LETTERS TO THE EDITOR

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FASB change means pressure on agencies

Your editorial "Clarity welcome on promo costs" (Viewpoint, AA, July 22) is both appropriate and insightful.

We co-authored an Advertising Age Forum essay, "Learning the new math"(Viewpoint, AA, Aug 13, '01), that was, perhaps, the first on the potentially significant impact the new Financial Accounting Standards Board accounting rules would have on companies and on the marketing function.

As a result of the Dec. 15, 2001 deadline for compliance, companies began filing income statements incorporating the provisions of the new guidelines. Many consumer product companies reduced reported revenue by millions of dollars.

EITF Issues 00-14, 00-22, 00-25 and 01-9 effectively made virtually all trade and consumer promotion expenditures, and some advertising expenditures, reductions in revenue rather than expenses. These seemingly inconsequential accounting rules are now having a rather profound effect on many firm's income statements. Only now are we are beginning to see an inkling of understanding and comprehension on the part of the marketing and sales community.

With the recently mandated CEO and chief financial officer certification requirements for income statements, every line is being scrutinized. Our Forum column stated that sales promotion strategies would have to be re-thought. And that is proving true.

Many organizations will shortly begin the annual budgeting process. The sheer size of the marketing and sales promotion budget of most companies clearly mandates careful review. It may well force a formal and detailed re-thinking of both marketing and sales strategy expenditures.

Money not spent on consumer or trade promotion increases the revenue line. Therefore, there is no management incentive to spend funds that do not provide an adequate return on investment.

Advertising dollars, although most often characterized as an expense, would seem to have an apparent advantage. But, again, an ROI metric is more than likely to become requisite since dollars not spent or expensed will enhance the corporate margin and the bottom line.

In short, everything seems to be moving in the direction of "don't spend or invest in marketing, advertising or sales promotion unless you really have to." That's not good news for any sales, marketing or communication firm.

The advertising community must be prepared for what will now be an ongoing scrutiny of investments and returns. The industry as a whole must be ready to offer a vision of the value, the effectiveness and the efficiency of advertising as a useful investment of finite corporate resources.

That vision must clearly articulate both the short-term incremental and the longer-term brand-building capabilities (expressed as incremental product sold, return-on-investment or increase in brand equity) of advertising recognized as an expense vs. trade or consumer promotion programs recognized as a reduction of revenue.

Agencies must be prepared to "totally re-think" how advertising plans are designed and implemented in order to optimize this opportunity.

Let's hope they move faster now that the pressure is on than they did a year ago when we first raised the warning.

Don Schultz

Professor of Integrated Marketing

Medill School of Journalism

Northwestern University

Evanston, Ill.

Ron Lunde

Lunde Co.

Chicago

A brand's heritage too often neglected

I agree with Bob Garfield in his "Lowered expectations: Levi's continues tradition of bad ads" (AdReview, AA, July 29) that "there is nothing in either commercial that remotely reflects on the Levi's brand heritage, much less its status as an icon."

The problem is Levi's doesn't know how to both leverage its heritage and appeal to people today who don't know its heritage and iconic status.

Companies often think that leveraging the heritage/history of a company will keep it in the past and not make it relevant in the present and future. This is a fallacy.

Using the heritage of a company, particularly in the business climate we are in today, is actually a bonus. For example, there is AT&T's new campaign, citing that it is 124 years old, [that was] created in a bid for MCI customers. Customers like to know these days that a company has been around for a while and has a good track record both in its relationship with its customers and its accounting!

The "trick" is to really think outside the box and look, in perhaps unusual places, for suggestions, such as to historians and museum curators, who know how to make the past relevant. Historians can also predict the future and future trends based on patterns and events in the past.

Phyllis Barr

President

Barr Consulting Services

New York

Corrections

* In "Phillips is right" (Letters to the Editor, Aug. 5, P. 18), letter writer Tom Reilly's company was acquired since his letter was submitted. NextGeneration Network is now part of Regal CineMedia, New York, where he is VP-Sales.

* In "People & Players" (July 29, P. 17), three people identified in the caption to the photo from Bride's magazine and CBS News were part of the original picture but inadvertently not shown in the photo as published. They were: Penny Glazier, owner of Glazier Group and wedding venue Bridgewaters; Chris Botti, Columbia Records recording artist; and Kimberly Fasting Berg, director of creative and marketing services, Conde Nast Bridal Group.

* In "Consumer magazine advertising linage for April-June 2002" (July 29, P. 18), the publishing frequency for Fit Pregnancy was incorrectly listed as 12-times yearly. It is six-times yearly. Also, American Profile was listed under the Newspaper Sunday Magazines category. It should be listed under National Sunday Magazines.

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