Taking on the downturn 23 rd April 2009 Presented by: Ian Clarke

Taking on the downturn 1. 2. 1. Consumer context 2. Best practice strategies “ I thought about it and decided not to take part.” – Sam Walton, founder of Wal-Mart US, on a recession

Taking on the downturn 1. 2. 1. Consumer context 2. Best practice strategies

How is the consumer reacting to the downturn?

Consumer confidence has dived across Europe -35 -30 -25 -20 -15 -10 -5 5 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 0 Source: European Commission/nVision

The same lack of confidence applies to employment prospects and major purchases -70 -60 -50 -40 -30 -20 -10 10 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 0 Source: European Commission/nVision Unemployment expectations Major purchases

Search volumes reflect recession worries Source: Google

Although consumers are still looking for ‘recovery’ good news Source: Google

Consumers want empathetic brands Do you agree or disagree with the following statements about brands in the current economic climate? Source: OMD Snapshots - Europe They should reduce quality, to keep costs down They should advertise less The tone of their advertising should reflect the economic climate It is important that they communicate to customers about their products/services, regardless of the economic climate They should keep their costs the same, but offer more value for money Agree strongly Agree slightly 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100 %

Do you agree or disagree with the following statements about brands in the current economic climate?

Non-essential purchases will be put on hold How do expect your spending to change in 2009, in the following areas? 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Housing - rent, mortgage, etc Household bills Public Transport Groceries Motoring Toiletries & cosmetics Alcohol in home Domestic Holidays Foreign holidays Savings/investments Alcohol out of home Clothing Home improvements Electronics Eating out Decrease Switch to cheaper Stays the same Not applicable Increase Source: OMD Snapshots - Europe

How do expect your spending to change in 2009, in the following areas?

Taking on the downturn 1. 2. 1. Consumer context 2. Best practice strategies

How to succeed in recessions… like these companies 1930 1931 1954 1957 1958 1973 1975 1976 1980 1981

Four key media communications strategies 1. 2. 3. 4. 1. Maintain share of investment 2. Focus investment 3. Evaluate the ‘value calculation’ 4. Advocate innovation

1. Maintain share of investment 1. SOURCE PERIOD RESULTS Roland Vaile 1923 Biggest sales increases from those who advertised most Buchen Advertising 1947 Companies cutting ad spend lost share and continued to lag behind after the recession ABP/Meldrun & Fewsmith 1970 Sales and profits maintained/increased in recession and years immediately following by those who maintain aggressive marketing posture McGraw-Hill 1981-82 B2B firms who maintained/increased ad spend achieved higher growth during and for 3 years after the recession TNS Sofres Jan 1991-Jan 1992 Top brands: ad spend +7%, share +1%. Bottom brands: ad spend -8%, share -1.6% PIMS 2002 Those maintaining/ increasing marketing during the recession saw share increases twice as big as those cutting marketing

Cutting SOI in recession will cost profit in recovery Source: Profit Impact Market Study by Harvard Business School *ROCE: Return On Capital Employed – a broad business measure of ROI 0 2 4 6 10 8 10% 9% 8% +/- ROCE* Cut SOI Maintain SOI Increase SOI Profitability during recession (%)

Cutting SOI in recession will cost profit in recovery Source: Profit Impact Market Study by Harvard Business School *ROCE: Return On Capital Employed – a broad business measure of ROI -4 -2 0 2 6 4 -0.8% 0.6% 4.3% +/- ROCE* Cut SOI Maintain SOI Increase SOI Profitability during recovery (%)

Cutting SOI in recession will cost profit in recovery Source: Profit Impact Market Study by Harvard Business School *ROCE: Return On Capital Employed – a broad business measure of ROI Market share change in first two years of recovery (%) 0 1 2 3 0.6% 0.9% 1.7% +/- ROCE* Cut SOI Maintain SOI Increase SOI

2. Focus 2. “ What I told our company was that we were just going to act the same way through the downturn… we’d taken a tremendous amount of effort to get our fans into Apple in the first place” – Steve Jobs

3. Evaluate the ‘value calculation’ 3. "Consumers are forced to make tougher choices when the economy is bad, and the role of marketing just gets amplified” – David Rubin , Unilever US " Customers make different value calculations in recession, continually seeking out better value. Advertisers who recognise the need to make their brands appear like better value will continue to do well ” – Tim Lindsay, TBWA UK

3. Evaluate the ‘value calculation’ 3.

4. Advocate innovation. It maximises ROI 4. ROCE improves significantly during a recovery if new products represent a high% of total sales during a recession Inflation-corrected ROCE* during recession (%) 0 5 10 20 9 10 9 +/- ROCE* Low Average High Increase in ROCE* during recovery (% points) -2 0 4 8 -0.7% -0.1% 5.1% +/- ROCE* Low Average High 15 6 2 % Sales from new products % Sales from new products

4. Advocate innovation. Connect with consumers 4.

Thank you