Commentary

Rubber Ball

... Bouncy, bouncy ... Bouncy, bouncy

The stock market goes up. The stock market goes down. What does it have to do with advertising? Plenty.

After 30 years of watching the advertising economy I'm convinced that ad managers release and hold back their budgets based upon movements in the stock market averages. It's the central nervous system of our economy and bellwether of our national psyche. Sideways drift or relatively small upward or downward movements over time do not matter. And big movements in a single day don't matter much, unless they are catastrophic. In normal (non-war) times, what matters is a trend of downward movement over a several week to several month period to the point where the averages might be 20 to 25% lower than expected. At that point many ad budget managers think: "I better just hold off on committing these funds to see if everything is going to be O.K."

In wartime, I think the large short-term stock market swings we have had, both upward and downward, are crucial to whether ad managers will release their budgets. We know businesses have the budgets to spend. Research (including our own Insight Express) has shown that businesses budgeted to spend more on advertising this year. And, January and early February started out consistent with those plans. But we hit a soft patch in February and March as managers decided to "wait and see" what happens with the war. As the war progresses, we all hang on the smallest bits of news and draw conclusions about the future direction of the war. Our mood is reflected in the stock market averages. If we've had a good day or two over there, the averages shoot up. And ad managers send out a few insertion orders. If we are mired in Al Kut fighting rear guard actions against "surprisingly determined" guerillas, the averages go into a tailspin. And ad managers put those I.O.s back into their desk drawers for a while longer.

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Somehow after years of hearing on radio and TV "and now the business report," when all that is given is stock market movements for the day, we have come to believe that the stock market IS business. What the market really is only a wild roller coaster ride that some of our friends are foolishly taking while most of the rest of us are waiting safely on terra firma planning dinner or our weekend with the family. There is a twofold effect on ad managers. Like all of us, the stock market performance might affect how ad managers feel on a personal level any given day or week. But, managers are also watching the market to try and guess the mood of the American consumer. In fact, it's their only short-range consumer sentiment market research tool. .

How have we managed to become such fearful souls that small changes in the war's progress can cause us to change major plans for our businesses? Where has our fundamental confidence in our own strength (both country and corporate) gone? Why do we believe our whole future somehow rides on those columns in the desert? We have a $10.5 trillion economy. The world economy is $30-plus trillion. There is no threat to the packaged goods industry posed by the Iraqis or the Al-Qaida terrorists. Americans will still buy just about the same amount of groceries, pharmaceuticals, even homes, appliances and automobiles, whether the Iraq war takes two more weeks or two more months. And no sane person can think it will take two years.

We are all trend extenders. It's why we think a boom will go on forever when we are in the middle of one and why we despair when we are mired in a recession. We think the future will be like the present despite all evidence over decades and millennia to the contrary. And, in wartime, we are extending the minute trend of a given day's success or setback on the battlefield into a proxy for the rest of our lives. In fact, our future is ahead of us and it will be one of economic growth and better times. As adult and professional business people we had better start acting like it or we'll be hopelessly unprepared.

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