Penny wise, pound foolish

Is that the falling sky you feel on your head, or is it just your fingers scratching?...

Is that the falling sky you feel on your head, or is it just your fingers scratching?

Less than two weeks after virtually every economic forecaster predicted that Canada would ride out the imminent economic slowdown in the U.S., the voices have begun to rise in chorus that, yes, Canada is actually galloping down the same trail.

On Jan. 9, Wall Street’s largest publicly traded brokerage house, Morgan Stanley Dean Witter & Co., said a recession in the U.S. is imminent and predicted that Canada would not escape its effects. The next day, CIBC chief economist Jeffrey Rubin warned that Canadian growth this year could slow to 1.6%.

Meanwhile, Canadian Finance Minister Paul Martin maintains the Canadian economy is strong enough to withstand any slowing in the U.S., reminding us of the DJ reading a forecast for sun and blue skies, while outside the sewers overflow with torrential rain.

Certainly the signs are there.

The most telling comes from the auto industry, one of the most important sectors driving the Canadian economy. Combined auto sales for Ford, General Motors and DaimlerChrysler plunged up to 18% in December from a year ago.

Even as the Big Three auto makers rolled out their new lineups at the North American International Auto Show in Detroit, word came of production cutbacks.

Overall growth of Canadian industrial activity also slowed significantly in December.

Last issue, we asked agency executives, media planners and clients their expectations for the coming year. All spoke in relatively positive terms about the outlook for advertising in Canada.

Given this week’s developments, we thought it might be prudent to ask again. Starting next issue, Strategy will launch a semi-regular feature investigating how the industry is preparing for what appears to be an inevitable stall.

The unfortunate truth is that, during a downturn, often the first measures taken are cuts to advertising budgets. Such action, however, flies in the face of common sense.

When word comes down that the economy is going to tank, a marketer’s first reflex is often to tighten the purse strings. And, so, the cycle begins. Stop spending and the economy contracts further.

This is the time when marketing activity should be kicked up a notch. Stimulating spending becomes all the more crucial during a downturn because it helps stave it off. In the same way the business community looks to the Fed to drive the economy, companies should be relying on their marketing efforts to help pull them through.

Given the prospect of working with less in the overall kitty, it’s also incumbent upon marketers to come up with new solutions – to do what they do best: up the creativity quotient, find partners to share costs and expand platforms, and deliver compelling calls to action.

One sure-fire transaction driver can be found in this issue’s special report on Premiums & Incentives. Nothing stimulates spending like free stuff.

Indeed, as Tony Chapman, president of Toronto-based promotional marketing agency Capital C Communications, says: ‘If we get an economic downturn next year…[and] I have to cut my advertising, I’d better make sure that I’m making noise in-store. Promotions are powerful at doing that.’

In troubled categories, such as cereal, freebies are seen as a way to break through the clutter and make a sale. (But decoder rings don’t cut it anymore. The stakes are now Hasbro CD-ROM games valued at $20 a piece.)

And in categories where the competition is fierce, such as the fast-food sector, you can see traffic flow in the direction that has the most attractive promotional road signs. A recent promo by Wendy’s Restaurants of Canada saw sales spike through November and December thanks to a deal offering toys based on Dr. Seuss’ How The Grinch Stole Christmas with every Kid’s Meal.

It’s a useful reminder. Maybe if Chicken Little had found a funky toy helmet in his bag of Cheesy Poofs, that big old sky might not have seemed so scary after all.

Peter Vamos,

senior writer