Advertising in Tough Times

by , Nov 14, 2001, 12:00 AM
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Have you ever wondered why advertising is the first cost most companies cut in a bad economy? There, of course, are the obvious answers: advertising expenditures are easy to identify, they drop immediately to the bottom line, and they have relatively few high-level defenders in the corporate hierarchy. Show me a fight between the VP of marketing and the CFO, and I’ll take the CFO every time. I’ll even give points.

But there are more subtle answers to the question. I am of the opinion that most corporate non-marketing types fundamentally don’t trust advertising. They don’t understand it, and deep down they really don’t believe it works. Sure it works sometimes, but almost always for the other guy. Never for OUR company.

About a hundred years ago, Philadelphia retailer John Wanamaker said, “Half my advertising works, I just don’t know which half.” This was followed by some anonymous poet who said, “Advertising is 85% b.s. and 15% commission.” And that was back in the days of 15% commissions -- presumably in today’s world the b.s. percentage has increased.

Think about your household budget. Say you run into financial troubles and you have to cut costs. What do you cut? Phone service? Cable television? Electricity? Certainly not. You cut that stuff that, among those priorities you keep in your mind, you would rank lowest. And you work your way up. In my household, cost-cutting measures would include eliminating purchases such as taco shells, copper cleaner, and dental floss. So, at least in my household, those items represent the equivalent of ‘advertising’ on the corporate p&l.

As the U.S. economy slowed, we witnessed some dramatic drops in ad spending on the various media. Some magazines are down by as much as 40%, and broadcast media revenues have dropped by 15% or more.

And it is a ritual of every recession that someone, always a patrician ad agency exec, writes an article titled something like “Ad budgets in the current economy” or “Advertising is your best investment in tough times.” The argument is that it pays to advertise when your competition isn’t, because it’s a cheaper way to gain share of voice and, consequently, share of market.

While the argument holds water, hardly anyone ever pays attention. Perhaps because the person writing the article is an ad guy, and the argument favors, above all, advertising agencies. The same advertising agencies that take a drubbing each time the economy falters.

What to conclude? Will marketers’ behavior ever change in the face of weakening sales? Can they be expected to maintain—or even increase—ad spending in such environments? Will marketers continue to advertise their products or services with courage and conviction while all others are bailing out?

Not a prayer.

All we can do is enjoy the ride.

- Michael Kubin is co-CEO of Evaliant, one of the web's leading sources for online ad data.

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