MEXICAN INDUSTRY REELS FROM PESO FREEFALL

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MEXICO CITY-Mexico's advertising industry is still reeling from the effects of one of the deepest economic recessions in modern times.

With advertising spending down between 25% and 30% in the first quarter of this year, agencies are laying off staff, downsizing operations and rethinking strategy for themselves and their clients.

There is talk of buyouts, bankruptcies, and increased foreign involvement, while advertisers hastily revise marketing plans.

A January study done by Gallup Mexico found 69% of consumers have been affected by the crisis, and with consumer spending predicted to fall 8% this year, no one is forecasting growth.

Survival is paramount. "Most people are thinking about how they are going to get through 1995," lamented John Hoyle, president of Panamericana Ogilvy & Mather here.

"For this year we are trying to hold onto our peso income." Dollar earnings have halved with the 50% plunge in the peso against the dollar since the December 1994 devaluation, a blow because the majority of agency income is peso-based.

Staff cutbacks have been felt across the board as salaries make up the bulk-70%-of agencies' costs. A typical example: D'Arcy Masius Benton & Bowles, which has cut back from 134 staffers last year to 120.

Rodolfo Cavalcanti, president of BBDO Mexico, estimates that as many as 40 of the smaller agencies will disappear this year, although the overall impact on the industry will be negligible.

Jose Alberto Teran, president of the Mexican Association of Advertising Agencies, anticipates increased foreign share of Mexican agency equity.

High-spending multinationals appear to be maintaining their budgets so far in 1995, although many have their hands tied by entertainment giant Grupo Televisa, which books most of its TV advertising-85% of it for 1994-a year in advance through its so-called French Plan.

But although product launches are being held off and advertising budgets cut or postponed, some companies-particularly local ones-are upping ad spending to grab bigger market share from competitors, even if there is not an immediate payback in higher profit margins.

Mexican producers are in a strong position to do this, as the cost of improted goods has leapt by 50% vis-a-vis local products with devaluation.

The good news for the local producers is confirmed by Gallup Mexico's study where 410 people in five of Mexico's major cities were interviewed about how the crisis was changing their consumption habits.

The study found that 58% will reduce spending on imported foods and 47% will reduce spending on imported alcoholic beverages.

The colder economic climate has also forced advertisers to reassess their marketing approach. One of Mexico's top banks, Bancomer, for example, has cut advertising spending at DMB&B by 40%.

Sensitive to the poor image Mexican banks have among the public because of skyrocketing interest rate charges, Bancomer has started to produce simple commercials with low production value, themed: "Our commitment is to serve you." This, said Javiar Arnau, director of communications, underpins Bancomer's "low key, serious message but doesn't overpromise."

Promex, a Guadalajara bank, has not shifted its marketing strategy but is using more aggressive ploys such as door-to-door selling and promotions.

Agencies such as J. Walter Thompson have taken a proactive stance by organizing a seminar on confronting the crisis for staff and clients.

Emphasizing "value for money" is key in times of recession, said Strategic Planner Jennifer Urich, and a strategy supported by the Gallup study.

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