Why companies should advertise on TV during a recession

There is a depressing article on Brand Republic saying that total TV revenues for May could be down as much as 10%. It says that “the expected May fall comes as clients tighten advertising budgets amid worsening economic conditions”. In light of this, I offer an alternative opinion, and state six reasons why advertisers and agencies should have nothing to fear.

1. Higher real incomes: Although economic inequality is rising, real incomes rose for nearly all of the population between 1996-2006. If it weren’t for the rising levels of borrowing, this could have insulated people against a recession. As it is, some of their increased spending will be going on luxury items, which are of course…

2. Recession-proof industries: Not all industries suffer in an economic downturn. Wikipedia lists 15 recession-proof industries. These include such essentials as “necessities” but also “entertainment” and “cosmetics”. Last time I checked, these products and services weren’t inextricably linked to human survival. Advertising has made us consider them essential. And the advertising that does that best is…

3. Brand-building: Particularly with the FMCG industry, there is the temptation to use direct response advertising. These give a short-term boost but not necessarily a long-term. Aside from “brought forward” sales and provoking competitor retaliation, there are the effects of having the brand associated with promotional offers, rather than any emotional associations.

PwC Thinkbox chart
Source

If advertising becomes more about branding than short-term sales, the overall benefits will be greater. And of course brand-building is particularly suited to TV advertising. A PriceWaterhouseCooper/Thinkbox study shows that nearly 45% of TV’s revenue effects are delivered after the year of the investment. (Of course, some might say this is an argument in favour of postponing spend for a year but I would dispute that). Not only will the effects be longer-lasting, but they will be longer-lasting among more people. Because…

4. Commercial impacts are up: As we move to multi-channel, we watch more TV and more commercial TV. Among DTR households, commercial impacts are in fact 5% higher (according to BARB, ACB/LBS and Skyview data). And of course, brand-building ads are more likely to be DTR proof than direct response. So, not only are more people viewing the ads but…

5. TV advertising is becoming cheaper: The IPA Marketing in the Era of Accountability study shows that TV advertising is cheaper now than it was 20 years ago. Another result from this study relates to…

6. Share of voice effects: Campaigns using TV see average market share gain of 2.7 percentage points per 10 percentage point excess share of voice (compared to a gain of 0.7 points for campaigns not using TV). Share of voice has long been shown to be linked to share of market. If competitors are reducing their budgets, now is the perfect time to increase share of voice and share of market.

Although given the compelling reasons outlined above, there could be a game theory style scenario where each company in the market maintains (or even increases) spend in the expectation that their competitors will be reducing theirs. So, spend remains robust but their market share remains constant (all things being equal). Which, from my perspective at a broadcasting company at least, would be nice…

sk

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2 Responses

  1. Some interesting points there. I would say (drawing heavily on my own work experiences) that:
    1) You can probably add transport to that list of recession-proof industries, in the sense that even in a recession, people still need to get to school/work/the shops, and with congestion on roads at all time highs (not just in the UK, but globally), more and more people are being forced onto public transport. In addition, high fuel prices will have an impact, and also, people buy fewer cars or delay buying a car in a recession, so transport is able to maintain high passenger numbers.

    2) All five major UK transport players have some kind of brand strategy or brand development work underway at present. We’ve begun to rebrand all our services with our company name, tagline and new logo. And we have also started to run a bigger advertising campaign than I can ever remember, using print media, radio and TV for very specific, targeted product offers. But each time we run a campaign like “Easter coaches to Birmingham and Bristol for £1”, that helps build some brand awareness.

    3) Maintaining or even increasing your ad spend would seem to make perfect sense during a downturn, especially for a customer-facing business like ourselves. It’s a cheaper time to advertise and it’s more likely to have a revenue impact as the general public will be looking for ways to save money in a downturn.

    So yes, very sensible stuff.

  2. Thanks for your comments Ben. Transport is certainly a necessity (in most situations)

    See here for an alternative situation

    It is interesting that your campaigns are including greater branding in the direct response ads that are targeted to specific offers. Has there been any conversation over purely brand-led advertising e.g. Company X has the most comfortable journeys/everyday/affordable prices? Or do you consider the industry to maintain focus on promoting specific routes and deals?

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