Recession Hits Advertising Industry

By Margarita Nahapetyan

The recession is having an increasingly deep effect on advertising industry, with more marketers seeking to identify cost savings and budget cuts, according to a new survey by the Association of National Advertisers. ANA states that 77 per cent of companies declared that they plan to reduce their advertising campaigns' media budgets.

Following up on a survey conducted in July and August of 2008, the new ANA poll found that 93 per cent of marketers are expecting to reduce their budgets in the nearest future, compared with 87 per cent six months ago. In addition, 37 per cent of companies plan to cut their budgets by more than 20 per cent, up from the 21 per cent when the previous survey was conducted.

"The advertising/marketing community is going to be in not a good shape for 2009," ANA president and CEO Bob Liodice, said. "The question is: How long does that situation affect 2010? That is a hard one to project at this time." Liodice made assumption that it could be till the middle of 2010 before any drastic changes and an upturn happen in the advertising and marketing industries.

"There is no good news in this report all," said Liodice. "This is not good for advertisers, this is not good for agencies, and it is certainly not good for media." This is definitely very bad news for the television industry, which in the spring will start selling advertising inventory in what could be a less-than-stellar advance marketplace. However, it is not clear yet whether the market will support much in the way of volume and CPM increases. One executive said recently that it was likely to be flat or down for the 2009-2010 TV season.

Liodice said it is hard to get a handle on pricing right now, though, according to him, it is not hard to imagine severe price pressure." The reality is whether you are talking about prime time broadcast television or selling macaroni and cheese, it is not a robust time for anything," Liodice added.

In addition, the ANA survey found the top 5 areas where marketers plan to reduce costs or expenditures in marketing and advertising efforts:

• Departmental travel and expense restrictions (87 per cent, versus 63 per cent in the previous survey)

• Reducing advertising campaign media budgets (77 per cent, versus 69 per cent in the previous survey)

• Reducing advertising campaign production budgets (72 per cent, versus 63 per cent in the previous survey)

• Challenging agencies to reduce internal expenses and/or identify cost reductions (68 per cent, versus 63 per cent in the previous survey)

• Eliminating or delaying new projects (58 per cent versus 61 per cent in the previous survey)

And additional tactics gaining greater consideration by marketers today, include:

• Departmental salary or hiring freezes increased from 45 per cent to 57 per cent, as compared to the survey six months ago.

• Forty eight per cent of marketers are looking at reducing agency compensation today, versus 32 per cent six months ago.

In the previous survey, the ANA asked if marketers thought their budgets would increase, decrease or remain the same in the next six months. In the current poll, the ANA asked what actually happened.

• Half a year ago 53 per cent of marketers thought their advertising budgets would be reduced in the following six months, when in fact, 71 per cent went through a budget decrease.

• Thirty eight per cent thought their budgets would remain the same, but only 23 per cent had their budgets untouched.

• Nine per cent thought they would see a budget increase, when only six per cent did.

When asked about their forecast for what will happen in another six months from now, 49 per cent of respondents felt that their advertising budgets would be reduced, while 43 per cent thought that they will stay the same and only eight per cent still have a hope that their budgets will increase.

"In the current economic environment, there is a need for brand building that is right for the times - that acknowledges consumers' financial circumstances, and offers them products, services and solutions that meet their needs," Bob Liodicesaid said in a statement. "For some marketers, that will mean skewing their media mix towards promotional spending and direct marketing. For others it will mean framing a new, relevant and timely brand message."