Uncertainty and Opportunity

Uncertainty and Opportunity

As we head into the new year, we are reminded of Yogi Berra's comment about a once popular eating place, "Nobody goes there anymore, it's too crowded." The economy is a little like that. Everyone wants to complain, but no one wants to visit long enough to do anything about it.

How deep is down?

Ad spending worldwide has fallen roughly 4% in 2001. In the US, which usually leads or drags the stampede, it has fallen more than 8%. Advertising Age reported that half of the top forty agencies had double-digit staff cuts of from 10-40% (eliminating 18,000 jobs), half of the top 100 advertisers cut their ad budgets and the top two, GM and P&G together, made cuts averaging 25% and totaling $1 billion. The last time we went through anything like this was 1991, but even that was different. We hadn't experienced the horrors of September 11th, day traders weren't pushing markets around, technology was not as instantaneous and fewer companies had merged to create the overwhelming demand for instant and continuous large-scale profits. So the troubled water is deeper and more treacherous now and everyone is waiting out the storm for the wind or tide to turn. The last tide table we saw read late 2002 - early 2003, but that changes with each prevailing wind that breaks.

The cost of covering

Advertising is generally the first cut to be made in tough times and the last to be reinstated when the economic tide turns favorable. Superficially, this is the least harmful way to save, since incremental sales and increased margins (due to advertising) often do not cover its cost. Recent studies show that on average only 10% of advertising affects an immediate sale, the rest builds brand equity, which In turn is responsible for roughly 70% of sales. The problem is that if you string enough immediate sales moments together, you can find yourself in the future, with little brand equity left. So while you can save some money in the short-term, the cost of regaining lost volume, share and equity in better times is always more expensive.
Opportunity and equity

Advertising keeps brand share and equity from eroding. It attracts new users, repeat purchasers and pushes high-end volume, creating better economies of scale. Even in tough times, every brand wants these things. Given a broader perspective than now and tomorrow morning, we have to plan for not just immediate consequences, but those beyond the present economic cycle. Even market leaders are vulnerable, because generics do well in uncertain economic times. However, consumers do not abandon their taste, they are just more willing to buy on price.

Most of the information we have on how advertising works has been gathered on package goods products. That is because they are scanned, recorded and documented well enough to research. However, there is good reason to believe that certain marketing principles, which are true for package goods, are true for nearly everyone. For instance, one rule holds that under most circumstances, a higher share of voice leads to a higher share of market, which in turn generates a greater profit. It means that if you advertise at a relatively higher level within your category, you are very likely to generate more sales and profit than your competition. Media prices normally decline in a recession, so it becomes cheaper to buy a greater share of voice, i.e. a larger slice of the pie for less money.

So these can be times when smart marketers lose less ground than their competition, therefore improving their share of market. Uncertain times are perfect for exploiting your competition's weaknesses. You can test strategies and research the strength of your own brand's equity. You can shift the focus from surviving to thriving, with little risk and much to gain.

While others wallow in uncertainty, there is an enormous opportunity to seize the moment and to act with the long view of a brand's health in mind. It is really a matter of perspective and choosing how to act judiciously. Finally, in these, the most uncertain of times, great brands are beginning to market with assurance, not wait for economic insurance. The public is hungry for assurance and only a market leader with a strong brand equity is in a credible position to act in that manner. It is time to step up in 2002.