Ad ratios and budgets grow

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Ad spending is growing at a healthy rate this year and is expected to continue its strong growth in 2007, according to Schonfeld & Associates' Advertising Ratios & Budgets report, issued last month.

The report is the 30th edition of Schonfeld's annual study, which tracks total ad spending as a percentage of net sales for more than 5,400 companies and more than 300 industries.

Total ad spending is projected to increase 8.6% this year to $333.60 billion and by 8.6% in 2007 to $362.28 billion. Last year, total ad spending was up 7.7% over 2004.

"The growth reflects the continuing health of the economy," said Carol Greenhut, president of Schonfeld & Associates, Libertyville, Ill.

Schonfeld's projection is more optimistic than those of other research companies, which also issued ad spending forecasts last month.

Others lower predictions

On June 28, Robert Coen, senior VP- director of forecasting at media agency Universal McCann, lowered his ad growth projection for this year downward to a 5.6% increase. In December, Coen had predicted 5.8% ad growth (see story, page 6 ).

Also last month, TNS Media Intelligence lowered its ad spending forecast for this year to a 4.9% increase, down from a projected 5.4% issued in January.

"Some of the softening in advertising spending we'd seen toward the end of the fourth quarter continued at a greater rate into the beginning of the year than we'd expected it would," said Jon Swallen, senior VP-director of research at TNS, explaining the downward revision.

However, while TNS revised downward certain media categories-including cable TV, radio, newspapers and b-to-b publications-it revised other categories upward, including the Internet and Spanish-language media.

Schonfeld's report found that the average ad-to-sales ratio is projected to be 2.2% this year.

Consumer products advertisers will have the greatest ad-to-sales ratio this year, spending 9.6% of total net sales on advertising. Also, consumer products advertisers will have projected ad spending growth of 6.6% and sales growth of 5.9% this year.

Within consumer products, the specific industry categories (based on Standard Industrial Classification numbers) with the highest projected ad-to-sales ratios this year are wood household furniture (18.4%); distilled and blended liquor (16.8%); and food and kindred products (11.9%).

Other categories that are projected to have higher than average ad-to-sales ratios this year are health care (3.6%); services excluding health care (3.4%); communication products and services (3.4%); construction and real estate (2.5%); and electronics and scientific instruments (2.3%).

The computer and software category will have an estimated 1.9% ad-to-sales ratio this year, with 7.9% ad growth and 7.2% sales growth.

Projections for 2007

Schonfeld also gave projections for 2007 ad spending in its report.

Automotive is expected to be the highest-spending industry next year, increasing 5.3% to $30.6 billion. The pharmaceutical industry will be another big spender, increasing 10.5% to $24.9 billion, driven in large part by direct-to-consumer advertising, Schonfeld predicted.

Ad spending by telecommunication service companies will be up 6.6% in 2007, reaching $24.2 billion, while ad spending for wireless communications services will rise an estimated 8.5% to $12.4 billion, according to Schonfeld's forecast. PC manufacturers will increase ad spending 5.3% to an estimated $2.4 billion in 2007, while advertising growth for prepackaged software will rise 9.1% to $4.5 billion.

"Although some traditional advertising media are seeing a decline, the variety of newer advertising channels has resulted in increased total marketing activity," Greenhut said.

Indeed, TNS upped its forecast for Internet ad spending this year from its January projection of 9.1% to a revised 13.0%.

Meanwhile, it revised downward its projections for traditional media, including cable TV (from an earlier forecast of 8.4% growth to 6.0%); radio (from 3.6% to 2.1%); newspapers (from 4.3% to 0.2%); and b-to-b magazines (from 1.0% to a 0.3% loss).

"Broadly, it is a continuation of what we've seen over the past few years, with strong competition from the Internet for b-to-b magazines," said TNS' Swallen.

"Throughout the first half of the year, we've seen a reduction in both ad pages and ad dollars for the technology sector, particularly for computer products."

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