Murray Calder: On Advertising During a Recession

The latest report on client marketing spend – the IPA/BDO Bellwether report, which was published by the Institute of Practitioners in Advertising today (July 14 2011) – is a good predictor of the wider economy. It was the first indicator to call the top of the market in October four years ago – and the bottom of the market in April two years ago.

Today's report shows marketing executives’ confidence is at its lowest in over two years as companies attempt to protect profit margins by reducing marketing budgets for the third consecutive quarter.

This lack of confidence shouldn’t be a surprise amid ongoing uncertainty over the prospects for future economic growth. However, the reductions in budget are at a lower rate than in previous quarters and, with the Olympics coming to London next year, there is some hope that the prospect of Britain being in the global spotlight could restore confidence towards the end of the year.

Advertising spend is often the first casualty when concerns over the prospects for economic growth affect corporate boardrooms. Many finance directors still see advertising as a cost, rather than an investment in brand value and it’s tempting to cut costs when profit margins come under pressure. This is especially the case for advertising and media budgets when they are such a large, uncommitted line on the budget.

But this is a short-term solution with serious long-term implications for brand value and there is now much solid evidence to say that advertising should no more be cut than investment in, say, distribution or packaging.

All analyses from the last two recessions show that it is better to maintain a brands advertising share of voice at or above its share of market during a downturn. If other brands are cutting budgets then the longer term benefit of maintaining share of voice at or above share of market is even greater.

Data from information and measurement company, Neilsen, shows that for each ten points of 'excess' share of voice (Excess Share of Voice = Share of Voice minus Share of Market) for a brand you can expect half a percentage point increase in market share (Neilsen 2009). This is now accepted wisdom and the more successful packaged goods businesses exploit this knowledge to their advantage. The likes of P&G and Unilever have dominant positions in their chosen markets for precisely this reason; they know the value of advertising and of holding their nerve through tough economic conditions.

Marketing executives need to present their finance directors with evidence-based arguments for advertising budgets to be maintained in a recession if they are to deliver long-term brand growth. And the IPA publication, 'Marketing in the Era of Accountability', indeed identifies the marketing practices and metrics that truly increase profitability, based on painstaking analysis of the IPA databank – a database containing detailed marketing information on over 1200 case studies entered over the last 25 years into the IPA Effectiveness Awards; the internationally-recognised gold standard of the evaluation of effectiveness. 

Murray Calder is a director of Edinburgh-based media planning agency, MediaCom. He is also chair of IPA Scotland.

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