Study: Cutting Spending Hurts Brands Long Term

BATAVIA, Ohio (AdAge.com) -- Household and personal care might once have seemed recession-resistant, but last year U.S.-based personal-care marketers actually cut ad spending faster than the general market. That could be potentially damaging for their brands, according to one study that shows that marketers that cut spending during a downturn lost share to private labels -- share they didn't regain. The reasons behind this surprising turn of events vary, but the implications are potentially dire. Research presented by University of North Carolina marketing professor Jan-Benedict E.M. Steenkamp in a Bernstein conference call last month indicates that companies that maintained or hiked ad spending generally, and TV spending in particular, lost limited share to private labels in recessions between 1985 and 2005. Companies whose ad spending didn't vary according to economic cycles -- based on an analysis of Ad Age data on global ad spending -- also tended to increase their stock prices an average of 1.3 percentage points annually ahead of others from 1986 to 2006, said Mr. Steenkamp, who analyzed global results of 26 marketers across multiple industries. 'Takes courage'"Companies and categories that are able to turn a recession into an advantage are [those] going against economic trends," Mr. Steenkamp said. "Ultimately, it takes courage. But it pays off in share and in terms of the stock market." About half the share lost to private labels in past recessions has never been recovered, he said. A variety of factors likely played into last year's spending retreat by package-goods marketers, and some contend the U.S. measured-media numbers don't tell the whole story. The pullback by U.S.-based marketers in the fourth quarter was likely prompted in part by the sudden strengthening of the dollar, which drained earnings from overseas almost overnight and spurred cuts in one of the only budgets that can be cut quickly: marketing. By contrast L'Oreal, a French company for which a stronger dollar boosted U.S. earnings in the fourth quarter, hiked media spending in the quarter. TNS data showed only a 3.6% spending decline for personal-care marketers overall last year, according to an Information Resources Inc. presentation in March, vs. the 8.8% decline for the U.S.-based group covered by Bernstein. That suggests spending by foreign multinationals lifted results pulled down by U.S. companies. The Goldman report showed some signs of strategic spending hikes in the fourth quarter. Procter & Gamble Co.-- and, to a lesser extent, Kimberly-Clark Corp. -- upped measured spending in paper categories facing the most erosion from private labels. And P&G hiked spending on laundry detergent, particularly on Gain, a midtier value brand that can benefit from trade-down but also is more vulnerable to private labels.

Study: Cutting Spending Hurts Brands Long Term

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