Household and personal care might once have seemed recession-resistant, but last
year U.S.-based personal-care marketers actually cut ad spending faster than the
general market. That could be potentially damaging for their brands,
according to one study that shows that marketers that cut spending during a
downturn lost share to private labels - share they didn't regain.
According to TNS Media Intelligence data analyzed by Sanford C. Bernstein last
month, eight U.S.-based household and personal-care marketers covered by the
company cut measured media spending an average of 8.8%, compared with a 5% cut
among advertisers overall. The fourth quarter, in particular, was the
culprit, according to separate research by Goldman Sachs based on TNS data,
which found that U.S.-based household, personal-care and beauty marketers
slashed spending 14% on average in the quarter, reversing a 3% year-on-year
increase in the third quarter.
The reasons behind this surprising turn of events vary, but the implications are
potentially dire. Research presented by University of North Carolina
marketing professor Jan-Benedict E.M. Steenkamp in a Bernstein conference call
last month indicates that companies that maintained or hiked ad spending
generally, and TV spending in particular, lost limited share to private labels
in recessions between 1985 and 2005.
Companies and brands that went with the flow of the boom-bust cycle by cutting
ad spending - as data suggest household and personal-care players did last year
- tended to lose more share to private labels both immediately and longer term.
Companies whose ad spending didn't vary according to economic cycles - based on
an analysis of Ad Age data on global ad spending - also tended to increase their
stock prices an average of 1.3 percentage points annually ahead of others from
1986 to 2006, said Mr. Steenkamp, who analyzed global results of 26 marketers
across multiple industries.
"Companies and categories that are able to turn a recession into an advantage
are [those] going against economic trends," Mr. Steenkamp said.
"Ultimately, it takes courage. But it pays off in share and in terms of the
stock market."
About half the share lost to private labels in past recessions has never been
recovered, he said.
A variety of factors likely played into last year's spending retreat by
package-goods marketers, and some contend the U.S. measured-media numbers don't
tell the whole story.
The pullback by U.S.-based marketers in the fourth quarter was likely prompted
in part by the sudden strengthening of the dollar, which drained earnings from
overseas almost overnight and spurred cuts in one of the only budgets that can
be cut quickly: marketing. By contrast L'Or"al, a French company for which
a stronger dollar boosted U.S. earnings in the fourth quarter, hiked media
spending in the quarter.
TNS data showed only a 3.6% spending decline for personal-care marketers overall
last year, according to an Information Resources Inc. presentation in March, vs.
the 8.8% decline for the U.S.-based group covered by Bernstein. That
suggests spending by foreign multinationals lifted results pulled down by U.S.
companies.
The Goldman report showed some signs of strategic spending hikes in the fourth
quarter. Procter & Gamble Co., and, to a lesser extent, Kimberly-Clark Corp.,
upped measured spending in paper categories facing the most erosion from private
labels. And P&G hiked spending on laundry detergent, particularly on Gain,
a mid-tier value brand that can benefit from trade-down but also is more
vulnerable to private labels.
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