Branding: Is it worth it?

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Most b-to-b marketers looking at brand advertising these days are saying, "We can't afford it."

But Jim Davis, senior VP-chief marketing officer of SAS Institute, looks at brand advertising and says, "We can’t afford not to." The Cary, N.C.-based maker of business software is bucking the trend, spending more on advertising in the first half of this year than during all of last year.

B-to-b marketers know the axiom about companies that continue advertising through a recession are the ones that will be better off when the recovery begins. But in the current economic downturn, few are following that philosophy. Instead, they’re trimming budgets, placing a renewed focus on return on investment and often planning their marketing spending on a quarter-to-quarter basis.

"I’ve talked to maybe 20 or 30 agencies," says Gordon Hochhalter, partner at Mobium Creative Group, Chicago. "They’re telling us all of their clients across the board are cutting back. So much for philosophy."

SAS is an exception. The software company is pounding the marketplace with its brand message. It started with a print campaign last summer in Fortune and other management publications, and this year expanded to CNN and other cable and broadcast outlets. The company also recently signed a deal to sponsor the Senior PGA Tour stop in North Carolina.

A primary reason for doubling its advertising budget is an increased competitive threat to SAS’ core business. As information technology becomes increasingly important to businesses, SAS has seen rising competition in business intelligence software, a niche the company has dominated since its founding 25 years ago. Oracle Corp., SAP AG and others have begun marketing packages designed to compete with SAS. Along with its ad agency, Howard, Merrell & Partners, Raleigh, N.C., SAS subscribes to the notion that spending during a downturn can stretch an ad dollar as TV spots face less clutter than at the height of the Internet frenzy.

"Market leaders market their way through a recession," said Mike Ganey, senior VP of Howard, Merrell. "All other companies try to save their way through a recession."

Another reason for the boost in spending is SAS’ belief that its product, which can help companies identify customers ripe for upselling or cross-selling, is even more attractive in tough times. SAS is also free to spend in this downturn, because, although it is mulling an initial public offering, it remains privately held. "We don’t have the pressure to meet quarterly numbers," Davis said. "We look at things on an annual basis."

Perhaps most important, SAS is led by true believers in sales and marketing. "My background is in computer sciences," Davis said, "but I’m a convert to the world of marketing. I’m a firm believer in marketing."

Shying away from branding

The positive atmosphere regarding marketing at SAS is rare. Elsewhere, marketing expenditures are more suspect than ever. While cash-rich businesses such as IBM Corp. and Microsoft Corp. continue to spend aggressively, many b-to-b companies are slashing ad budgets. Part of the reason is that brand advertising is a difficult sell, thanks to the excesses and unfulfilled promises of the Internet era.

Boards of directors are rejecting brand advertising spending with little debate, said Tom Stein, president of Stein Rogan + Partners, New York. The pendulum has swung against advertising spending with no immediate lead generation or sales payoff. "The people who would take the approach to spend lavishly—relatively speaking—who are willing to spend to own the market because there’s an opportunity to do so, they’re getting slammed for it, even if it’s a good idea."

Tom Simons, president-creative director of Partners + Simons, Boston, agrees that brand advertising is a difficult sell these days, but welcomes the belt tightening. "Obviously, we saw a lot of advertising that was simply created in order to accomplish the very soft and difficult-to-measure objective of building brand," he said. "Frankly and thankfully, that has come back to earth. The drugs have worn off."

Another key reason that companies are cutting back on marketing is tactical: reduced spending gives a quick boost to the corporate bottom line.

"Companies are laying off people; they’re reducing investment in research and development, the lifeblood of a company; and they’re looking at cutting the marketing budget," Stein said. "Certainly, it’s fair that we’re fair game."

Targeted marketing

Companies are approaching cutbacks in different ways. Palatine, Ill.-based Square D Co., a manufacturer of electrical distribution equipment and a division of Paris-based Schneider Electric SA, reduced its expenditures in brand advertising and other marketing arenas.

A few areas, however, are off limits. "The marketing activities that we drive through our channel, primarily electrical distributors—we have not cut any of those programs at all," said Ralph Harris, Square D’s director -marketing operations.

The company has boosted spending on its NASCAR sponsorship of Winston Cup driver Bobby Hamilton and is leveraging it through promotions, advertising and event marketing aimed at the channel. It offers Winston Cup race tickets and merchandise through distributors in a promotion designed to strengthen its ties to the channel and, in turn, boost the channel’s ties with key grassroots audiences, such as residential electrical contractors. Square D touted this promotion, called the Victory Lane Sweepstakes, in Electrical Contractor.

The results were immediate. "We saw about a 54% increase in the order rate from the participating distributors compared with what they had purchased in the previous 18 months," Harris said. Harris estimates that Square D, by the end of the race season, will have entertained about 10,000 distributors and customers at NASCAR races.

Some companies are slashing budgets for brief periods, hoping to ride out the downturn.

Blackboard Inc., a Washington, D.C.-based supplier of e-education enterprise software for institutions such as Amherst College and Yale University School of Medicine, has deeply slashed its advertising budget for the second half of the year.

"There’s a profit imperative for Q3 and Q4," said Stein of Stein Rogan, Blackboard’s agency. "Advertising spending and, to some extent, direct spending have been significantly curtailed. The sense is that there’s enough momentum, that the sales pipeline is robust enough, and that the brand has achieved a high enough level of awareness and market penetration that they have the luxury of reining it in. ... I think it’s a justifiable decision and one that is right for them."

Cutting budgets common

The most common approach to the downturn seems to be cutting budgets, but not abandoning marketing efforts completely. "The established companies with whom we work, while they’re squeezing the penny until Lincoln screams, nevertheless are keeping the flag flying," said Rick Segal, chairman of HSR Business to Business Inc., Cincinnati. The question now is how long the softness in the economy will last, and how long a company can hold back on ad spending before it damages its brand recognition.

"I do not think you can starve marketing communications for any considerable and sustained length of time without it impacting you negatively," Segal said.

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