Mike Mahone and Dave Casper Radio Advertising Bureau - Dallas What is a Recession? 6 straight months of downturn in the GNP Average 3% decline Typically last about 10 months 28 recessions since 1854 one every four to five years RecessionDuration Nov Oct months July May months August April months April February months December November months November March months January July months July November months July March months March November months RecessionDuration Nov Oct months July May months August April months April February months December November months November March months January July months July November months July March months March November months Bureau of Economic Research Are We in a Recession? Slowdown yes, recession no In what would seem to be a contrarian view, given the number of economists forecasting a US recession this year, the International Monetary Fund says no, the US economy will have slower growth in 2008, but won't fall into recession. Wall Street Journal 1/15/08 Recession and Consumer Confidence Falling home prices Rising gas prices Ballooning mortgage payments Threats of foreclosure Rising unemployment Tightening credit Potential for job loss Shrinking returns on investments Fear of inflation Lack of confidence Result: Cutbacks in discretionary spending! Recession and Consumers Neilson Research: Half (49%) of U.S. consumers are reducing spending to compensate for rising gas prices. Discretionary spending will be a challenge for most low and middle income shoppers. Consumers are looking to save by altering where they shop, how they shop, and what products they buy. Value, convenience, and competitive pricing will be more important than ever. Retail Merchandiser 1/15/08 Recessions and Consumers How America Shops American shoppers want what they want, where they want it, and when they want it. Shoppers are cutting back on their shopping trips and the categories that they buy. Middle class shopping is becoming more like lower income shopping. Shoppers have become comfortable with their choices to buy less and only what they can afford. They will not be buying more of what they already have it must be new and exciting to justify purchase. How America Shops, WLS Strategic Retail, Retail Merchandise 1/15/08 Survey of 1,600 Consumers Recessions and Consumers Consumer spending During Post-War Recession Personal Consumption Expenditures During the Quarter When the Economy Peaked and Bottomed ($ = Billions) RecessionPeakBottom %Change $176.0$ ,682.21, ,940.92, ,785.23, Source: U.S. Department of Commerce DDB Needham Worldwide. Advertising in Recessionary Times, October 8, 1990 Possibly the most significant fact about recessions of the past half century Consumer spending went up, not down, during each one. Recessions & Business Recessions are selective, impacting some industries, products and regions of the country hard and bypassing others almost entirely. The Strategic Planning Institute (SPI): Industry Recession are those times in which short-term growth lags behind long-term growth by at least four percentage points. Industries & products most affected are automobiles, home furnishings, appliances, travel and airlines & convenience foods. Advertising in a Recession, American Association of Advertising Agencies (AAAA) 1999 Recessions and Business Automotive News 1/14/08 Auto Dealers are Pinching pennies Adopting survival strategies Ordering fewer new vehicles Stocking more used cars Trimming inventories Acquiring fewer dealerships Recessions and Advertising The role of advertising in a soft economy has changed considerably from the cutback strategies that were most prevalent in the past. In 1982 Sales decline of 0.9% Spending by the 100 Leading National Advertisers went up 15.2% Robert J. Coen, VP McCann-Erickson, Advertising Age Magazine 1987 Recessions and Advertising Forecasters believe overall spending will remain strong as a recession looms. TNS Media Intelligence estimates that [overall] ad spending will increase by 4.2 percent. Many marketers spend the same -- or even more during hard times to be remembered by consumers who are still shopping. Advertisers in competitive categories like automobiles, beer, or fast food are reluctant to cut spending if their rivals are not. New York Times 1/28/08 Lessons from the Past Those who do not know history are destined to repeat it. Edmond Burkes, British Statesman and Philosopher, Lessons from the Past Buchan Advertising Correlated sales and profits before, during, and after the recessions of 1949,1954, 1958 and Sales and profits dropped off (almost without exception) at companies that cut back on advertising. After the recession, those companies continued to lag behind the ones that had maintained their advertising budgets. Advertising in a Recession, American Association of Advertising Agencies (AAAA) 1999 Lessons from the Past ABP / Meldrum & Fewsmith re: 1970 Recession Year Study Sales and profits can be maintained and increased in recession years and [in the years] immediately following by those who are willing to maintain an aggressive marketing posture. ABP / Meldrum & Fewsmith re: Recession of Study Companies which did not cut advertising expenditures during the recession experienced higher sales and income during those years and the two years following than those companies which cut in recession years. How Advertising in Recession Periods Affects sales. American Business Press, Inc Lessons from the Past Six Recession Studies Cutting advertising in times of economic downturns can result in both immediate and long-term negative effects on sales and profit. Maintaining or increasing advertising budget levels during recessionary periods may, in fact, be necessary in protecting market position. How Advertising in Recession Periods Affects sales. American Business Press, Inc Lessons from the Past McGraw-Hill Researchs Laboratory of Advertising Performance After recession --Performance of some 600 companies Firms that maintained or increased their expenditures averaged significantly higher sales growth during the recession and for the following three years than those that eliminated or decreased advertising. At the end of 1985, firms that maintained or increased advertising during the recession could boast an average sales growth of 275% over the preceding five years. Those that cut their advertising had to be satisfied with an average sales advance of only 19% McGraw-Hill Research, Laboratory of Advertising Performance Report 5262, 1986. Lessons from the Past WPP Group Center for Research & Development 1990 Study 749 consumer businesses, 339 that experienced recessions Those that increased advertising substantially (+49%) gained [market share] an average of 0.9 %. Those that increased spending modestly (+10%) gained [market share] 0.5 % Those that reduced spending (-11%) boosted share by only 0.2 percentage points. A modest increase (20%) in spending can improve market share and delivers the same reduction in ROI as a cut in spending. Center for Research and Development, October 1990 Lessons from the Past Media Advertising When Your Market is in a Recession During a recessionary period, businesses do experience a slightly lower rate of return relative to normal times. However, expansion periods do not generate higher level of profits than normal periods. During recessionary periods, businesses [that advertise] tended to gain a greater share of market. Why? Competitors, especially smaller marginal ones, are less willing or able to defend against the more aggressive firms. Cahners Advertising Research Report. The Strategic Planning Institute, 1982 Lessons from the Past When advertising is cut First, a loss of top-of-mind awareness Second, a loss in awareness Third, a change in the attitudes held about the company, usually a deterioration of those attitudes Without advertising to guide {consumer perceptions], the image of the company may become distorted and different from the one the company would like. Ad Budges to Grow Despite Recession Fears, Business Marketing, October 1990 Lessons from the Past The best strategy for coping with the recession was balanced ad spending for long-term consumer motivation, plus promotion for short-term sales boots. Those who continued to spend strategically seemed to fare best relative to competitors who took the tactical view and relied heavily on promotions. How Giant Brands Coped With the Recession, MarketSense, November 1992 Lessons from the Past Management Review Asked American Marketing Association member firms about spending during the recession. Conclusion: Fortune Follows the Brave Most firms that raised their marketing budgets enjoyed gains in market share. Firms that increased their budgets and took on new people were twice as likely to pick up market share. Greenburg, Eric Rolfe. Fortune Follows the Brave, Management Review, January 1993. Lessons from the Past 2001 Survey of 500+ U.S. Corporate Executives 86% said when they see advertising by a company in a down economy, it keeps that company top-of-mind. It makes them feel more positive about that companys commitment to its products and services. American Business Media, 2001 Lessons from the Past 2003 Marketing Science Study Sampled 2,662 companies. Advertising during a recession contributes to financial performance for up to three years after the slowdown. Increased ad spending during a recession leads to benefits that exceed the benefits of increasing advertising during non- recessionary times. Marketing Science Institute, 2003 Learn from the Winners & Losers Back in the 1930s, Kellogg maintained its advertising during the Great Depression while Post did not. Kellogg gained domination of the dry cereal market that lasted half a century. Heavier advertising was also credited for the improved performance of Revlon and Philip Morris during the recessionary years of , while sales of Avon Products and Hershey Foods slumped after advertising cuts Advertising in a Recession, American Association of Advertising Agencies (AAAA) 1999 Learn from the Winners & Losers 1975 Recession Chevrolet experienced mounting inventories& high fuel prices Dropped its tradition of setting advertising expenditures as a fixed percentage of sales and increased advertising for fuel- saving models. Ford, at the same time, cut its advertising by 14%. Chevys market share rose by 2%, and five years later, Ford had not regained its share points. Advertising in a Recession, American Association of Advertising Agencies (AAAA) 1999 Learn from the Winners & Losers In 1976, Schlitz beers media expenditures totaled $30 million, compared to $28 million for rival Miller. Miller upped its advertising from $32 million in 1977 to $50 million in 1978 and $59 million in When Schlitz finally increased its ad budget to $44 million in 1979, it was still spending about 25% less than Miller. How many people even remember that Schlitz was once the number two brewery in America? Advertising in a Recession, American Association of Advertising Agencies (AAAA) 1999 Learn from the Winners & Loosers Jell-O, Crisco, Hellmans, Green Giant and Doritos saw sales drop by as much as 26-64% after reducing their advertising spending. Jiff peanut butter and Kraft salad dressing boosted their ad budgets and sales jumped 57% and 70%, respectively. MarketSense, Study of 101 Brands During Recession of Learn from the Winners & Losers Bud Light and Coors Light, each spending more than the category average, experienced sales gains of 15% and 16%, respectively. Fast food chains, Pizza Hut sales rose 61% and Taco Bells 40%, thanks to strong advertising support McDonalds volume dropped approximately 28% following a cutback in ad spending MarketSense, Study of 101 Brands During Recession of Learn from the Winners A study by McCann-Erickson revealed that the Alberto-Culver company had increased ad spending in both recessions of the 1980s as well as in By mid-1991, profits for the preceding nine months were up 35%. Its just common sense to advertise when other companies cut back, stated CEO Leonard Lavin. Advertising in a Recession, American Association of Advertising Agencies (AAAA) 1999 Learn from the Winners 2001 Entering the economic slowdown of 2001, Coca-Cola increased its advertising budget by more than $350 million, prompting a 3% gain in second-quarter volume in North America, plus a 22% rise in net income. Also during 2001, Red Lobster upped its ad budget by 5% to $160, which helped increase same-store sales 4% by mid-year. Advertising in a Recession, American Association of Advertising Agencies (AAAA) 1999 Learn from the Winners 2001 Ad spending growth of 16% enabled Heinz to boost its ketchup market share from 55.9% to 59.2% for the fiscal year. IBM raised its spending for advertising during the recessionary year of 2001 by 17%. Advertising in a Recession, American Association of Advertising Agencies (AAAA) 1999 Learn from the Winners & Loosers During the recession of Proctor and Gamble expanded advertising and sales of products increased. K-mart severely cut back ad spend in Sep and Oct It saved 5%, but by late Fall, sales had fallen much father than the money saved on advertising. Small Market Radio Newsletter, January 31, 2008 Learn from the Winners Fortune Brands increased its ad spending during the slow economic times of from $59 million in 1999 to $70 million in both 2000 and Net income in 2001 was $386 million, a dramatic increase from 2000, when the company lost $138 million Advertising in a Recession, American Association of Advertising Agencies (AAAA) 1999 Learn from the Winners NW Ayer Research Companies that have taken advantage of advertising during a recession to establish strong market positions while developing brand equity: Bristol-Myers Squibb Campbell Soup Gillette Nabisco Pillsbury Levi Strauss Stroh Brewery United Airlines. Advertising in a Recession, American Association of Advertising Agencies (AAAA) 1999 Advice to Advertisers Gain market share by taking it away from competitors unable to adjust to shifting market conditions Keep advertising. Studies have shown that those maintaining or increasing ad outlays during slowdowns wind up outselling rivals who cut back. Be aggressive and imaginative. Survival Tips for Managing During Economic Downturns, Small Business Administration 4/1/95 Advice to Advertisers Watch inventories carefully dont be saddled with leftover merchandise that ties up cash flow. (ezAuction) Keep in constant touch with customers and prospects Work to lock-up long-term contracts with most important customers at anything approaching acceptable terms. Get aggressive with collections. Actively seek out new business opportunities Survival Tips for Managing During Economic Downturns, Small Business Administration 4/1/95 Advice to Advertisers Make existing products and customers more profitable. Dont wait for the market to rebound failure to take action will accelerate losses. Companies that rest on their laurels will end up loosing. The best companies dont add new products in a recession, they play with the mix to get more profitable products into the marketplace. Investors Business Daily 3/25/02 Advice to Advertisers Increase advertising and other marketing Hire more employees Spend more time training and developing staff Add additional services Remain upbeat and ready to make a sale Retail Decorator 12/3/07 Advice to Advertisers Resist cutting marketing and ad expenditures. Youll only loose market share &sales when the recovery hits. Think long-term. The emotional connection between the brand and the consumer will endure the recession, provided you keep the brand top of mind. Re-evaluate your audience. Are you targeting the right audience? Leverage assets. Keeping your brand front & center during difficult times will ultimately increase market share. Offer real value. Reinforce you brands value proposition with meaningful intangibles like superior customer service. Don Ziccardi, President / CEO Ziccardi & Partners, Brandweek Magazine 6/25/01 A Tale of Two Markets Big spending wins eyeballs Priority: customer acquisition Free offers lure new customers Cool factor marketing: big parties, big budgets, Super Bowl ads Smart spending wins customers Priority: customer retention Reward programs benefit good customers Cash factor marketing: case studies, frugal budgets, CRM Bear Marketing Bull Marketing Source: Business 2.0, 4/17/01 Advice to Advertisers People dont quit buying, they get more selective. Shopper look harder for value. People generally buy from someone they know and like. The more you remind them your there, the more confident theyll be in giving you a chance to meet their wants and needs. Define and focus on the core values of your business and reflect them in your merchandising, advertising, and PR. Bob Doll, Editor Emeritus, Small Market Radio Newsletter 1/31/08 Advice to Advertisers Its all about share 140,000,000 Source: RADAR 91 (December 2006) Daypart Usage Report / All Radio Stations Average Daily Cume, Mon.-Fri., 6-10 a.m. / Persons 12+ Source: RADAR 91 (December 2006) Daypart Usage Report / All Radio Stations Average Daily Cume, Mon.-Fri., 6-10 a.m. / Persons ,000,000 194,000,000 Source: RADAR 91 (December 2006) Daypart Usage Report / All Radio Stations Average Daily Cume, Mon.-Fri., 24-hours / Persons 12+ 194,000,000 Source: RADAR 91 (December 2006) Daypart Usage Report / All Radio Stations Average Daily Cume, Mon.-Fri., 24-hours / Persons 12+ 233,000,000 Reaches over People every week Source: RADAR (December 2007) Daypart Usage Report / All Radio Stations Average Weekly Cume, Mon.-Sun., 24-hours / Persons 12+ 93% Radio is Ubiquitous Weekly reach Source: RADAR 92, Arbitron, March 2007, All Radio Stations, Total Weekly Cume, Mon.-Sun., 24-hours, 12+ 86% Radio is Relevant TSL retention since 1996 Source: Fall Arbitron American Radio Trends Time Spent Listening Estimates. Monday-Sunday 6:00am-Midnight, Persons 12+. Based on Arbitron's 94 Continuous Measurement Markets. 92% Radio is Receptive Retention of lead-in audience during breaks Source: What Happens When the Spots Come On, by Arbitron, Media Monitors, & Coleman Research, 2006 MobileWireless 67% of Americans have listened to terrestrial radio online up from 36% last year Source: AMS-commissioned study by GfK NOP of Princeton, April, million streaming listeners per week! Source: Arbitron Inc./Edison Media Research 2006 study The Infinite Dial: Radios Digital Platforms REACH: the largest number of potential customers Consumers across all demographic segments Audience retained through commercial breaks Increase in weekly A/C listenership PPM vs. Diary Radio reaches up to: Media Weekly Reach Radio and broadcast television are the only media that reach nearly everyone. Radio delivers: 5+ times more people than American Idols season finale 4 times more people than the Academy Awards 60+ million more people than the Super Bowl REACH: build value and efficiency in the media mix As effective as TV for single exposure at lower cost Higher than TV in a study of four CPG brands Radios ROIRadio is Daily reach of Radio/Internet together, equal to TV Recall increases 300% when two Radio ads replaced one of two newspaper ads Recall increases 33% when two Radio ads replaced one of two television ads Radio delivers 38.6 million unique station website visitors monthly Share of Media Consumption Source: Veronis Suhler Stevenson, Communications Industry Forecast, (selected media) Consumer Influence Radio triggers online searches Radio influences big- ticket purchases Radio reaches retail consumers Radio reaches car buyers/leasers Radio Ad Lab Radio triggers online searches Radio influences big- ticket purchases Radio reaches retail consumers Radio reaches car buyers/leasers Radio Ad Lab Advice to Radio Sellers Understand basic economics, whats happening in our economy and its effect on your advertisers. Learn how economic conditions are likely to effect the buying habits of consumers for each of your clients products & services. Make certain your advertisers understand the dangers in cutting advertising and promotion during challenging economic times. Help advertisers realize the value short and long term of advertising aggressively in a slow economy. Formalize your proposals and offer advertising solutions that are client focused, problem solving, and research based. Document to both current advertisers and new prospects the unique and powerful benefits of advertising on Radio. Work closely with clients to develop slow economy programs that are unique, creative, and cost-effective. Advice to Radio Managers Support your sellers sales efforts and -. Resources from the RAB Mike Mahone and Dave Casper Radio Advertising Bureau - Dallas