Survival or demisal?

Amid rising concern over consumer confidence, four ad vets told strategy what to expect from a potential downturn

Amid rising concern over consumer confidence, four ad vets told strategy what to expect from a potential downturn

When Target Marketing president Noel O’Dea sent me a pithy little email from St. John’s recently advising: ‘Buy Kimberly-Clark,’ I laughed out loud. Now, as the U.S. market continues to spiral downward, no one’s laughing. And this particular economic rollercoaster’s been brewing for a while – PricewaterhouseCoopers’ 11th Annual Global CEO Survey just revealed that confidence in business declined for the first time since 2003, and fear of a global recession emerged as the major threat to growth.

Brunico Communications was barely a year old when Black Monday hit in 1987, and we saw the ad biz suffer more during the late ’80s and early ’90s than other sectors. Large swaths of the industry were dependent on traditional advertising, so there was significant downsizing and fallout.

But things have changed. A lot. Marketing budgets have undergone decades of close scrutiny with sophisticated metrics to nail maximum ROI, providing advertisers with proof of cost-effectiveness. And remits have branched out from traditional advertising to encompass social media and more robust CRM and CSR efforts in a shift to longer-term communications programs.

But since marketers’ careers are still at stake if they don’t deliver results, the research that advises against cutting ad spend during an economic downturn meets with hairy eyeballs. However, there’s a compelling case to be made for activity in areas like retail promos, lower-cost digital efforts, CSR and loyalty when confidence or disposable income is low. In a recession, this diversification will likely shield some of the impact of any ad spend downturn.

But that’s just my take on what might happen if a recession hits, so I asked the folks out in the trenches – who have been through it before – for theirs.

DDB Canada chair and CEO Frank Palmer is unfazed: ‘It’s time for people who have some guts to take a stand and do better than they have before. Strong brands will do well, like McDonald’s and Tim Hortons and Wal-Mart.’ He does, however, acknowledge that for mass luxury categories – and smaller agencies with less cash and fewer clients – it will be tough. Palmer says multinationals and strong local agencies will do OK, noting that there aren’t many in the latter camp, but he expects a feathering out of smaller shops, as there’s not enough work to go around.

Does he predict a market adjustment? ‘Yes. We’ll see some smaller agencies disappear and merge.’

When asked if companies would be less prone to chop ad budgets in this environment, Palmer responds, ‘Clients that believe in advertising are the last to cut spending, and often don’t.’ He’s been talking to his, and reports that no one says they’re going to cut. In fact, Palmer says DDB had its best year last year, and will maintain that growth. As to whether the diversification of marcom services will lessen the effects of an ad spend downturn, Palmer says ‘it will make a difference,’ adding that 50% of DDB’s business is now outside traditional advertising. For 2008 his appetite is optimistic: ‘I want the whole pie.’

Strategy columnist Ken Wong, a business and marketing strategy prof at Queen’s University, says that while a recession may come, we’re not there yet: ‘With so much of our prosperity tied to commodities versus manufactured goods, and no domestic sub-prime mortgages to destroy housing prices, which underly a lot of consumers’ confidence, we have time to prepare.’

That said, he’s not suggesting Canada would be immune. ‘At present, employment and wage gains are keeping people in stores. Once the labour market cools, housing prices stabilize and inflation gets to be an issue, that’s when you worry. But we’re not there yet.’

And while Wong concurs that weaker players would feel the pinch, it doesn’t mean the market goes away: ‘It means you’d better be ‘best of breed.’ Good firms use the good times to get their houses in order. If you haven’t, you’ll be in for a rough ride.’

Wong says an orderly house means you’ve developed ‘solid metrics so you withstand the charge of CFOs looking to shore up their bottom line, and haven’t equated ‘global’ with the U.S., which is not the dominant player in the global economy any longer – India and China are. And while the loonie is strong versus the U.S. dollar, it hasn’t changed much relative to other resource economies. So if you’ve been developing clients in non-U.S. markets, you should be able to ride out a U.S. recession.’

Wong also sees a potential silver lining to a mild adjustment. ‘Firms that have strong brands remain strong. Those that don’t tank, which creates new opportunities for those who play for the long term. Just remember that the hardest asset to replace is people. This might be a good time to stockpile your inventory of knowledge-based people.’

As well, Wong says, ‘Look for more businesses to initiate marketing audits. In times of rapid growth, we sometimes get into new markets or launch new products a little less systematically than we might.’

Wong’s bottom line advice? ‘Focus on fundamentals. Provide new features and value-add services that enable you to solve problems no one else can solve.’

Leo Burnett Canada president and CEO David Moore calls the effect of recession Darwinian – i.e., survival of the fittest. ‘Players able to maintain advertising investment will find it easier to win market share in a time of recession than in a growing economy,’ he says. ‘It has been proven that holding investment means maintaining sales and cash flow through tough times, while positioning for growth ahead. Marginal players are less willing or able to defend against those that refuse to blink.’ However, ‘the toughest task for agencies is to convince clients of this principle.’

On the brand side, Moore says, ‘Packaged goods in food, home and personal care may find bumps ahead but will weather, along with retailers that deliver mass goods. Beer and spirits always seem to be recession-proof. And that segment referred to as ‘Prada-proof’ will ensure that luxury sales chug along.’

Moore agrees with Palmer that this is a time when big is better. ‘As the future of any agency is linked to the success of its clients, it will likely be the smaller agencies servicing more marginal clients that feel the effect most. Larger agencies with blue-chip accounts have been through the drill before. Where you will see growth is in the realm of digital. Keeping costs down in a tightening market means clients will spend in areas that are more directly linked to commerce and are measurable – such as the Internet.

‘As an industry, I think we should apologize to consumers in advance for the age of value that is about to descend: ‘value pricing,’ ‘value days,’ ‘value deals,’ ‘value meals’ – I can’t wait.’

The last word comes from O’Dea with the indie POV: ‘When times are good, the high tide floats all boats. But when the tide goes out, complacency goes with it – and marketers are motivated to find the smartest and freshest partners to help them reset their strategic and creative compass and build their competitive advantage. That’s when my phone starts ringing (and, I suspect, the phones at other smaller, owner-operated indie shops).

‘The multinationals – and the large agencies with an equally complacent sense of entitlement – face the greatest risk in a recession. When times get tough, marketers have little appetite (or budget) for the big overheads, the layers of handlers and the focus on agency profits to feed the appetite of parent companies in New York and London.’

So there you have it. The one thing they all agree on is that it may get intense. And depending on where consumer confidence goes, that old Darwin theory could kick in big time. Maybe I will buy Kimberly-Clark. Their ‘global insight finding’ is the other thing that made me laugh out loud this month: ‘Life can be tough on bottoms.’

Well said.

Cheers, mm

Mary Maddever, exec editor, strategy and Media in Canada