Preparing for the downturn

Those who forget the past, they say, are doomed to repeat it....

Those who forget the past, they say, are doomed to repeat it.

If that’s the case, then Canadian marketers would do well to recall the lesson many learned during the recession of the early 1990s. Namely: Don’t try to save dollars by cutting back marketing support, or you risk doing serious harm to your brand over the long term.

Certainly this is the gospel that several major manufacturers are preaching now, as they prepare for what could be a rough economic ride over the next couple of years.

Canadian economists have been predicting a significant slowdown in 2001, with overall growth dropping by as much as 50% from the last year’s stellar 5% expansion in gross domestic product.

Some have even gone so far as to forecast a brief recession – defined as two successive quarters of economic contraction – as the world economy downshifts from the turbo-charged growth of the late 1990s.

Inevitably, this will put a squeeze on corporate budgets, prompting some to consider cutting their ad spend. But marketing executives warn against giving in to this temptation.

Philip Donne, former president of Kellogg Canada, says that’s something his old employer figured out decades ago. As he tells it, W.K. Kellogg was one of the very few major North American packaged goods manufacturers to continue advertising during the Great Depression of the 1930s.

‘As a result, [Kellogg] gained tremendous traction with consumers and tremendous awareness for his brand,’ says Donne, now the president of Cossette Communication-Marketing in Toronto. ‘Not only did he have cut-through, he also got the notoriety, the PR, of being someone who was going against the tide.’

Count Steve Kennedy, general manager of Toronto-based Maytag Canada, as a Kellogg disciple.

Undaunted by all the signs of an economic downturn, he says, the appliance manufacturer plans a business-as-usual approach to marketing this year.

‘You don’t back off your investment in marketing,’ he says. ‘In my experience, looking back on [the last recession], that is always a mistake.’

As if to proclaim its defiance, Maytag has just launched a massive North American television campaign. The spots, which were created by Leo Burnett in Chicago, introduce a young apprentice to the brand’s long-standing icon, the Maytag Man.

Here in Canada, the ads are slated to run nationally in prime-time shows skewed to women 25-54. The year-long campaign will be supported by in-store events featuring the original Maytag Man, ‘Ol’ Lonely’ (played by Gordon Jump) and his new sidekick, actor Mark Devine.

Kennedy says it’s important for manufacturers to stick to their marketing guns when the economy goes soft, because it helps to maintain both brand equity and retailer loyalty.

‘Retailers are going to look for manufacturers to do a better job of getting their branded products front and centre in the consumer’s mind. If we’re not driving people into the stores for them, then somebody else is going to do it.’

Maytag isn’t the only big company that plans to keep the marketing dollars flowing this year.

Mark Nixdorf, director of Canadian operations for personal computer retailer Gateway Country, which operates 10 stores in Canada and more than 300 in the U.S., says his company will be very aggressive on the marketing front in 2001. This despite the fact that North American PC sales have been slumping for months.

Gateway has just launched a major brand campaign on U.S. television, and Nixdorf hopes to bring the ads – which feature spokesman Michael J. Fox – north of the border later this year. In the meantime, there are plans to extend the company’s Canadian print campaign, and develop a program of in-store events.

Even auto manufacturers, which tend to be among the companies hardest hit during tough times, are declaring their intention to stay the course.

Peter Bannon, director of brand marketing with Oshawa, Ont.-based General Motors of Canada, says companies in a competitive sector like automotive have to market hard even during prosperous times. ‘I don’t see that changing if the economy turns soft.’

Brave words. But then, it’s always easier to sound confident before the roller coaster plunges down the dip. Will marketers still be making the same bold pronouncements in 2002, when they’ve actually suffered through a couple of bad quarters?

One way of gauging how events might play out is to look at the British Columbia market, which has been weathering an economic storm since 1998.

Last year, the provincial GDP grew just 2.9%. That’s pretty close to what economists are projecting for Canada as a whole over the next two years.

What’s surprising, however, is that marketers in the province don’t seem to have scaled down their efforts significantly. In fact, some in the industry say this has been an especially good period for B.C. advertising.

Bob Bryant, president of Vancouver-based Bryant, Fulton & Shee, says that when the economy slips, many clients become hungrier for the kind of innovation that will keep customers coming. As a result, agencies are often granted more leeway to develop unusual and inventive strategies.

‘You only increase the downtrend in market share or sales if you cut back on your marketing support,’ Bryant says. ‘Whether that’s letting people in the sales force go, cutting back on your advertising budget or reducing your promotional spending – if you take any of those measures to try to make short-term cost savings, you may have a debilitating effect on the brand in the long term.

‘I find more and more clients understand that, and so they don’t go into big shrink mode as soon as the economy starts to slow. If anything, they start to get more aggressive.’

Still, it doesn’t hurt for ad agencies to be particularly mindful of client concerns about cost savings. Vancouver-based Rethink, for example, offers what it calls the ‘Rethink Rebate’ – a performance-based system of compensation that guarantees a percentage of the marketing budget will be returned to the client if sales and revenue goals aren’t met.

Chris Staples, one of the principals of the agency, says even its décor has been influenced by Vancouver’s climate of economic uncertainty.

‘People write about the Astroturf in our office and how cool it is,’ says Staples, who co-founded Rethink in the fall of 1999. ‘But the fact of the matter is that it was the cheapest carpet we could find.’