Marketing in uncertainty

By Published on .

Many advertisers' budgeting discussions became academic Sept. 11. With few precedents to compare to that day's tragic events and aftermath, advertisers will begin 2002 budgeting in the dark.

"Long-term planning is impossible. ... I don't think we will see a lot of clarity for some weeks," said Brad Brinegar, CEO of Bcom3 Group's Leo Burnett USA. "We'll be in planning, reacting and rethinking mode for months to come."

Perhaps the closest possible parallel to today's situation is the period of the Persian Gulf war. A report from the Conference Board noted the slowing economic conditions around Sept. 11 were similar to those at the time of the Iraqi invasion of Kuwait in August 1990. The Persian Gulf War was fought from January to February 1991; the recession lasted from July 1990 to March 1991.

If major advertisers act as they did in 1991, spending will slow next year. In 1990, as the economy slid into recession, total U.S. ad spending rose 3.9%, according to data from Robert J. Coen, senior VP of Interpublic Group of Cos.' Universal McCann. As the economy pulled out of recession, ad spending dropped 1.2% in 1991, the last year to see a decline. Spending for the top 100 advertisers rose 5.6% in 1990 and fell 2.1% in 1991, according to Advertising Age.

Prospects vary for the top 10 advertising categories.

Major retail chains have yet to declare how ad spending and media messages will be affected for the coming holiday season and beyond, though the National Retail Federation after Sept. 11 lowered its fourth-quarter sales growth prediction to 2.2 % from 4%. A Kmart Corp. spokesman noted the discounter, like all retailers, will adjust ad schedules on a monthly or even more frequent basis depending on the economy and sales heading into the holiday season.

Industry watchers predict a bumpy road for autos. Jim Sanfilippo, exec VP at auto consultancy AMCI, Detroit, said the car industry is likely to make some ad budget cuts and give ads a more somber tone after the attack.

Many observers expect the industry to cut ad spending, "but the smart thing to do would be to increase ad spending and increase deals to keep manufacturing up and running," said John Bulcroft, president of consultancy Advisory Group and a former auto ad exec.

It took consumers until the mid-1990s to regain the sense of prosperity they had in the 1980s and return to buying cars en masse, said Susan Jacobs, president of an industry consultancy bearing her name. "This is the aspect that takes the longest.

To rev sales, General Motors Corp. and Ford Motor Co. last week announced interest-free loans with ads from Interpublic Group of Cos.' McCann-Erickson, Troy, Mich., and WPP Group's J. Walter Thompson USA, Detroit, respectively.

Movie studios will make some marketing cutbacks in the short term as they postpone releasing some films with terrorist or violent content. However, "Hardball," which took $9.4 million, was the highest-grossing movie the weekend of Sept. 14-16. Total movie sales came in at $66.4 million, up 22% vs. the same weekend a year ago. But the figure was down 13% vs. the previous weekend.

With financial markets battered by selloffs since the market's reopening Sept. 17 and many companies burdened with the expense of relocating thousands of employees, things look grim for financial advertising in the short term. Brokerages and insurance companies slashed ad budgets this year to accommodate shrinking revenue. Now they are expected to cut back even more.

Drug companies offer one of the few bright spots for advertising. "Direct-to-consumer advertising is a very important component of a lot of pharmaceutical companies' overall promotional efforts," said Mark Ravera, analyst with independent research firm Mehta Partners, New York. "I don't believe that will slow down, because pharmaceutical companies have very aggressive sales and earnings projections they need to meet."

Ad spending in the battered telecommunications sector is likely to climb next year. As AT&T Corp.'s four constituent parts carve out identities, each is likely to spend handsomely to create a new image. Other relatively young telecom entities-Verizon Communications and Cingular Wireless-are committed to building nascent brands for the long haul.

The slumping computer sector could get some relief in sales. Analysts say companies' demand for data storage and backup systems following the terrorist attacks could mean a resumption of tech spending. However, it remains doubtful technology ad spending will increase even modestly in 2002 since spending often lags at least six months behind economic recovery.

The travel category faces dim near-term prospects given terrorism and economic woes (See P. 4).

Staples such as food and household and personal care goods have fared well through previous wars and recessions.

An analysis by Credit Suisse First Boston analyst Carol Warner Wilke noted that in 1990, as the nation went into recession, cosmetics companies' revenues grew by 11% and household products' by 14%, while gross domestic product grew a scant 1.9%. In 1991, at the peak of the recession, GDP shrank 1.1%, but cosmetic company revenues grew by 7% and household products by 6%.

Fast food chains have not changed their immediate marketing plans, but some restaurants, such as McDonald's Corp., are expected to make cuts based on the slowdown.

Contributing: Hillary Chura, Alice Z. Cuneo, Tobi Elkin, Wayne Friedman, Jean Halliday and Kate MacArthur

Most Popular
In this article: