It’s a catch-22 situation. Sales are falling and increasing ad spend seems to be the way forward for brands.

IIPM, GURGAON

Madison Avenue and Wall Street in juxtaposition may appear to be an oxymoron, but in the recent past they have turned into a cynosure for the world’s eyes. The graveyard of fallen American financial brands stands in silent testimony to the reverberating shockwaves emanating from the Wall Street, making their stark presence felt across Madison Avenue. Even as words like recession, bankruptcy and bailouts hog newsprint and the war between Citi and Wells Fargo for ownership of Wachovia continues, the US advertising Goliaths have begun to reel under their impact. The initial hiccups began no sooner than the House of Representatives rejected the bailout package (worth $700 billion). Both Dow Jones and the AdMarket crashed simultaneously. If the former plummeted by 778 points (largest single day decline in history), the latter also had its biggest crash ever - an unmitigated 6.4%.

For the uninitiated, a lot is at stake for Madison Avenue. Advertising elasticity is being put to the toughest test. The top 10 advertisers in the US may have combined spent a humongous $8, 4427 millions (H1 2008) on advertising, yet it marks a 3% decrease from last year. The picture becomes more worrisome when you compare ad spends of the top 50 companies in America, which have already declined by 4.7%. Don’t blame it solely on the September debacle; after all, the stirrings of the mayhem had already begun in March (remember Bear Stearns).

In a year marked by failures of behemoths, bailouts, acquisitions, credit crunch et al, corporates have cut back their advertising and marketing expenditure for the already over-saturated market. Data from TNS Media Intelligence reveals that the total measured advertising expenditure in the first six months of 2008 has declined by 1.6% as compared to the same period in 2007, while Nielsen Monitor Plus puts the drop at 1.4%.

Ford Motor’s comparative advertising expenditure is a classic case; it has cut its advertising budget from $798 million (H12007) to $554 million (H12008), a drop of 30.56%. Even General Motors – grappling with unsustainable losses – now plans to cut its digital media budget. In fact, the ad spending in real terms has come down by 11.2% in the entire automobile category. The rational for the cuts are obvious. Ed Yardeni, President & Chief Investment Strategist, Yardeni.com believes that the would-be buyers simply can’t get auto loans needed to make their purchases. “At 12.5 million units (saar) during September, monthly car and light-truck sales were the worst since April 1992, with both Toyota and Ford posting sales declines of more than 30% from a year ago,” he says, adding that auto sales peaked at 20.6mu (saar) during July 2005, and are now down 40% since then. Clearly, and if advertising spends cannot justify sales (revenues), it is but logical to put a cap on the outgoings.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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