Alan Cox

The Danger of Cutting Marketing

1. Don’t waste a good recession

2. Investing in a recession works

3. Share of voice has a direct impact on market share

4. Cutting back now causes long-term damage

5. Only two things in a business make money – innovation & marketing; everything else is cost

“I was asked what I thought about the recession. I thought about it and decided not to take part”

Sam WaltonWal-Mart Founder

1

Don’t waste a good recession

The market has fallen by 42%

Time of great opportunity

Brand count is down

Cost of media is down

The worst is over

Source: National Bureau of Economic Research (USA)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 F

€65.2 €68.5

€71.2 €73.4 €76.1

€81.4 €86.9

€92.5 €91.6

€85.2 €84.6 €82.2 €80.7

Personal Expenditure on Consumer Goods and Services (€ billion)

Source: Central Statistics Office/ Central Bank Forecast

There is plenty of demand out there

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 F

€65.2 €68.5

€71.2 €73.4 €76.1

€81.4 €86.9

€92.5 €91.6

€85.2 €84.6 €82.2 €80.7

Personal Expenditure on Consumer Goods and Services (€ billion)

Source: Central Statistics Office/ Central Bank Forecast

There is plenty of demand out there

….and recessions are always followed by expansions and prosperity

Source: National Bureau of Economic Research (USA)

2

Investing in a recession works

“The rationale that a company can afford to cutback on advertising because

everybody else is cutting back is fallacious; executives should cash in on the

opportunity that rival companies are creating for them”

The evidence is overwhelming

The actions taken during a recession decide the future

growth or decline of a company

25%70% of these companies

will maintain their growth for 5 years after the

recession. The majority reach a new & sustained

high

Source: Duane Sprague, Bain & Co., Coopers & Lybrand, McGraw-Hill, The American Business Press, Strategic Planning Institute/Cahners Publishing, Fortune Magazine

Only 25% of companies invest in a recession

75% cut back

Source: Duane Sprague, Bain & Co., Coopers & Lybrand, McGraw-Hill, The American Business Press, Strategic Planning Institute/Cahners Publishing, Fortune Magazine

75%Less than 30% of these will

ever regain the market share and profitability lost during

the recession

1980 1981 1882 1983 1984 19850

50

100

150

200

250

300

350

400

100 96 88 89106

119100

137159

195

283

375

Eliminated or Decreased Advertising in both '81 & '82

Maintained or Increased Advertising in both '81 & '82

Based on the performance of 600 industrial companies in USA for 6 years from 1980 to 1985Sales Indices 1980-1985 (1980 = baseline of 100). ‘81 and ‘82 were recession years

© 2009 Larry H. Miller Communications Corporation / McGraw Hill

The evidence from the U.S. is clearSales by aggressive advertisers were 256% higher

three years after the 81/82 recession

Source: IPA Business Effects Paper (UK) Data collected on 1000 businesses during periods of market downturn and subsequent market recovery

…and from the UK

Cut marketing Maintain marketing Increase marketing

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

-0.8%

0.8%

2.0%Market share change following the first two years of recovery

Companies who increase marketing tend to see a 2% gain in market share

3

Share of voice has a direct impact on market share

For every 10 points that SOV exceeds SOM you should gain 1 point of market share

Source: IPA Datamine (UK) – based on annual figures – not by campaign

The opposite is also true – a brand can expect to lose 1 point of market share for every 10 points it

allows its SOV to fall below its SOM

Market share growth vs “excess” share of voice

4

Cutting back now causes long-term damage

“The short-term result of cutting expenditure looks attractive for a short

while……but hides the considerable damage being done to longer-term profitability“

Drawn from analysis of 880 case studies from the IPA Databank

Year 2007 2008 2009 2010

Marketing Spend €7.9m 0 0 €7.9m

Market Share 7.1% 7.0% 6.3% 5.7%

Sales €317m €314m €282m €269m

Total Costs €278m €270m €251m €253m

Operating Profit €39m €44m €31m €16m

Source: IPA Datamine (UK)

Let’s look at a model of a total budget cutThe loss in share slashes profits over time

Even with a more moderate 20% cut, the profit is hit hard

Year 2007 2008 2009 2010

Marketing Spend €7.9m €6.3m €6.3m €7.9m

Sales €317m €314m €306m €313m

Total Costs €278m €276m €273m €281m

Operating Profit €39m €38m €33m €32m

Source: IPA Datamine (UK)

“Businesses that maintain aggressive marketing programmes during a recession,

outperform companies that rely more on cost cutting measures”

Government has a role to play

“Advertising fueled 15% of growth for the G20 economies over the past decade, yet it only accounted for 2% of economic spend”

WFA Findings

Advertising speeds up the

spread of innovation

Advertising is a multiplier of

economic growth

Advertising is essential for competition

Source: World Federation of Advertisers (France)

WFA study proved the positive impact of advertising on global economy

Strong correlation between ad spend & household consumption

Source: WFA, World Bank, Ad Barometer, WARC Averages for the period 1991 - 2000

“The Government should introduce a scheme where advertisers receive a tax

credit on incremental spend for one year”

There is a precedent for this.A similar scheme was introduced in 2008 whereby companies received a tax credit of 25% on incremental R&D investment

Our view

5

“There are only two things in a business that make money - innovation and

marketing. Everything else is cost.”

Peter Drucker