales in 1991 were 8% down on 1989.
Over this period, Findus managed to grow its frozen lasagne business by 180%. It took clear brand leadership, having been 12th brand in 1989, 6th in 1990 and number 1 in 1991, in the 'league table' of all frozen recipe meals.
Much of the growth derived from distribution gains, but the driving force behind the brand was a TV commercial for lasagne, 'Our Billy'. This film dramatised the benefits of Findus Lasagne in meeting the demands of today's fragmented households through a difficult teenage boy whose demeanour is transformed after enjoying the product.
Findus Lasagne (UK): behind the recession Source: IPA (Paul Hackett), 1992, Nielsen

The commercial ran in five national bursts over 1990 and 1991. The results were dramatic, rate of sale per point of distribution nearly tripled, and market share more than doubled.
Findus maintained a large price premium over retailer brand lasagnes
Findus Lasagne grew dramatically in 1989-1991, following a single-minded sales drive and TV advertising campaign. It was the only manufacturer of standard recipe meals to come through the recession smiling.
Findus Lasagne (UK): behind the recession Source: IPA (Paul Hackett), 1992

Findus Lasagne (UK): behind the recession Source: Google search, YouTube
An econometric model was developed to explain Findus Lasagne's volume share of total frozen lasagne. The model found that a 1% increase in SOV will increase Findus Lasagne's volume share by 0.075%.

Consumers

Consumers’ values change during recession: focus on VFM, cost, and promotion … really?
Byron Sharp (Ehrenberg-Bass Institute), about ‘how will consumer spending change?’:
One of the big lessons we’ve learnt from behavioural data (category buying, brand buying, and media consumption) is how habitual consumers are. Underneath the day-to-day randomness lie rather consistent patterns. This suggests that even if consumers want to, they will find it difficult to change behaviour .
Even in a severe recession, the economy is much the same size as it was in previous years. Many consumers have just as much disposable income as ever .
Consumers will find it easier to make changes in non-regular behaviours than to modify their day-to-day lives substantially. The easiest way may be simply to postpone expensive discretionary purchases like overseas holidays, new cars, and large screen TVs. Even these categories do not collapse in recessions.
Rising prices , due to energy and other raw material cost rises (such as more expensive food ingredients), are unlikely to affect demand for everyday consumer goods and services.
The 1970s showed no flight to private label brands either in spite of supermarkets deliberately introducing some budget generic brands to cater for the hard times.
Source: WARC (Byron Sharp, Ehrenberg-Bass Institute), Sept.2008

Crisis does not affect everybody in the same way Source: adn, 6 October 2008 Lipstick indicator (Leonard Lauder): consumers tend to buy more beauty products in recession periods Sales growth in: - make-up, lipstick - lingerie - gym (inscriptions) - videogames - clothes arrangem - language schools

33% of consumers choose PLs to reduce expenses, 5 points up vs. 2005
Crisis force consumers to change their shopping habits
FMCG +6% (in value, Jan-Aug’08 vs. Jan-Aug’07, +1.5% demand, +4.4% prices increase),
Pharmaceuticals +6%
Cell phones +9%
Tobacco +4%
Impulsive purchase +13%
Automobile -4%
White goods (household appliances) -12%
Horeca -1%,
Leisure -10%
p3m: Books -1%, videogames -5%, movies -21%
“ To eat … we won't stop to eat, but there are purchases that can be delayed” (PJ Domínguez, Nielsen Business)
47% of consumers appeal to the promotions made by the trade
40% change to products with better value for money
Sources: La Vanguardia, Nielsen, Reuters

As a consequence of the crisis, do you buy more private levels? 61% Yes Source: La Vanguardia.es

Consumers are redirecting their spending power to retailers that they perceive as offering value Average same store sales for the last 3 months (Dec.2007, Jan.2008, Feb.2008) shows that while most of the retailers suffer heavy drops, big box retailers are still doing well Same store sales – Dec 07 thru Feb 08 -15.00% -10.00% -5.00% 0.00% 5.00% Circuit City (Dec.) Limited Brands Kohl’s Lowe’s Home Depot Nordstrom JC Penney GAP Sears (4Q) Macy’s Target Best Buy (Dec.) Wal-Mart TJX Wal-Mart. “ Save money. Live better”

Source: AdAge.com Walking in the shoes of your consumers is the key to keeping products moving during a recession, said Kraft Foods CMO Mary Beth West. Speaking at Ad Age's annual Women to Watch luncheon, the marketing chief at America's largest food company emphasized the importance of understanding an economic downturn from the point of view of cash-strapped shoppers. And she explained how Kraft is using that data to adjust its marketing strategies. Kraft Foods CMO: Recession Marketing Tips
Experience the tight economy (recession) through the eyes of our consumers first hand. Listening to them in focus groups is the 1st mile.
2nd mile would be calculating weekly for your target consumer and your brand/business, their income and subtract their expenses (mortgage, …). Ask then, if I were that consumer, can I live with the remaining $?
How can you re-define what your brand stands for? Once re-defined the value proposition, spend (money) into it!

Although the Internet will still be the segment of highest growth… the TV industry will continue leading the media market worldwide Sources: PWC “Global Entertainment and Media Outlook 2007-2011” 1 Global Advertising Market ($US billions ) CAGR 2007-11 : 5,4 % 427 479 531 37% 7% 25% 6% 14% 12% 37% 8% 27% 6% 9% 13% 37% 7% 26% 6% 12% 12% CAGR% 2007-11 2,7% 18,3% 3,8% 6,5% 3,7% 5,1% High growth segments Mid-Low growth segments

More media options Print Internet TV (analog) Digital TV Radio (analog) Digital Radio Cinema Outdoor Wireless Games 0 10 20 30 40 50 60 70 80 90 100 1900 1920 1940 1960 1980 2000 2020 Media Consumption (hours, Average Top 20 global markets) Fragmentation of Carriers

Media are in constant evolution

US scriptwriters on strike…

Less leisure time spent outside home … watch more TV at home! Source: La Vanguardia

Marketing in slow economy (US)
Ad Spending % Change 1Q 2007 vs. 1Q 2008
Internet + 8.5 %
TV + 1.7 %
Magazine + 0.8 %
Radio - 4.5 %
Newspaper - 5.2 %
Source: TNS Media Intelligence

Source: WARC Online Exclusive, Laura James / Nielsen (Constant prices), Aug.2008 Which media will be hit by the recession (UK)?

Will Marketing Execs cut ad spending during recession?

Epsilon: Economy shrinking 65% of CMO ad budgets, money shifts towards digital / interactive marketing
Source: Epsilon CMO Survey (175 US CMOs and marketing executives of some of the largest brands, Aug.2008)
“ A tough economic period is precisely the time when marketing plays a key role”
94% agree

“ How does your firm determine target market for each channel?”
50% use data-driven marketing techniques
31% use sophisticated modeling tools to analyze existing customer data (behavioral, preference and demographic)
19% analyse past purchase behavior
28% make “rough estimates based on past experience
Most popular emerging channels:
Social computing (WOM, social networking sites, viral advertising, ...)
42% interested in adding it to their marketing mix
Blogs
35% desired to use them and 19% already using them
Podcasting
31% interested in adding it to their marketing mix and 18% already having done so.
Mobile Devices (phones/PDAs)
29% interested in and 22% have added them to their marketing mix
“ In this economic climate, marketing executives are seeking accountability and measurable results ” (Mike Iaccarino, CEO of Epsilon)
Source: Epsilon CMO Survey (175 US CMOs and marketing executives of some of the largest brands, Aug.2008)

Interactive marketers expect to hold steady or increase spend during a recession Source: Forrester (“Interactive Marketers Are Bullish In A Recession”, April 2008)

Social media expects to see the greatest increase in a recession Source: Forrester (“Interactive Marketers Are Bullish In A Recession”, April 2008)

Spending plan will vary by industry Source: Forrester (“Interactive Marketers Are Bullish In A Recession”, April 2008)

Golden formula to deal in recession times

complex analysis with simple outputs Source: Havas Media

Our approach Uncompromising pursuit of value & advantage in a ever changing world Acquisition and retention of high value consumers Cost per acquisition and cost of retention = + -

Not convinced yet to not cut Marketing budgets? Then let’s see what Joe wrote two months ago in Source: Joe Abruzzo (MPG US )

“ Welcome to the age of austerity” or “How to cut media spending without hurting sales”
There are proven strategies to help minimize the sales impact of media spending cuts.
Target prospects who are most likely to give you their business
Plans that make use of demographically defined targets tend to deliver wide audiences including non-users of the advertised brand and individuals having limited or no involvement with the product category
More effective is behavioural targeting, based on purchase or usage behaviour. Focus TV-program selection on shows with audiences having the highest composition of the behavioral target, e.g. medium-to-heavy category users
Focus media delivery on geographical markets that matter most
Many marketers rely entirely on the "low cost" CPM efficiencies of national media. “All-national" plans tend to under-deliver to high-priority markets and over-deliver to low-priority markets… the media weight isn't where you want it, but you are getting a terrific deal!
Rebalance media spending to benefit high-priority markets: 1 st ) take advantage of natural skews in national media delivery; identify national media vehicles that skew to desirable geographical areas. 2 nd ) fund increased delivery to high-priority markets through reductions in national media spending
Source: Joe Abruzzo (MPG US )

“ Welcome to the age of austerity” or “How to cut media spending without hurting sales”
Avoid excessive exposure frequency
Maintaining weekly reach at minimum effective exposure frequency levels helps to avoid excessive frequency and over-spending in general
The return on your 2nd exposure will provide a greater ROI than the 3rd. The return on your 3rd exposure will provide a greater ROI than the 4th. And so on…
Spend when the return will be greatest
Many businesses continue to "flight" media schedules
In the absence of seasonal variation in demand, with customers constantly moving in and out of markets, media math suggests that, for the majority of brands, continuity beats a flighted schedule
Avoid over-spending in any one medium
There is no one optimal media mix, as it will vary by overall spending level
Take a "reverse" zero-based approach to cutting spending. Continuously evaluate the impact of the next reduction. Where will the impact of the next $ reduction be minimized? Should the next cut come from TV or the internet?
Source: Joe Abruzzo (MPG US )

Proactive tactics that will optimize brand performance during bad times
Concentrate on core values : reinforce brand values by demonstrating strong consistency of message.
Increase spending and SOV clearly validates the connection between increased spending and increased market share.
Concentrate on your loyal customers and, if need be, invest in database marketing/CRM as a means of developing and maintaining the communication.
Start sponsoring : events, cross-promotions, cause marketing… anywhere the brand message can be spread.
Command premium price ; strong brands can do it. The consumer rationale is in how you explain the value-message of the brand.
Introduce new products : the advantage of being “first in” with an innovation and entering a market with weakened competition may offset or outweigh the possibly longer period of start-up investment in waiting until good times return.
Negotiate media deals : as media prices soften, it becomes a buyer’s market. At that point, lock in on long-term deals. Take advantage of the weakened market to gain exponential value from the media buy.
Source: “Advertising in a recession” by the American Association of Advertising Agencies

Is it still possible to plan, develop, execute and measure communication campaigns with small budgets, with very small budgets, with 0 € … and succeed?

Source: Havas Media Nike Brazilian Ping-Pong: did he really did that? Word of “Mouse”?

Source: Havas Media BGH Quick Chef: have a date with one of our chefs

Source: Havas Media Volkswagen EOS: A bluetooth engagement

Source: Havas Media IKEA: How to break its “low price - low quality” perception

Source: Havas Media Emirates: Amplifying brand promise

Source: Havas Media Lavazza: Re-igniting its “first class” brand prestige and the fame of its calendar

Source: Havas Media Orange: capturing business travelers in receptive moments

Just to give you some hints…

Top tips for surviving a slowdown
Plan proactively : have plans, and back-up plans, ready for any eventuality
Manage the management : present highly visual demonstrations of your ROI
Concentrate on customers : focus on retaining and growing existing customers rather than chasing new ones
Collect data sensibly : focus on collecting actionable information
Understand your customers : don't assume your previous customer insight holds true
Analyse and segment : new behaviours will emerge - be proactive in working these out and responding to them
Adapt your products and services : assess the environment and tailor your propositions for the environment we're in
Integrate your channels : close the loop in your marketing operation
Exploit digital channels : be smart in moving people online, it might be quick, but it needs very careful consideration
Use targeted email : be judicious - make sure you don't burn your bridges with a rush to a 'cheaper' channel
Get the word out : get the jungle drums beating in the online communities
Apply the science : prove it, prove it, and then prove it again

Five points for adverting during a recession
Advertising during a recession pays off, as the data proves.
Advertising during a recession provides a unique opportunity to make your firm more competitive
Sales momentum and brand recognition can be lost if advertising stops during a recession
You can change the emphasis of advertising executions during a recession - - a change in strategy may not be required.
New opportunities can result from a recession: a) new products, b) new customers

To succeed in a recession, marketers must…
Understand how this recession affects buying
Last time around, the recession was kicked off by insane levels of spending by dot-coms and a terrorist attack; together they blasted a huge hole in interactive marketing. But this recession, generated by a housing bubble and credit crunch, affects fewer middle-to-high income consumers. Use of the Internet and social applications continues to grow, creating an opportunity. Marketers can use interactive channels to engage and convert worried consumers as they research products and look for personal recommendations.
Measure more than awareness
Interactive channels generate masses of data that you can use to make the case for their effectiveness. How many conversions does your email generate, and how can you increase those conversions? How many consumers does your social networking site touch, and how much does their likelihood to buy increase? Marketers should build these types of metrics, closer to sales and consideration than awareness, into each application they build.
Build for the long term
Campaign-based advertising, like banner ads, fared worse in our survey than social applications and email. But an email list is an asset — and so is a customer community, an ongoing blog, or a presence on Facebook. Marketers should assess the value of these assets based on their long-term growth and likelihood to generate steady purchasers. Measure success using financial and investment metrics more suited to building assets than generating awareness and sales in a given month or quarter.
Source: Forrester (“Interactive Marketers Are Bullish In A Recession”, April 2008)

Checklist for Developing Recession Marketing Plans
PHASE I: ASSESSMENT OF EXTERNAL FACTORS
Timing: When is the recession likely to begin and end? How long will the recovery take?
Industry Impact: Does the industry/business typically lead or lag the recessionary cycles? In past recessions, how deeply have the industry and the company been affected relative to other industries and competitors?
Technology: Historically, what is the industry’s commitment to technological developments? Might the company or its competitors gain a long-term advantage by emphasizing R & D during recessionary periods?
Competition: How have major competitors reacted to previous economic downturns? How will they most likely react to future recessions, given their strengths and weaknesses? How can the firm best respond to likely actions of competitors?
Customers: How are customers likely to change their purchasing behavior during economic downturns? To what extent are they likely to move down the consumption chain, postpone purchases, negotiate for concessions, or seek less expensive suppliers?
Market Segments: How is demand likely to vary across market segments? For example, which segments are more [or less] likely to be price sensitive or to opt for product offerings with fewer bells and whistles? Ultimately, are some segments apt to be more profitable during recessions than are other segments?
Value: How do customers define value in the industry? In what ways may value be enhanced without increasing costs or jeopardizing the brand / company’s image?
Source: WARC (Phillips W. Goodell, Charles L. Martin)

PHASE II: ASSESSMENT OF INTERNAL FACTORS
Financial Resources: What are the firms financial strengths and weaknesses, such as profit margins, cash flow, access to capital, and cost structure? How might these be managed more effectively to minimize the impact of a recession? How might financial resources be invested to leverage the firms future market position [e.g., in advertising to build market share while competitors slash their advertising budgets]?
Human Resources: How critical are employees to the firms success? Do their skills [or lack thereof] enhance the attractiveness of some strategic alternatives relative to other alternatives? What is the firms commitment to the work force? How difficult would it be to expand or contract the work force as market demand for the firms output fluctuates?
Physical Resources: How difficult would it be to expand or contract the companys operations, if such is necessary? For example, if a strategy such as build market share is selected, will the firms plant and equipment be adequate to fill the demand both during and after the recession?
Marketing Strengths and Weaknesses: How strong is the brand or product lines customer franchise? What are the company’s image and reputation among customers? How does market share compare with that of competitors? How may these strengths be leveraged and weaknesses addressed before and during a recession?

PHASE III: STRATEGY DETERMINATION
Stance: Given the above considerations and the firms objectives, will the business take primarily an offensive stance to exploit opportunities and take advantage of competitors vulnerability, or largely a defensive stance in an effort to survive?
Offensive Options: If an offensive stance is selected, which potential options present the greatest opportunity: build market share, innovate, appeal to additional market segments, diversify product offerings, or enhance reputation for quality or service?
Defensive Options: If a defensive stance is chosen, which potential options will best satisfy the firms short-term survival goals: price cutting to maintain volume or cost cutting to maintain margins?
PHASE IV: REVIEW AND CONTROL
Relationships: How are vital business relationships with customers, distributors, employees, suppliers, … likely to change during economic downturns? Are there mechanisms in place to monitor these changes, as well as an action plan to mend weakened relationships?
Damage Control: Have implemented recession marketing strategies met short-term objectives? If not, how might the plans be modified?
Position for Future: Have implemented recession marketing plans met long-term objectives positioning the company for growth and prosperity during the post-recession era? If not, what modifications of the plans are most feasible?
Responsibility: Who is responsible for monitoring the implementation and success of the company’s recession marketing plan?

The pessimist sees difficulty in every opportunity. The optimist sees opportunity in every difficulty. Crisis…? What crisis?

THANK YOU

Contact "NOTICE: Proprietary and Confidential” All the content of this document (text, figures, lists, financial information, graphics, design, diagrams, as well as other graphic elements and/or audio and videos), whichever is the format used (paper or electronic), is confidential and proprietary to Media Planning Group (MPG). This document includes ideas and information based on the experience, know-how, intellectual/creative effort of Media Planning Group (MPG). For these reasons, this material shall not be used, reproduced, copied, disclosed, transmitted, transformed, commercialised or communicated, in whole or in part, neither to third parties nor to the public, without the express and written consent of Media Planning Group (MPG). Media Planning Group © All rights reserved Francisco Serra, VP Global Catalyst HAVAS MEDIA [email_address]

Francisco Havas Media Mpg

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