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Strategic
Brand Management
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Ad
budget cuts during recession
Implications For Brand Leaders
Kaushik
Roy
Executive
Director, Mudra Communication
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Imagine
this: You are flying at 30,000 feet. The captain
announces that a huge storm is approaching. He then
informs you that he is running low on fuel. If he lowers
the speed to conserve fuel, the storm may overpower
the plane and take it off its course. He may then not
have enough fuel to find his way back to reach the destination.
If he increases speed to surge through the clouds, he
runs the risk of exhausting his fuel faster. Now he
gives you the option of lowering the speed to conserve
fuel or to go full throttle to surge through the clouds.
What would you choose?
Supporting a brand through an economic down-turn is
much like a plane caught in a storm with low fuel. Of
course, one has the option of conserving the juice.
However, after the saving, whether the brand will be
able to recover from the effects of a nosedive or not
is a million-dollar question. Nobody has seen the future,
but we have the option of looking back. Time and again,
advertising professionals have tried to prove that advertising
in times of recession has helped brands in the long
run. The Harvard Business Review covered 200 US companies
during the recession of 1923-25. During the period of
post-recession recovery, companies that spent more money
on marketing expenses achieved higher sales. This study
was not accepted by most because it did not record the
profit indicators.
In 1999, PIMS (Profit Impact of Marketing Strategy)
conducted a special analysis of 183 UK-based companies
in periods of recession and recovery. Of that lot, 110
cut ad spends, 53 chose to maintain at the same level
and 20 increased expenditure. During the period of recession,
the ones that spent more made the least profits. However,
during the period of recovery, the scroungers saw their
profit grow by 0.8 per cent, whereas the spenders saw
a hefty 4.3 per cent points growth. This more than made
up for the lower profits during the period of recession.
As for market share, the cost-cutters saw 0.6 per cent
point growth as against a hefty 1.7 per cent appreciation
for the spenders, during the recovery period.
The study most conclusively proved that the good costs
that one should focus on during recession are:
* Marketing communication l Product quality enhancement
* New product development Whereas the bad costs that
should be curbed during recession are:
* Manufacturing overheads
* Administrative overheads
* Fixed capital
* Working capital
If these are effectively cut, there should be enough
money to spend on the good costs. Such examples supporting
advertising spends during recession are quite common
in the annals of marketing history. Closer home, there
are enough examples from countries that faced the Asian
meltdown. Here, brands that spent maintained their leadership
position and, in some cases, surged ahead of the competition.
Some recent analyses during our current phase of economic
slowdown throw up interesting facts in support of advertising.
In the sub-popular soap category, Breeze has upped its
Gross Rating Points (GRP) by 47 per cent over the year
2000 to achieve a 20 per cent value growth in sales.
As against that, Lux has maintained its GRPs to see
some decline in sales value. Similarly, in the category
of hair dyes, Godrej—the market leader—has grown by
more than 20 per cent in value by increasing GRPs by
a comparative amount. These are some indicators that
hard times have not dampened the desire to look good
and feel good. As a matter of fact, there is an indication
that despite recession, businesses such as mortgage,
insurance, snack foods, home furnishings and housewares,
to name a few, continue to do well. Perhaps, investing,
feeling safe and feeling good are the more basic needs
during a phase when people are generally feeling depressed.
While on one hand periods of economic slowdown are a
good time for established players because consumers
don’t want to take chances, it’s also true that during
such uncertain times there is a tendency to trade-down.
Therefore, recession is also a great opportunity for
challenger brands that spend heavily to communicate
brand values that lead to a churn. One such example
in recent times is Akai TV from Baron. At a point when
the colour TV business was growing annually at the rate
of eight per cent (value) and the total advertising
outlay for all brands put together was Rs 830 million,
Akai came up with a proposition for upgrading from black-and-white
TVs on one hand and moving from 21" to 29" TVs on the
other; all this at never-before, attractive prices.
Akai achieved some dramatic results in terms of market
shares with an aggressive advertising budget that supported
a hefty 16 per cent share-of-voice (SOV). Akai reached
a 13 per cent market share in less than two years. What
really happened as a result of this brave and defiant
move from Baron was that the colour TV market saw a
growth of 18 per cent and, in the following year, the
category grew three-folds.
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