When the economy hits the skids as it has now, the typical response is to cut back on ad spending.
   But several decades worth of research suggest that a recession or slowdown is perhaps the best time to increase spending and build market share.
   Cahners Publishing and SPI, for example, found in 1982 that advertisers that had the highest increases in ad spending increased market share by 1.5 points during a recession. That compares to only a 0.2 point increase during normal economic times for the same level of increased spending.
   The reason is simple.
   As competitors cut back during a recession, advertisers with the financial resources to keep spending increase their share of ad exposures to consumers. And more exposure, in theory, means more sales.
   "For clients that have a stable amount of money and can buy media, we encourage them to take advantage of a market like this," says Chris Geraci, director of national TV buying at OMD USA.
   "But that’s a hard thing to advise clients of since we always need to react to what they can afford."
    Allen Banks, executive media director at Saatchi & Saatchi, says: "We always recommend that our clients don't reduce their spending in down times. But those recommendations don't always fall on favorable ears."
   In addition to the Cahners report, the American Association of Advertising Agencies, in a report called "Advertising in a Recession," cites a number of other studies that show a strong correlation between sustained spending and increased market share.
   In 1990, for example, the WPP Group’s Center for Research & Development found similar results to Cahners.
   And as far back as the 1940s, '50s, and '60s, Buchen Advertising found that companies that cut spending had decreased sales and profits that extended beyond the recession itself.
   Increasing spending during a slowdown, of course, is considerably easier said than done. A slowdown or recession, by definition, implies that sales and profits are falling. In the context of job cuts and plant closings, more spending is difficult to justify.
   "While it may make good logical sense not to reduce ad spending, the companies still have to report to shareholders. And one of the places to reduce costs is marketing," says Banks.
   The bulk of research from past recessions, however, adds credence to the recommendations of those daring enough to advocate increased ad spending.
   "Advertisers are smarter today because there’s a base of experience," says O. Burtch Drake, president and chief executive officer at the AAAA.
    "It’s hard to resist the temptation to cut back. But as a general rule, advertisers are aware of this and there’s a price to pay."
   The advantage during a recession goes to advertisers willing to dig deep into their pockets.
   The AAAA's report, for example, says Revlon and Philip Morris gained market share from increased ad spending during the recession of the mid-1970s while Avon and Hershey suffered from ad cutbacks.
    Those findings are useful at a time like this. It’s been clear for the past several months that the ad economy is in a slowdown.
   It’s difficult to know if that has turned into an actual recession, though. We may, in fact, be in the middle of one but it will be impossible to tell for several more months.
   That’s because a recession is generally defined well after it begins.
   The National Bureau of Economic Research defines a recession for the overall economy as a period of several months in which the gross national product is down.
    Employment is one determining factor and, according to the bureau, those figures were still going up as of February.
   And about industrial output, another key figure, the bureau wrote in a report issued last month that a 1.1 percent decline since September is not enough yet to declare a recession.
   "An economic recession is defined as two quarters of declines," says Bob Coen, senior vice president of forecasting at Universal McCann.
    "If you apply that to advertising, we’re not in it yet. The fourth quarter was not in decline, so we won’t know until the fall if we’re in recession."

April 5, 2001 © 2001 Media Life

-Kevin Downey is a staff writer for Media Life.

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