February 5, 2008
Top Marketers Increasing Ad Budgets
The economic news of late hasn’t been great and many companies are expecting a tough row to hoe ahead, but top consumer product marketers are increasing or maintaining ad budgets instead of seeking cuts, according to AdAge.com.
Colgate-Palmolive, Energizer Holdings, Kellogg Co., Kimberly-Clark, Kraft Foods and Procter & Gamble are among the companies that have recommitted to their marketing efforts even as they look to reign in costs elsewhere.
Some national brands are increasing spending in an attempt to hold back a push by private label offerings and maintain consumer equity until the economy picks up again.
Irene Rosenfeld, chairman and chief executive officer at Kraft Foods, told analysts last week that the company’s marketing spending would be between eight and nine percent of sales by 2009. Ms. Rosenfeld is looking to the marketing investment to help the company build brand equity in categories such as cheese.
“The key to our future in cheese as it is in so many of our businesses is continuing to ensure that we have invested appropriately in quality, in marketing support and in innovation,” she said.
Discussion Questions: Do you expect that most companies will look to increase or maintain marketing expenditures this year? Why? What will higher or lower marketing expenditures mean for companies/brands when the economy improves?
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Economic downturns are always an opportunity for strong companies to grab market share by maintaining and even increasing marketing spend. Marginal players will likely be unable to reduce spending elsewhere to be able to avoid reductions in ad budgets. They will suffer as a result.
The impact of store brand growth is also a factor–particularly as the stronger retail players also step up their ad budgets to grab market share. The big CPG companies will keep up ad spending, but need to do so in a way that engages the consumer. This will mean stronger investments in direct, electronic, and social media–not just more print and TV/radio.
New product rollouts often lead to major ad budget growth. Just like retailers who compare comp store growth versus new location growth, CPG firms look at mature product growth versus growth through innovation. The question for CPG firms: is the ad budget increasing because mature products are being sustained in addition to the new items, or are the new products crowding out the old ones?
The push to squeeze more blood out of a turnip becoming less juicy is on. CPG companies will promote more to try to gain more market share, or even stay alive, in a stagnating pool. Retailers will conduct more sales–if that is possible.
True retail prices of all products will get further confused as most everything will be promoted as xx% off “regular” retail.
When the economy improves, there will probably be fewer retailers; changes in market share; winners and losers; and a continuation of an ever-changing marketplace. Strong, well marketed brands and retailers will thrive and others will go the way of Oxydol, Teel and Spry, Milgrim’s, Food Fair and Albers. These are times that try CPG companies’ and retailers’ marketing souls.
Of course there are choices here. Simply, it’s a market share play. Even though overall volume will be down, in a flat or stagnant market, the path to growth is through market share capture. Increasing marketing spend in this environment makes an almost incredible amount of sense.
In tough economic times, almost all categories of purchasing show an increase in “consideration time”–the amount of time and energy the consumer puts into deciding prior to the purchase. Not only does this effect “if” she buys, even more so, this effect impacts “which” she buys. The classic cycles in coupon redemption, promotional responsiveness, and general “value” demands by the consumer go hand in hand with economic downturns.
Into this environment, marketing is actually more effective, rather than less–always assuming that there is a definitive need or benefit to communicate which offers a competitive advantage.
From my perspective, it isn’t the quantity of marketing spend which should bear scrutiny, but the type, and the media used.
This time period is perfect for communicating legitimate product and brand benefits, clearly, delivered to the consumer with confidence and objectivity. Times are tough. Every purchase counts. If your product or brand delivers benefit in that way, then increased spend will generate increased market share.
I would say that they have no choice, really. If people stop buying things because of an external factor, marketers must spend money to convince them otherwise. I said in an earlier post that retailers need to do the same thing to keep sales up.
We are at a time where we need to coddle the consumer and make them confident that they can still spend money in our stores. The way we do that is expanded marketing tactics and exceptional customer service. We can’t do any of that if budgets are cut and labor is slashed.
I expect many companies to cut their advertising budgets during the current recession. The bigger companies that are willing to take a longer term view of their business will wisely hold steady or increase their ad spending. As another of today’s topics points out, when in recession, consumers turn to store brands. Many retailers have worked hard to improve the look and quality of their store brands. Are CPG companies willing to yield market share to their competitors and store brands by not undertaking advertising and sales efforts?
Rather than implementing across the board cuts in the advertising budget, smart CPG companies will look for ways to maximize the efficiency of their ad budgets, do more promotions and position their brands for growth when the economy improves.
CPG companies must keep up the marketing pressure through bad times as well as good. Perhaps more interesting is that some companies will stay even or reduce their spending. The strong companies position themselves to strike to be relentless in their drive. Easing back on marketing typically results in higher costs over the long term as the company tries to regain momentum or recover lost ground.
Even in a stagnant market, the biggest CPG companies are still in the business of battling each other for market share. And consumables are less likely to be impacted by a slowdown than discretionary purchases–Wal-Mart’s results lately seem to support this theory. So big advertisers with a long view are smart to be aggressive: They have a lot to gain in share and brand-building, as long as they keep other expenses in line.
Good to see that the major CPG brands are going to be aggressive about their brand positioning this year. As today’s other posting mentions, the threat of private label brands is very real, especially in the face of a soft economy.
The major brands are going to have to build demand to drive people into their retail partners. It will be up to the category captains to develop in-store promos as well as innovative new packaging to avoid sales declines.
While it is good to hear that the major brands are planning to spend more, the real key will be to see how creative they are with these dollars, especially in taking advantage of new in-store vehicles as well as electronic media.
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Economic downturns are always an opportunity for strong companies to grab market share by maintaining and even increasing marketing spend. Marginal players will likely be unable to reduce spending elsewhere to be able to avoid reductions in ad budgets. They will suffer as a result.
The impact of store brand growth is also a factor–particularly as the stronger retail players also step up their ad budgets to grab market share. The big CPG companies will keep up ad spending, but need to do so in a way that engages the consumer. This will mean stronger investments in direct, electronic, and social media–not just more print and TV/radio.
New product rollouts often lead to major ad budget growth. Just like retailers who compare comp store growth versus new location growth, CPG firms look at mature product growth versus growth through innovation. The question for CPG firms: is the ad budget increasing because mature products are being sustained in addition to the new items, or are the new products crowding out the old ones?
The push to squeeze more blood out of a turnip becoming less juicy is on. CPG companies will promote more to try to gain more market share, or even stay alive, in a stagnating pool. Retailers will conduct more sales–if that is possible.
True retail prices of all products will get further confused as most everything will be promoted as xx% off “regular” retail.
When the economy improves, there will probably be fewer retailers; changes in market share; winners and losers; and a continuation of an ever-changing marketplace. Strong, well marketed brands and retailers will thrive and others will go the way of Oxydol, Teel and Spry, Milgrim’s, Food Fair and Albers. These are times that try CPG companies’ and retailers’ marketing souls.
Of course there are choices here. Simply, it’s a market share play. Even though overall volume will be down, in a flat or stagnant market, the path to growth is through market share capture. Increasing marketing spend in this environment makes an almost incredible amount of sense.
In tough economic times, almost all categories of purchasing show an increase in “consideration time”–the amount of time and energy the consumer puts into deciding prior to the purchase. Not only does this effect “if” she buys, even more so, this effect impacts “which” she buys. The classic cycles in coupon redemption, promotional responsiveness, and general “value” demands by the consumer go hand in hand with economic downturns.
Into this environment, marketing is actually more effective, rather than less–always assuming that there is a definitive need or benefit to communicate which offers a competitive advantage.
From my perspective, it isn’t the quantity of marketing spend which should bear scrutiny, but the type, and the media used.
This time period is perfect for communicating legitimate product and brand benefits, clearly, delivered to the consumer with confidence and objectivity. Times are tough. Every purchase counts. If your product or brand delivers benefit in that way, then increased spend will generate increased market share.
I would say that they have no choice, really. If people stop buying things because of an external factor, marketers must spend money to convince them otherwise. I said in an earlier post that retailers need to do the same thing to keep sales up.
We are at a time where we need to coddle the consumer and make them confident that they can still spend money in our stores. The way we do that is expanded marketing tactics and exceptional customer service. We can’t do any of that if budgets are cut and labor is slashed.
I expect many companies to cut their advertising budgets during the current recession. The bigger companies that are willing to take a longer term view of their business will wisely hold steady or increase their ad spending. As another of today’s topics points out, when in recession, consumers turn to store brands. Many retailers have worked hard to improve the look and quality of their store brands. Are CPG companies willing to yield market share to their competitors and store brands by not undertaking advertising and sales efforts?
Rather than implementing across the board cuts in the advertising budget, smart CPG companies will look for ways to maximize the efficiency of their ad budgets, do more promotions and position their brands for growth when the economy improves.
CPG companies must keep up the marketing pressure through bad times as well as good. Perhaps more interesting is that some companies will stay even or reduce their spending. The strong companies position themselves to strike to be relentless in their drive. Easing back on marketing typically results in higher costs over the long term as the company tries to regain momentum or recover lost ground.
Even in a stagnant market, the biggest CPG companies are still in the business of battling each other for market share. And consumables are less likely to be impacted by a slowdown than discretionary purchases–Wal-Mart’s results lately seem to support this theory. So big advertisers with a long view are smart to be aggressive: They have a lot to gain in share and brand-building, as long as they keep other expenses in line.
Good to see that the major CPG brands are going to be aggressive about their brand positioning this year. As today’s other posting mentions, the threat of private label brands is very real, especially in the face of a soft economy.
The major brands are going to have to build demand to drive people into their retail partners. It will be up to the category captains to develop in-store promos as well as innovative new packaging to avoid sales declines.
While it is good to hear that the major brands are planning to spend more, the real key will be to see how creative they are with these dollars, especially in taking advantage of new in-store vehicles as well as electronic media.