It happened during the 1991 recession and times before it, but it may not be the best tactic to take if there's a recession in the new millenium, claim brand marketing and consumer pundits.
Responding to Advertising Age's speculation that mid-October's two-day 416-point drop in the Dow Jones Industrial Average and rising interest rates are signs we may be on the verge of an economic downturn equivalent to the one that exploded out of the 1987 stock market crash, the experts show that tactical history should not repeat itself.
"There's very little correlation between the stock market and ad spending," says Robert Coen, senior VP of forecasting at McCann-Erickson Worldwide, New York. "The strongest impression I've had in this regard is in the fall of 1987 with the severe stock market drop. We indicated that 1988 was going to be a good year for the advertiser and it did turn out to be."
In 1988 advertising spending increased 7.7% over 1987, continuing the upward climb it had throughout the early 1980s. However, during 1991's recession advertising volume dipped slightly 1.6%, according to data compiled by Mr. Coen.
If there's an economic downturn, marketers would fare better in terms of sales and brand image if they plugged along as usual without cutting spending or slashing prices, argues Ira Matathia, CEO of Brands Future Group, a unit of Young & Rubicam, New York. Consider Procter & Gamble Co., which did not cut ad spending in the late '80s and early '90s and managed to increase sales and earnings (excluding any restructuring charges) during that time.
P&G's "progress in every one of the last major recessions is no accident," he says. "Everyone let up the gas on spending and Procter was smart with increasing spending."
P&G STANDS OUT
From 1990 to 1991, P&G was the only marketer among 1990's five biggest U.S. advertisers to increase spending in 1991.
"If there is to be another downturn in the economy the automatic knee-jerk reaction by most corporations. . .is to move the merchandise," says Douglas Raymond, president-CEO of the Retail Advertising & Marketing Association. "One of the prices that has paid for that [move] is the total loss of any brand identity because it gets mired in a consistent 40%-off-this-week-only barrage of messages."
A DDB Worldwide "Life Style Study" on consumer brand loyalty reveals that consumers' "self-perceived brand loyalty" loosely reacts to changes in the U.S. Gross National Product. As the GNP rose and fell during the past decade, so did brand loyalty and consumer confidence (though '98 was an exception).
"When the economy starts to sour it is easy to say you don't have the time to worry about your image, but it is the time to worry most about your image because everybody can scream 40% off this week only, in good times or bad times," says Mr. Raymond.
"Price discounting doesn't necessarily fit with sustaining brand image," agrees Yankelovich Partners CEO J. Walker Smith. "Although those kinds of price promotions and discounting have become common."
A SMALL SPLURGE
Trend data compiled by Yankelovich Partners reveals consumers actually splurge a little when money is tight as a way to treat themselves to some small indulgences. For instance, before the 1987 stock market crash, 47% of consumers reported that they economized or planned to economize on food purchases as a way to reduce expenses. A few months after the crash, that figure dropped to 42%.
In another finding, at the start of 1987 45% of consumers said they wait for goods to go on sale before they bought, whereas a year later, only 29% waited.
Similar results were found by a 1991 nationwide survey conducted by ICR Survey Research Group for Supermarket Business. According to the survey, most consumers had not cut their total weekly supermarket expenditures and had not changed supermarkets in search of lower-priced stores; 47% said they purchased prepared foods at about the same rate as before the recession.
"At the end of the '80s consumers gave up the willingness to make a lifestyle sacrifice. Their lifestyle priorities came first," says Mr. Smith.
SOME WILL FARE WELL
Those marketers that recognize how consumers redefine what they're looking for in tough times, he says, will fare well in the event of another economic downturn. He says that MasterCard's "There are some things money can't buy" ads and Honda's "Simplify" are two examples on the right track.
"Those two ads are all about the intangibles," says Mr. Smith. "MasterCard's is saying if you don't have a lifestyle first and foremost you fall out. Honda Accord's 'Simplify' gives a brief moment of tranquility. These marketers are