The brand manager's dilemma: Understanding how advertising expenditures affect sales growth during a recession
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THOMAS KAMBER is Director of Programs in New York City for One Economy Corporation, and he teaches in the Urban Studies department at Columbia University. He was a senior brand consultant with the Brand Optimization Systems group at D’Arcy advertising, where his clients included Ernst & Young, Sprint, and Cap Gemini Ernst & Young.
Abstract What is the relationship between a company’s advertising expenditure during a recession and its sales? For many years, studies have found that increasing or maintaining advertising expenditure levels during a recession tends to correspond to better rates of sales growth in future years. Yet none of these studies have used widely available and well respected data sources together with advanced statistical techniques to make their case. This study assembles new data in a statistically reliable framework to examine the effect of the amount spent on advertising on sales during the recession of 1990–1, and finds a measurable relationship between the two, even when controlling for other factors such as company size and past sales growth.
INTRODUCTION
Thomas Kamber 316 Fifth Street, Brooklyn, New York, NY 11215, USA Tel/Fax: ⫹1 212 747 0087 E-mail: [email protected]
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One by-product of the recent recession in the USA has been the resurrection of the debate regarding the effectiveness of advertising spending during economic contractions. For decades, advertising agencies, media firms and professional associations have argued that recessions provide companies with rare opportunities to boost market share and long-term profitability by taking advantage of the increased share of voice available to advertisers who increase their media expenditures during periods when competitors are forced to cut back. Numerous studies provide evidence to support these arguments, with varying degrees of credibility. Unfortunately for advertising firms, it seems that the persuasiveness of the research
may be in decline. While the recession of 1980–1 resulted only in a slowed rate of growth in adspend in the USA, the 1990–1 recession brought significant cuts in overall spending, and recent data released by Competitive Media Reporting (CMR) suggests that the most recent recession could bring even deeper reductions. Scepticism on the client side may be related to the limitations of the research conducted to date. Most of the well-known studies on the topic were completed prior to 1985, when analysts were hampered by limited statistical tools and even more limited data resources. Other studies rely on proprietary data sets that are not subject to outside verification, or present data on a very small sample of companies. In 2001, the Brand Optimization
䉷 HENRY STEWART PUBLICATIONS 1479-1803 BRAND MANAGEMENT VOL. 10, NO. 2, 106–120 NOVEMBER 2002
THE BRAND MANAGER’S DILEMMA: UNDERSTANDING HOW ADVERTISING EXPENDITURES AFFECT SALES GROWTH DURING A RECESSION
Systems Group at D’Arcy initiated a study that combined a rich source of historical advertising expenditures (the AdSpender database from CMR), tog
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