1. October 2000
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Sponsored by:
A Study of more than 23,000 Businesses
Prepared and conducted by: Cahners Research
2. ADVERTISING DURING A RECESSION OR EXPANSION
Marketing to your
audience is fundamentally
simple, it’s all about
getting the right message,
to the right person, at the
right time — it’s the
execution of that goal
that’s the challenge.
Expansion and recession
periods make marketing
2 difficult and complex,
but understanding the
impact of these business
cycles is critical to
understanding how to be
an effective marketer.
3. Business-to-Business Advertising
When Your Market is in a Recession or Expansion Period
By Susan Mulcahy
I
n our highly competitive business environments, we are all trying to meet the
challenges and opportunities set forth by our customers and at the same time,
obtain our revenue goals. This year, many businesses have faced tough business
conditions and declining profits. Shrinking revenues and sluggish buying habits have
forced businesses to make tough decisions to cut jobs and budgets all across their
organizations. Often times these cuts are primarily made in marketing and sales,
which is actually one of the least effective strategies a company can implement.
This report demonstrates various business cycles in our history and shows the relationship
of marketing efforts to ROI, awareness and preference levels. To understand periodic
business behavior it is necessary to understand the definition of “recession” and
“expansion”. While some businesses defy convention and are counter-cyclical to normal
business, most companies experience periods of expansion and recession.
When your business is growing at a slower rate than the long term trend of the market you
serve, the market is said to be in a “recession”. When businesses grow at a faster rate then
long-term trend, we consider that the market is in “expansion” mode. Growth rates that
are within five-percent of the long-term trend of the market you serve are said to be
“normal” business periods.
As the markets we serve become more global and connected to each other, the impact of
these “recession”and “expansion” periods have wider implications on economies
throughout the world. By taking a closer look and analyzing these periods, we can deter-
mine what type of marketing strategies produce what kind of results.
Methodology:
The sample for this research was selected from the Cahners database of businesses. More
than 88,000 businesses were selected for this research. Results are based on the responses
of 23,341 businesses who participated in this survey and had non-zero media advertising
expenditures. The businesses all described themselves as one of the following;
building/construction, communications, electronics, entertainment, food, manufacturing,
packaging, printing, publishing, retail and/or science. Cahners Research conducted this
survey from July-September of 2001. For more information about this study, please contact
Susan Mulcahy, Vice-President of Research, Cahners Business Information at
s.mulcahy@cahners.com or visit www.cahnerscarr.com
CARR Reports & Technical Notes:
The Cahners Advertising Research Reports are a continuing series of media research reports
3
that study business-to-business marketing and trends. This study is based on a 1982 report,
entitled, “Media Advertising When Your Market is in a Recession,” which was conducted
by Cahners Research and the Strategic Planning Institute (PIMS). This report has been
updated to include additional industries, advertising mediums, and correlation between
awareness and preference levels. For more information see www.cahnerscarr.com. The base
size for this study was 23,341 businesses in North America and the data in this report is
accurate within a 96% confidence level.
4. ADVERTISING DURING A RECESSION OR EXPANSION
Every analyst is being asked, when
will the economy turn around, when
will we pull out of this recession
period? There’s only two ways out of
a recession, spend your way out of it
or innovate your way out of it, and
believe me, this one will take
some of both.
4
5. How Average Business ROI is Affected by Market Conditions
Using the Cahners database, we see the
29%
impact of several economic periods. This
26%
chart shows the impact of ROI during dif-
ferent stages of various business cycles,
22%
including normal, recession, and expan-
sion periods.
During a recession, businesses typically
experience on average a 4% lower rate of
return relative to normal times. Expansion
times tend to generate a higher level of
profits than normal periods but do not
increase exponentially versus a recession
as might be expected. This is because it is
Recession Normal Expansion
increasingly more difficult to gain market
share during expansion periods.
Average Return on Investment (%)
How the Average Business Market Share is
Affected by Market Conditions
Increased market share in a recession
happens due to smaller businesses
0.75
and major competitors decreasing
their marketing budgets. Thus,
normal to increased marketing efforts
in a recession have a higher return on
share than they would in normal or
expansion business cycles.
0.35
Many businesses erroneously believe
that others are being hit as severely by
0.15
market recessions and lows, and
blame their loss of sales on the
severity of the downturn. These
companies do not realize that their
Recession Normal Expansion
5
market share and preference is eroded
from these cycles and actually costs
Average Point Change in Market Share
them more when business returns to a
normal or expansion period.
During expansion cycles, some businesses have difficulty meeting the growing demands of the market and
their customers. This allows for a more competitive landscape and less overall profit on goods and services
during these up-turns. Subsequently, in our study we do not see the share growth increase as high as when
in a recession cycle.
6. ADVERTISING DURING A RECESSION OR EXPANSION
Recession periods hit us hardest when we don’t
manage our businesses well in expansion
periods. Many companies just take a simple
approach to down-cycles by cutting costs and
hoping for the best. Hope is not a viable
strategy over any business cycle and costs-cuts
6 need to be analyzed over specific business
models so they can have sustained value.
7. Average Revenues Spent on All Marketing
During Various Business Cycles
Our study of businesses reveals that most
13% companies do the opposite of what they
need to do during recession periods.
Since market share and ROI decrease
11%
more substantially during a recession,
marketing dollars that decrease on aver-
age 4% during down-cycles have a much
larger effect on brand awareness and
7%
preference levels.
When we investigate expansion periods,
an the average business increases their
marketing budget 2% for a slight increase
in ROI (on average 2%-4%). To capitalize
ROI during expansion cycles, businesses
need to increase marketing spending at a
higher percentage than they cut during a
Recession Normal Expansion
recession period to capitalize on their ROI.
Average Percentage of Marketing Budget Expenditures
Marketing strategies go across all
mediums. Currently these percentages are
Print Advertising 33%
driven by a given company’s needs and
Sales/Promotion Materials 22% objectives. Percentage fluctuations can
also occur based on the market a specific
Television 11%
company serves.
Trade Shows 10%
Percentage decreases and/or increases
8%
Web Advertising
occur exponentially across all mediums at
6%
Direct Mail (Print) roughly the same rate. No one medium is
substantially cut more than another
3%
Direct Mail (Email)
during a recession. And no one area is
3%
Seminars increased at a higher rate than others
2%
Newsletters during an expansion period.
2%
Billboards 7
2%
Other
8. ADVERTISING DURING A RECESSION OR EXPANSION
As competition increases in all
business sectors, brand awareness
and preference becomes imperative.
We’re all searching for the secret on
how to be the next Intel, Xerox and
8 Kleenex in terms of recognition.
9. Average Business Awareness and Preference Relationship
100
90
80
70
Preference %
60
50
40
30
20
10
0
0 10 20 30 40 50 60 70 80 90 100
Awareness %
The chart above plots the relationship between awareness and preference for all businesses. Each point
represents a single company or companies with a given awareness and preference rating A line is drawn
through these points to represent the trend of the data.
The upward slope of the line to the right illustrates that the relationship is a positive one. That is, as aware-
ness increases preference increases. Notice also that the line is curved in a slight u-shape. This implies that
as higher levels of awareness are reached, the conversion to preference comes more quickly. For example,
as awareness increases from 25% to 35%, preference increases from 10% to 15% (a 5% difference). As
awareness increases from 35% to 45%, the leap in preference is greater, from 15% to 23% (a difference of
8%). The largest jump occurs between 85% and 95% awareness, where preference increases from 56% to
71% (a difference of 15%).
Companies located near the lower end of the line should work toward increasing awareness to take
advantage of the increasingly greater rate of conversion to preference that is likely to result. Companies at
the upper end of the line must, at a minimum, maintain their current level of awareness to prevent a sharp
decline in preference.
9
10. ADVERTISING DURING A RECESSION OR EXPANSION
When creating marketing messages, think like
the customer. The only messages that have
impact are the ones that your audience(s) think
are important. It’s really about understanding
the customer, something a recession period
allows us to do. In addition, expansion periods
should not be the opportunity to exploit our
position within our markets. Managing and
assessing customer needs is important in all
business cycles.
10
11. Average Awareness Levels of Businesses
During Business Cycles (Based on 50% Awareness During Normal Cycle)
High awareness levels are more
important than ever due to continually
59%
increasing competition. Recession
53%
Expansion
periods are unique opportunities to
48% increase awareness levels versus com-
petitors. This chart shows the average
55%
awareness rate when a company has
52%
Normal 50% awareness in a normal cycle.
50%* Companies who have lower awareness
rates can expect an even more
61% dramatic increase from these levels by
increasing marketing initiatives.
54%
Recession
52%
* Based on average awareness level of 50% during a normal cycle
No Change in Ad Budget
Up to 20% Increase in Ad Budget
20% to 60% Increase in Ad Budget
Average Revenues Spent on All Marketing
Volatile business cycles in the past 5
14%
years have had huge effects on
13%
marketing budgets and dollars.
11% Average marketing percentages have
10% declined to a five year low in 2001,
where a seven percent decline in
8%
budgets will undoubtedly have a large
impact on ROI, awareness and prefer-
6%
ence levels.
By 2005, businesses expect an all time
high in what percentage of revenues
will be spent on marketing efforts. This
projection is assuming that the busi-
ness cycle will be in an expansion or
normal mode at that time.
1997 1998 1999 2000 2001 2005*
11
*Projected
12. Cahners Business Information, Cahners Research, October 2001
275 Washington Street, Newton, MA 02458
www.cahnerscarr.com