Advertising Effectiveness - Alan Cox, Core Media Group

1. Alan Cox

3. The Danger of Cutting Marketing

4.  Don’t waste a good recession
1.
 Investing in a recession works
2.
3. Share of voice has a direct impact on market share
4. Cutting back now causes long-term damage
5. Only two things in a business make money – innovation &
marketing; everything else is cost

5. “I was asked what I
thought about the
recession. I thought
about it and decided
not to take part”
Sam Walton
Wal-Mart Founder

7. Don’t waste a good recession

8. The market has
fallen by 42%

9. Time of great opportunity

10. Brand count Cost of media
is down is down

11. The worst is over
Source: National Bureau of Economic Research (USA)

12. There is plenty of demand out there
Personal Expenditure on Consumer Goods and Services (€ billion)
€92.5 €91.6
€86.9 €85.2 €84.6
€81.4 €82.2 €80.7
€76.1
€71.2 €73.4
€68.5
€65.2
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 F
Source: Central Statistics Office/ Central Bank Forecast

13. There is plenty of demand out there
Personal Expenditure on Consumer Goods and Services (€ billion)
€92.5 €91.6
€86.9 €85.2 €84.6
€81.4 €82.2 €80.7
€76.1
€71.2 €73.4
€68.5
€65.2
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 F
Source: Central Statistics Office/ Central Bank Forecast

14. ….and recessions are always followed by
expansions and prosperity
Source: National Bureau of Economic Research (USA)

16. Investing in a recession works

17. “The rationale that a company can afford
to cutback on advertising because
everybody else is cutting back is fallacious;
executives should cash in on the
opportunity that rival companies are
creating for them”

18. The evidence is overwhelming

19. The actions taken during a
recession decide the future
growth or decline of a company

20. Only 25% of companies invest in a recession
70% of these companies
will maintain their growth
25% for 5 years after the
recession. The majority
reach a new & sustained
high
Source: Duane Sprague, Bain & Co., Coopers & Lybrand, McGraw-Hill, The American
Business Press, Strategic Planning Institute/Cahners Publishing, Fortune Magazine

21. 75% cut back
Less than 30% of these will
75% ever regain the market share
and profitability lost during
the recession
Source: Duane Sprague, Bain & Co., Coopers & Lybrand, McGraw-Hill, The American
Business Press, Strategic Planning Institute/Cahners Publishing, Fortune Magazine

22. The evidence from the U.S. is clear
Sales by aggressive advertisers were 256% higher
three years after the 81/82 recession
400 375
350
Eliminated or Decreased Advertising in both '81 & '82
300 283
Maintained or Increased Advertising in both '81 & '82
250
195
200
159
150 137
119
100 100 96 106
100 88 89
50
0
1980 1981 1882 1983 1984 1985
Based on the performance of 600 industrial companies in USA for 6 years from 1980 to 1985
Sales Indices 1980-1985 (1980 = baseline of 100). ‘81 and ‘82 were recession years
© 2009 Larry H. Miller Communications Corporation / McGraw Hill

23. …and from the UK
Companies who increase marketing tend to see a 2% gain in market share
2.5%
Market share change following
2.0%
2.0% the first two years of recovery
1.5%
1.0% 0.8%
0.5%
0.0%
Cut marketing Maintain marketing Increase marketing
-0.5%
-1.0% -0.8%
Source: IPA Business Effects Paper (UK)
Data collected on 1000 businesses during periods of market downturn and subsequent market recovery

25. Share of voice has a direct
impact on market share

26. For every 10 points that SOV exceeds SOM
you should gain 1 point of market share
Market share growth vs “excess” share of voice
The opposite is also true – a brand can expect to
lose 1 point of market share for every 10 points it
allows its SOV to fall below its SOM
Source: IPA Datamine (UK) – based on annual figures – not by campaign

28. Cutting back now causes
long-term damage

29. “The short-term result of cutting
expenditure looks attractive for a short
while……but hides the considerable damage
being done to longer-term profitability“
Drawn from analysis of 880 case studies from the IPA Databank

30. Let’s look at a model of a total budget cut
The loss in share slashes profits over time
Year 2007 2008 2009 2010
Marketing Spend €7.9m 0 0 €7.9m
Market Share 7.1% 7.0% 6.3% 5.7%
Sales €317m €314m €282m €269m
Total Costs €278m €270m €251m €253m
Operating Profit €39m €44m €31m €16m
Source: IPA Datamine (UK)

31. Even with a more moderate 20% cut,
the profit is hit hard
Year 2007 2008 2009 2010
Marketing Spend €7.9m €6.3m €6.3m €7.9m
Sales €317m €314m €306m €313m
Total Costs €278m €276m €273m €281m
Operating Profit €39m €38m €33m €32m
Source: IPA Datamine (UK)

32. “Businesses that maintain aggressive
marketing programmes during a
recession, outperform companies that rely
more on cost cutting measures”

33. Government has a role to play

34. “Advertising fueled 15% of growth for the
G20 economies over the past decade, yet it
only accounted for 2% of economic spend”

36. WFA study proved the positive impact of
advertising on global economy
Advertising
speeds up the
spread of
innovation
Advertising is a
multiplier of WFA Findings
economic
growth
Advertising is
essential for
competition
Source: World Federation of Advertisers (France)

37. Strong correlation between ad spend &
household consumption
Source: WFA, World Bank, Ad Barometer, WARC
Averages for the period 1991 - 2000

38. Our view
“The Government should introduce a
scheme where advertisers receive a tax
credit on incremental spend for one year”
There is a precedent for this.
A similar scheme was introduced in 2008 whereby companies received a tax credit of 25% on incremental R&D investment

40. “There are only two
things in a business that
make money - innovation
and marketing. Everything
else is cost.”
Peter Drucker