Outlook 2004: Stability in sight

No big budget hits expected next year despite soft 2003

It could be worse. That’s perhaps the best thing you can say about the advertising spend predicted for 2004, given the ups and downs of 2003. Compared to countries like the U.S. and the U.K., Canada is still managing to ride out these stormy times, say the experts, so overall, agencies aren’t likely to take big hits.

According to federal government statistics, Canada’s GDP grew 3.3% in 2002 but damage from crises like SARS and a poor American economy will cause that to drop to an average of 2.2% for this year. The forecast for 2004 looks better, though, with the feds predicting growth of about 3%. And despite escalating media costs it looks like marketers will at least hold the line when it comes to ad spend.

In a year that so far has battered the commercial landscape, this is good news for clients and agencies alike. And for some, such as those who work in interactive and direct, things may get considerably better.

More ad dollars are likely to be shifted into the direct marketing industry, continuing a trend that has been gaining momentum for some time. Doug Turney, president and COO of Toronto-based MacLaren McCann, points to his agency’s growth in that department as proof. Direct has grown 400% in the last four years, he says, and is tied with interactive for fastest-growing part of the agency’s business. Traditional advertising now accounts for less than 50% of business, down from 80% five years ago.

Strategy talked to marketers and observers in four categories to get a sense of how their marketing budgets are shaping up for 2004.

Automotive

The automotive sector has recently had to deal with sluggish sales but the intense competition for market share means the ad spend in 2004 should remain robust.

LouAnn Barrette, manager of internal and marketing communications for Windsor, Ont.-based DaimlerChrysler, reflects the general state of her industry when she says that, ‘We intend to be at or around the same advertising spending levels for 2004 as 2003.’

Assessing Chrysler’s comment as ‘typical’ for the industry, Chris Travell, VP, automotive group of Mississauga, Ont.-based Maritz Research, says, ‘What we have found from a spend standpoint is that when manufacturers are fighting intensely for share, which is what is going on right now, you don’t tend to see them backing off their spending.’

However, look for a possible reallocation of dollars, Travell warns. In particular, he expects the spend in the luxury category to shift toward more non-traditional methods such as ‘customer appreciation or VIP-type events.’

The luxury category and low-end categories have been growing, while the mid-range has been stagnant, adds Sunni Boot, president, Toronto-based ZenithOptimedia Canada. She expects that to change as carmakers make a concerted effort to get cars off the lots, but that’s a process that will, in turn, drive a shift in the media mix, she says. ‘More newspaper, more retail, versus large television.’

But MacLaren’s Turney disagrees. He says the era of cutthroat incentive pricing is nearing an end, and carmakers will soon realize it’s all about brand. For that, you still need TV – and some new tactics, he says, are being employed with increasing frequency by marketers to set themselves apart.

‘I don’t know how you can do any more newspaper advertising when you look at a paper,’ he says. ‘Every car and every manufacturer is there with every kind of possibility in terms of how to purchase for a deal. I think you will see people starting to spend not in the traditional kind of advertising but retention- and database-driven things relative to permission-based e-mail marketing, Web-based marketing, direct, PR and event – a lot of that kind of stuff.’

Alcohol

At Toronto-based Labatt Breweries of Canada, the watchword is efficiency – a recurring theme in other industries as well.

‘We’re looking at more efficient ways to manage our marketing spend,’ says Andrew Howard, senior director of marketing at Labatt. ‘And we’re being more critical of where and how we spend it, getting rid of the fixed costs and making sure that the money we do spend is showing up in consumer impact.’

That means talking more directly to consumers, and Howard says Labatt is continuing to shift more of the existing dollars in that direction. ‘We’ve made a number of our shifts in recent years – a little bit more into direct, conversation vehicles.’

‘We need to make sure we’re reinforcing it in everything we do. So trinkets in case – probably a bad idea. Discounting your beer – probably a bad idea. Quality point of sale communications – a really good idea. So that’s one area where we’re dialing it up a little bit versus all image beer promotion.’

Efficiency, rather than changing the ad spend, is a mantra echoed by MacLaren’s Turney. ‘[The spend] will probably be the same as this year because I don’t know how anybody could do more,’ he says, adding that the category is intensely competitive.

Retail

In 2004, the big retail players will continue to pursue opportunities for highly targeted communication, but overall the spend will likely be flat.

David Strickland, SVP marketing for Brampton, Ont.-based Zellers, for one, says he doesn’t believe the company’s marketing budget will increase.

‘The focus is really going to be on productivity. We will have to justify our investments more and more and we will look to take it out of unproductive tactical initiatives before we take it out of anywhere else.’

Specifically, Strickland wants to refine the delivery and reach of Zellers’ preferred communication medium – circulars – to the point where consumers will be targeted as finely as individual postal walk. He says that with Zellers and parent company HBC having access to a huge database, measuring consumer response is key to achieving that productivity.

‘We certainly are growing our online activity but a lot of that is about opening the online channel for feedback on an ongoing basis from customers. We don’t do any direct pieces now that don’t have a feedback mechanism to the Web. Also, Web-based researching is a very inexpensive way to get points of view on the materials you send out.’

This strategy is a growing trend in the industry, says Wendy Evans of Toronto-based Evans & Co. Consultants. ‘[Marketing] is going to become more and more integrated and that’s where companies are finding their success. There will be more marketing online and a lot of in-store promotion of the fact they are online.’

Evans says retail’s performance has been a mixed bag so far this year, largely because of the SARS crisis. Some sectors such as home fashion have performed ‘reasonably well’ while others, such as those affiliated with the tourist industry, have been hard hit. Barring another outbreak, she expects the industry to largely recover by the end of the year. However, she cautions, ‘The spend may not be as high because they’ve had such a devastating time this year.’

Zenith’s Boot agrees that times have been tough but says retail is a sector that has to spend because of competitive pressures. The bigger players may even grow as much as 2%, but overall, spend will be flat. ‘They can’t decline because they’re very advertising sensitive,’ she says.

Financial Services

The 2004 Olympics may provide a bit of a boost next year to this category, thanks mainly to RBC Financial Group, which traditionally leads Olympics spending.

Boot expects a 3.1% increase in media spending next year but says RBC’s presence may paradoxically keep competitors out, at least for a while, putting a lid on activity.

‘Sometimes when one sector spends, the competitors won’t,’ she says, adding that rivals look for competitive advantage by adopting a wait-and-see approach. ‘They’ll wait and spend it afterwards. [RBC's spend] doesn’t necessarily drive total category spend up.’

But Montreal-based Publicis, which holds much of the Canadian Imperial Bank of Commerce business, expects the Olympics and an economic turnaround in the U.S. to generate new activity in the category.

‘If you talk to anybody in our business, we’re going to see an incremental increase next year,’ says Serge Rancourt, president. ‘As far as the big banks in Canada, they haven’t given us any numbers but they will follow the market and there will certainly be an increase.’

He adds that a change in business philosophy is also leading to a change in the way ad dollars are being spent.

‘The financial banks have in the past few years turned themselves from bank-centric to customer-centric organizations,’ he says. ‘That usually means more investment in the advertisement area.’

ING Direct, for one, is turning itself on to another medium – or at least increasing its activity there. Stacey Grant-Thompson, SVP marketing, says ING sees the Net as the medium of choice for growing numbers of Canadians.

‘We’re finding online to be a more viable medium for us. And it’s taking on a greater role in terms of the share of voice that we’re allocating media dollars toward.’

Thompson says she expects ING to also continue to ‘spend heavily’ on TV in 2004, adding that other categories will likely stay the same.

The Road Ahead

Overall, the big spenders in 2004 will likely be entertainment and government. The former, Boot says, because it’s simply one of the largest growth categories (propelled by home video and entertainment venues), and the latter because it’s an election year and various platforms require addressing.

Also huge will be health and beauty, particularly because of the continuing popularity of cosmetic surgery. ‘We are absolutely consumed with how we look and how we feel, so if you look at where consumer trends are, this is a very, very large category,’ says Boot.

And for once, Canada’s ‘middle-of-the-road’ reputation is serving it well. While other ad markets have floundered, such as in Germany and the U.K, or the magazine industry in the U.S., Canada is getting by relatively unscathed. Predicting something between flat and 2% growth, Boot says, ‘We don’t have the highs and lows. It’s a very steady marketplace…and I predict that to continue to 2004.’