Budget planning: Marketers chart a course without map

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Marketers, agencies and media companies are still grappling with how to plan for growth when the economic forecast is still so cloudy.

Marketers, anticipating that the bear market will continue, are bracing for a third straight year of diminished depressed capital markets and tight cost controls. They have, however, opened their wallets somewhat, as witnessed during the recent network upfront market, and budgets for next year appear to be struggling upward as marketers put new product introductions back on track or simply decide to spend to increase sales and pump up revenue.

"Marketers are reluctant to make changes, but it's becoming a do-or-die situation," said Russel Wohlwerth, principal of Select Resources International, West Hollywood, Calif., an agency consulting firm. "There's a huge pent-up demand for change."

Advertisers are antsy after two years of lean budgets and postponed product launches, observers said. Many budgeting decisions for last year's fourth quarter were delayed due to the aftershocks from the Sept. 11 attacks, which came just as companies were gearing up 2002 budgets. Now, as the 2003 budgets fall into place, Wall Street mavens are still grumbling about a possible "double dip" into recession, and war in Iraq is still on the horizon.

So while marketers expect to send more next year, they are reserving the right to change course.

"Among marketers, the mood is doubt and a question of which way to turn," said Cleve Langton, director of worldwide business development at Omnicom Group's DDB Worldwide and head of the American Association of Advertising Agencies' New Business Committee.

opening the purse

Some large advertisers have started to carefully loosen media purse strings in the fourth quarter. Media companies-most notably broadcasters-are reporting that advertisers have begun to commit to media buys on slightly longer lead times. TV time is so tight that cancellations on upfront buys for the first quarter are at historic lows (AA, Nov. 18, P. 3), and scatter market pricing for network shows is 15% to 20% higher than upfront pricing set last June.

Indeed, media spending does appear to be on an upswing. Spending totals tracked through September by Taylor Nelson Sofres' CMR show spending in some media has caught up or surpassed the records set in 2000 (see story at right).

A number of clients are increasing budgets by a minimum of 10% for next year, said Tom Carroll, president-Americas, Omnicom's TBWA/Chiat/Day, New York.

"People aren't just going to throw their hands up" and stop spending on marketing, he said. "Nobody's saying `let's be flat and happy.' "

So far, auto marketers-the top ad spenders by category-plan to spend more in 2003 to support new model launches and additional incentive programs. Entertainment companies will spend generously to support their film releases slated for 2003. And package-goods marketers are planning a slew of product launches that should also translate into more spending next year.

Automakers, who provided media a shot in the arm last winter with 0% financing campaigns, are set to do it again in 2003-but say they will step on the brakes if it appears consumers are not buying.

If the industry mirrors October 2002's nearly 25% year-over-year sales drop in coming months, "we reserve the right to change our media mix," said Steve Sturm, VP-marketing, Toyota Motor Sales USA's Toyota Division.

John Casesa, an auto analyst with Merrill Lynch & Co., projected the auto industry's 2003 ad spending will be flat to up roughly 5%. The reasons, he said, are "pretty heavy launch activity" around new models, particularly by Detroit's carmakers, and increased competition.

General Motors Corp., the country's largest advertiser, plans "a moderate increase" in 2003 ad spending, said C.J. Fraleigh, executive director-corporate advertising and marketing. But he said GM is continuing to "refine and optimize" its media mix for next year. Meanwhile, Ford Motor Co.'s flagship Ford Division will raise its 2003 U.S. ad outlays by less than 25%. Steve Lyons, president of the unit, said Ford's latest TV network upfront buy was two-and-a-half times larger than the prior year, but the move resulted in diminished cable TV and print buys.

Home and personal-care marketers have indicated plans to increase advertising and marketing spending for 2003. Package-goods behemoths Procter & Gamble Co. and Unilever are both planning to use savings from operations to fund product launches and additional spending.

Chief Financial Officer Clayton Daley said P&G plans to increase ad spending in fiscal 2003, which ends June 30, and already has increased outlays by amounts exceeding this year's savings of $120 million to $125 million per quarter from its restructuring program. Unilever also looks to increase ad spending as part of its "Path to Growth" restructuring program, said Howard Green, senior VP-investor relations, in a recent conference call.

Still, Jim Gingrich, an analyst for Alliance Capital Management Co.'s Sanford C. Bernstein, in a recent report added that the favorable effects of savings will diminish as 2003 goes on, which could put a damper on spending later in the year.

entertainment boost

Entertainment marketers are pouring more money into TV advertising for two key reasons. More major studio movies will hit theaters in 2003 than this year, and more advertising dollars are projected per movie. Due to the evolution of home video from a videotape rental business to a faster-growth business of selling DVDs, more studios are raising ad budgets on each title.

According to industry estimates, movie studios spent $925 million for theatrical and home video advertising with the six broadcast networks during June's upfront market, covering September through next August. That is $250 million more than the year before, according to advertising executives.

It all looks like good news, but the environment remains very fragile and economic indicators remain mixed. The deciding factor will be U.S. consumers, who spent to prop up the economy during the downturn, and now appear to be losing steam. Unemployment is climbing, while personal bankruptcies and credit delinquency-signs of overspent consumers-are on the rise. But consumers have consistently surprised marketers with their ability to spend throughout the downturn. As the crucial holiday retail season begins, the bear may be going into hibernation, but advertisers are still tiptoeing carefully around its cave.

contributing: alice z. cuneo, wayne friedman, jean halliday, jack neff, lisa sanders

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