Advertising in Recession
Pradeep Pandey, Director, Branding & Communications, Aegon Religare Life
I have always said, "Advertising is like God, either you believe in it or you do not." Recession is the real test of this belief.
The answer to the question whether one should spend during recession or conserve for better times is not an easy one. There are numerous factors that one has to take into consideration before deciding on the future course of action.
Most of you would know of the famous McGraw-Hill research done in US from 1980-85. In a study of U.S. recessions, McGraw-Hill analysed 600 companies. The results showed that firms that maintained or increased their advertising expenditures during the 1981-1982 recession averaged significantly higher sales growth, both during the recession and for the following three years, than those that eliminated or decreased advertising. By 1985, sales of companies that were aggressive recession advertisers had risen 256% over those that didn't keep up their advertising.
But, the current economic crisis should not be compared to any other Recessionary periods. It is probably the second worst crisis in past 100 years after the Great Depression of 1930s. A situation as bad as this warrants a slightly different approach in my view rather than simply going by the conventional wisdom that advertising during recessionary times will lead to future profits. Most of advertising and marketing professionals would advise us to toe the conventional line. But, I would recommend that every Brand Manager should re-evaluate his/her portfolio and be open to alter their path if required. In other words, the key word is to Adapt rather than be too pessimistic or optimistic about the future. Both the options are fraught with risk. Being too pessimistic means you are undervaluing your own potential and a significant opportunity to leave the competition behind. On the other hand, if you are too optimistic and the consumers don’t behave in the manner you would have hoped them to, there are high chances of you being wiped out of the business. Hence, it is very critical for one to read the situation as realistically as possible. I would advise the Brand Managers to be a bit conservative in their approach. It is different from being pessimistic. They should be hopeful for the future, but exercise a bit of caution.
Let's for a moment step back and look at how bad really the economy is. In December 2008, the National Bureau of Economic Research, a US based research organisation declared that the United States had been in recession since December 2007, and several economists expressed their concern that there is no end in sight for the downturn and that recovery may not appear until as late as 2011. Though, we might like to believe that Indian economy is not as impacted as US, we cannot deny the fact that our fortunes are linked to the economic recovery in US and Europe. We are not as decoupled as we would have liked to believe. Most of the sectors in India be it Retail, Airlines, Financial Services, Real Estate or IT have experienced considerable slowdown. The projection for India for 2009 is quite moderate, which I feel is more realistic. The World Bank has estimated a growth rate of 5.8% for the current year for India, Asian Development Bank has put the figure at 6.5%. Goldman Sachs has projected the growth rate at 6.7%. So, we are not yet out of the woods and adapting ourselves to the new economic scenario is the need of the hour. The year 2009-10 will be a challenge for all of us and it is important for us to relook at our strategies.
According to a leading media agency Group M, the Indian Advertising indutry will grow by 4% in the 2009 to Rs 23,755 crore. The growth will be led by digital medium followed by radio and TV. Although, as a medium TV will have the maximum impact accounting for approx Rs9000 crs of spends. Newspapers will continue to be the leader with a share of 41% followed by TV at 38%.
One should evaluate all the scenarios before finalising on the advertising strategy for a company/brand. For eg if you have launched a new brand, it makes sense to continue to advertise, else you will lose the momentum you would have created. The challenge for any new brand is to establish itself in a cluttered environment and amongst brands who are well entrenched in consumer's mind. While one can look at rationalising the spends, one should not switch off the engine as it will become more difficult to revive it when the economy picks up. Also, a key point to note is that in the current scenario a brand can demand a greater bang for its buck. A brand can get good deals from most media houses which helps them reach the same audience but at a lesser cost. It is akin to the great discount bazaar and if you have the money you can get a great deal. Also, as the players who were overspending earlier would look at lowering the spends, it will help you get more visibility for your brand. However, the final decision on how much to spend would depend on the revenue expected and the investment philosophy of the company.
These times provide great opportunity for smart Brand Managers to take advantage of. One should review the communication and product proposition of their brand. For eg, in these times when people generally avoid buying high value items, a brand can look at offering smaller pack sizes at lower costs to reduce the fear of liquidity crunch. A smaller ticket size with flexible payment option might help to soothe the nerves of consumers. For eg., telecom companies should focus more on "Chota Recharge" in these times rather than on certain VAS like internet on mobile. At a moment when I am concerned about liquidity and saving for a rainy day, I would not like to indulge myself with frills. I might look at it when the economy is back to normal. This can also be a good time for brands to offer some freebies to consumers so that the perceived value of offering goes up.
Another important influencer is the communication proposition. It is important for a brand to connect with the consumers feelings and speak to them accordingly. If you are able to get a consumer to nod positively as he/she is viewing your advertisement, you have certainly won the battle. A brand which can replay the feelings of a consumer and offer a product addressing the concern will certainly go a long way in winning the consumer’s mind and wallet space.
I am of the strong opinion that one should not eliminate advertising, though one should certainly consider rationalizing it. One should explore optimal ways of reaching out to the Target Audience (TA). For eg., if one is handling a premium high end brand, online advertising and direct marketing might give better returns. Similarly for brands with pan India middle class as its TA, putting all weight behind one medium say TV will work better than spending money on different mediums like TV, Print, Outdoor etc. One needs to be more creative in finding ways of standing out by smarter communication, media planning and buying. As I had said in the beginning, one should adapt to the change n environment and rationalize spends. One should not have a myopic and reactionary view and should understand that a brand is like a plant which needs reasonable amount of care before it can become strong and help the owner reap rewards.
My advice: don't shun advertising in recessionary times, get better at it by delivering more impact at a lesser cost.
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