FROM DEPRESSION DEPTHS TO BICENTENNIAL BOOMS, AD BUDGETS ROSE AND FELL -- MOSTLY ROSE -- WITH THE NATION'S FORTUNES: SPENDING SPREE

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Advertising in various primitive forms has existed since before the birth of Christ. But developments in the U.S. following the Civil War brought consumer advertising to the point of explosive growth as the 20th century began.

Exceptional population growth, the Industrial Revolution and a coast-to-coast railway system helped accelerate consumer advertising.

U.S. entrepreneurs with new mass-produced products made greater use of advertising than their European counterparts. There were fewer established marketing channels in the U.S., fewer government restrictions and vast areas with hundreds of cities and villages to be reached in order to spread the news about marketers' goods and services.

By the beginning of the 20th century, U.S. advertising was poised for remarkable growth.

In 1900, total advertising expenditures reached $450 million in current U.S. dollars. It was apparent that consumer advertising would become increasingly important in the century ahead.

In 1902, the Alfred Erickson Co. was founded and later combined with H.K. McCann Co. to form the McCann-Erickson agency, in 1912. These early pioneers devoted time and attention to the emerging profession. Alfred Erickson, an early advertising agent for Bon Ami, was one of the founders of the Audit Bureau of Circulations, while Harrison McCann, whose initial core account was Standard Oil, was a founder of the Association of National Advertisers.

During the 1920s and 1930s, McCann-Erickson published Advertising Trend Reports based on activity information such as newspaper ad linage and magazine ad-page volume. By the early 1930s, these reports took on the form of indexes, known as the McCann-Erickson Advertising Indexes.

During the Depression years, a debate about the values and evils of advertising heated up and, recognizing the need for a factual study by an impartial organization, the officers of the Advertising Research Foundation proposed in early 1937 that the Harvard Business School undertake such a study. Harvard asked for assistance from the ARF and other industry groups and L.D.H. Weld, then McCann-Erickson's research director, was recruited by the ARF to act as the representative.

The study, The Economic Effects of Advertising, was published in 1942. Shortly afterward, the exhaustive factual data unearthed in the study were linked to prior, less-complete details and all ad activity and index data were revised and converted to dollars. This is the foundation for current ad expenditure details and trend reports.

During the past 100 years several events and developments have influenced ad expenditure trends, beginning with the surge in the need and demand for advertising. Marketers of new mass-produced products turned to advertising to help them better control production and distribution, rather than relying solely on wholesalers and retailers. New media evolved to help fill the new demand.

By 1929, total U.S. advertising had risen to $2.85 billion, an increase of more than 500% over the level of spending in 1900. But the stock market crashed, the Depression began and advertising also went into decline.

Advertising didn't get back above the 1929 levels until a year after the end of World War II. By then, radio had become the dominant ad medium for most major package-goods advertisers.

But radio's reign quickly ended when TV became available throughout the U.S. The medium with both sound and motion was accepted quickly by both consumers and marketers.

Although television fueled an escalation in advertising in all media, most non-TV media lost some share of the larger budgets, with radio being affected the most.

The strong expansion in ad spending slowed again during the 1960s, due to the impact of the Vietnam War and a global rise in product ingredient costs. When it was announced in 1969 that tobacco advertising was to be discontinued in the broadcast media, the ad slump worsened.

By the time turmoil in the Mideast generated an oil embargo, an energy shortage in the U.S. and a recession in the early 1970s, ad budget growth had fallen well behind the rising pace of U.S. inflation.

The trend turned sharply upward in 1976, a year in which the recession ended, presidential elections were held and the country celebrated its bicentennial. The Gross National Product rose 10.9%, while ad spending soared 19.4% to $33.3 billion.

The economy continued to expand until 1980, when excessively high fuel costs and interest rates interrupted the expansion in real economic growth. But ad spending continued to significantly outpace the economy.

Marketers increasingly moved to rebate marketing strategies and the extra cost of these money-back features was offset by the savings in interest charges on backed-up inventories. Deregulation by the new Reagan administration that started in 1981 also unleashed new advertising demand, while airlines, hotels and resorts spent heavily to insure against expensive and empty airline seats, hotel rooms and resorts.

All of these new demand pressures caused media ad prices to rise faster than the prices many marketers were able to charge their customers for goods. Corporate profits were severely impacted and one of the first tactics marketers employed was to cut brand ad budgets while offering price concessions to retailers.

This allocation of promotional spending helped in the short term -- to move a brand onto and off the shelf -- but then the same type of short-term gains would be taken up by a brand's competitor and the effect nullified.

These pricing tactics had nearly run their course when, in 1990, Iraq invaded Kuwait and the subsequent international disruptions of the Persian Gulf War brought on a recession in the U.S. economy -- and a virtual depression for the ad industry. In 1991, advertising suffered its worst decline since the 1930s.

By 1993, the lagging recovery in advertising finally caught up with an expanding economy and advertising has been growing faster than the economy in each year since.

When the final numbers are in for 1999, we expect advertising expenditures to reach $212 billion, an historically all-time high relative to the economy.

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