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Alan Cox Advertising Effectiveness
1) The document discusses how maintaining or increasing marketing spend during an economic recession can provide opportunities for gaining market share from competitors who cut back. 2) It presents evidence that companies who increased marketing during recessions saw higher sales growth in subsequent years compared to those who cut back. Maintaining share of voice can directly impact maintaining market share. 3) The document warns that cutting marketing now can cause long-term damage due to loss of market share and profits in future years after the recession ends.
Alan Cox Advertising Effectiveness
- 1.
- 3. The Danger ofCutting Marketing
- 4. Don’t wastea good recession 1. Investing in a recession works 2. 3. Share of voice has a direct impact on market share 4. Cutting back now causes long-term damage 5. Only two things in a business make money – innovation & marketing; everything else is cost
- 5. “I was askedwhat I thought about the recession. I thought about it and decided not to take part” Sam Walton Wal-Mart Founder
- 7. Don’t waste agood recession
- 8. The market has fallen by 42%
- 9. Time of greatopportunity
- 10. Brand count Cost of media is down is down
- 11. The worst isover Source: National Bureau of Economic Research (USA)
- 12. There is plentyof demand out there Personal Expenditure on Consumer Goods and Services (€ billion) €92.5 €91.6 €86.9 €85.2 €84.6 €81.4 €82.2 €80.7 €76.1 €71.2 €73.4 €68.5 €65.2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 F Source: Central Statistics Office/ Central Bank Forecast
- 13. There is plentyof demand out there Personal Expenditure on Consumer Goods and Services (€ billion) €92.5 €91.6 €86.9 €85.2 €84.6 €81.4 €82.2 €80.7 €76.1 €71.2 €73.4 €68.5 €65.2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 F Source: Central Statistics Office/ Central Bank Forecast
- 14. ….and recessions arealways followed by expansions and prosperity Source: National Bureau of Economic Research (USA)
- 16. Investing in arecession works
- 17. “The rationale thata company can afford to cutback on advertising because everybody else is cutting back is fallacious; executives should cash in on the opportunity that rival companies are creating for them”
- 18. The evidence isoverwhelming
- 19. The actions takenduring a recession decide the future growth or decline of a company
- 20. Only 25% ofcompanies invest in a recession 70% of these companies will maintain their growth 25% 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
- 21. 75% cut back Less than 30% of these will 75% 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
- 22. The evidence fromthe U.S. is clear Sales by aggressive advertisers were 256% higher three years after the 81/82 recession 400 375 350 Eliminated or Decreased Advertising in both '81 & '82 300 283 Maintained or Increased Advertising in both '81 & '82 250 195 200 159 150 137 119 100 100 96 106 100 88 89 50 0 1980 1981 1882 1983 1984 1985 Based on the performance of 600 industrial companies in USA for 6 years from 1980 to 1985 Sales Indices 1980-1985 (1980 = baseline of 100). ‘81 and ‘82 were recession years © 2009 Larry H. Miller Communications Corporation / McGraw Hill
- 23. …and from theUK Companies who increase marketing tend to see a 2% gain in market share 2.5% Market share change following 2.0% 2.0% the first two years of recovery 1.5% 1.0% 0.8% 0.5% 0.0% Cut marketing Maintain marketing Increase marketing -0.5% -1.0% -0.8% Source: IPA Business Effects Paper (UK) Data collected on 1000 businesses during periods of market downturn and subsequent market recovery
- 25. Share of voicehas a direct impact on market share
- 26. For every 10points that SOV exceeds SOM you should gain 1 point of market share Market share growth vs “excess” share of voice 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) – based on annual figures – not by campaign
- 28. Cutting back nowcauses long-term damage
- 29. “The short-term resultof 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
- 30. Let’s look ata model of a total budget cut The loss in share slashes profits over time Year 2007 2008 2009 2010 Marketing Spend €7.9m 0 0 €7.9m Market Share 7.1% 7.0% 6.3% 5.7% Sales €317m €314m €282m €269m Total Costs €278m €270m €251m €253m Operating Profit €39m €44m €31m €16m Source: IPA Datamine (UK)
- 31. Even with amore moderate 20% cut, the profit is hit hard Year 2007 2008 2009 2010 Marketing Spend €7.9m €6.3m €6.3m €7.9m Sales €317m €314m €306m €313m Total Costs €278m €276m €273m €281m Operating Profit €39m €38m €33m €32m Source: IPA Datamine (UK)
- 32. “Businesses that maintainaggressive marketing programmes during a recession, outperform companies that rely more on cost cutting measures”
- 33. Government has arole to play
- 34. “Advertising fueled 15%of growth for the G20 economies over the past decade, yet it only accounted for 2% of economic spend”
- 36. WFA study provedthe positive impact of advertising on global economy Advertising speeds up the spread of innovation Advertising is a multiplier of WFA Findings economic growth Advertising is essential for competition Source: World Federation of Advertisers (France)
- 37. Strong correlation betweenad spend & household consumption Source: WFA, World Bank, Ad Barometer, WARC Averages for the period 1991 - 2000
- 38. 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
- 40. “There are onlytwo things in a business that make money - innovation and marketing. Everything else is cost.” Peter Drucker
Editor's Notes
- #31 The likely impact of this decline on the profitability of the brand over the three year period was then modelled assuming a fairly typical cost structure for a packaged goods brand. Other assumptions made were that category growth ceased for two years and resumed 5% growth in the third year; that marketing communications expenditure for the brand was restored in the third year; and that fixed costs for the brand rose with RPI across the downturn. The resulting profitability pattern echoed the conclusions of other researchers: that a short-term improvement was rapidly overtaken by a severe decline that became acute in the third year when the marketing budget was restored (source IPA Datamine doc)