Is It a Recession? Marketers Seem to Think So
Let the economists and politicians debate whether the American economy is in a recession. Madison Avenue is already battening down the hatches.
Since September, Wal-Mart Stores, the nation’s largest retailer, has built its entire current advertising approach upon this bald premise: “Save money. Live better.” Skeptics wondered at the time whether Wal-Mart and its new agency, the Martin Agency in Richmond, Va., part of the Interpublic Group of Companies, were fixating on price at the expense of other attractions like fashion or breadth of merchandise.
But the economic problems that followed — falling prices for houses, tightening credit and the gyrations of the stock market — vindicated their decision. Amid widespread consumer anxiety, Wal-Mart weathered a difficult holiday season for retailers, reporting a 2.7 percent increase for December while many of its rivals, including Target, posted losses.
“We don’t profess to have any prophetic abilities to call the economy any better than the folks who do it for a living,” said Stephen Quinn, Wal-Mart’s chief marketing officer. Rather, “when gas prices spiked last spring,” he added, “we saw the pressure this put on our core customers.”
Those customers can find plenty of companies following Wal-Mart’s lead, with many campaigns speaking to Americans as if a recession were already under way.
But while many marketers may be looking to adjust the contents of their campaigns, forecasters believe overall advertising spending will remain strong as a recession looms.
TNS Media Intelligence in New York estimates that ad spending will increase by 4.2 percent (fueled in part by an estimated $5 billion in spending connected to the Summer Olympics and the elections), a steep increase over a 1.7 percent increase a year earlier.
“A large chunk of the core ad economy is in a weakened condition,” said Jon Swallen, senior vice president for research at TNS. He cited retailers, especially “housing-related retail, from the big-box chains to the mom-and-pop home furnishings stores.” On the other hand, in “key categories like automotive,” he added, “ad budgets have been going up as sales have been going down.”
Here are some other campaigns suggesting that advertisers already believe the wolf is at the door:
¶A campaign for Sammies, a new sandwich line at Quiznos, stresses the low price ($2 each) as much as the low calorie count (200 to 300 each).
¶“Uncertain times call for a very certain rate,” assert advertisements for North Fork Bank, part of Capital One, offering a seven-month certificate of deposit at 4.25 percent.
¶TheLadders.com, a jobs Web site, sent e-mail messages last Monday bearing this subject line: “Recession is coming, get your job insurance now!”
¶Nissan is pitching the fuel economy of its 2008 Altima sedan, rather than style or performance, with commercials devoted to its ability to go more than 600 miles between fill-ups.
¶Ads from a new campaign for Club Med family resorts carry banner headlines declaring that “Kids stay free.”
¶Starbucks is testing in Seattle-area stores “short,” or small, coffees priced at $1 a cup — and free refills.
¶Sovereign Bank is wooing consumers to open checking accounts with up to $100 in “gas reward cards.”
Those with long memories may recall other times in the last two decades that ads were devoted to encouraging consumer frugality rather than celebrating unchecked spending. For example, there were price-conscious campaigns after the 1987 stock market crash, during the 1990-1 recession and after the dot-com bubble burst in 2000-1.
This time, however, it seems the shift in tone is taking place earlier in the economic cycle. After all, a recession is defined traditionally as two straight quarters of contraction — and officially, there has not even been one.
“California is in a tough economy right now,” said Michael Branigan, vice president for marketing at Sizzler USA Restaurants in Culver City, Calif., which has restaurants in that state and 15 others as well as Puerto Rico.
“It’s not that our consumer doesn’t like us,” he added. “It’s just that they don’t have the money to eat out.”
So Sizzler is starting a campaign from its new agency, Ground Zero in Los Angeles, featuring menu items that are priced between the fare at fast-food restaurants like McDonald’s and casual-dining chains like Chili’s.
To signal what Mr. Branigan called the Sizzler “value equation,” a promotion last week offered an eight-ounce steak for a penny to customers who bought one at regular price. Ground Zero promoted the sale with offbeat video clips on Web sites like MySpace and YouTube.
The willingness of Madison Avenue to act as if a recession is under way may seem confusing, because advertisers usually reduce their spending during downturns. Over all, ad outlays have fallen in previous recessions — 6.5 percent in 2001 compared with 2000 and 1.2 percent in 1991 compared with 1990.
However, many marketers spend the same — or even more — during hard times as they do during booms, on the theory that they must make sure to be remembered by any consumers who are still shopping. And advertisers in competitive categories like automobiles, beer or fast food are reluctant to cut spending if their rivals are not.
Quiznos, whose chief rival is Subway, introduced Sammies, a line of flatbread sandwiches, in November. The $2 price is less than half the average Quiznos check, which runs “significantly above $5,” according to Steve Provost, chief marketing officer at Quiznos in Denver.
“Like all retailers, we’re now staring down the barrel of consumer spending actually declining,” he said. “We want to hold on to quality, but at a price point that appeals to a much broader target.”
The Sammies line already accounts for about 15 percent of Quiznos sales, Mr. Provost said. A campaign under way from Cliff Freeman & Partners in New York, part of MDC Partners, carries the theme “Love what you eat” and features a Sammies meal — two sandwiches, a side dish and a fountain drink — for $5.99.
“It has attracted a new customer, more value conscious,” he added, “also more women, and guys looking for a lighter lunch.”
“Even marketers that usually aim products at consumers with more money in their wallets than Sizzler customers are playing “Let’s Make a Deal.”
For instance, the new campaign for the upmarket Club Med resorts stresses the company’s “all inclusive” pricing policy with phrases like “Everything is taken care of.”
“What we are selling is good value for money,” said Henri Giscard d’Estaing, chairman, president and chief executive at Club Méditerranée in Paris, “especially for families.”
“It’s extremely appropriate for the times,” he added.
The English-language version of the campaign, by the Publicis et Nous agency in Paris, part of the Publicis Groupe, carries the theme “Where happiness means the world.”
In French, the theme is “Tous les bonheurs du monde,” which Mr. Giscard d’Estaing translated as, “All the small moments of happiness in the world.”
Over all, Club Med will spend about as much in 2008 as it did in 2007, but plans to change the media mix significantly by adding more online advertising and reducing what it spends for television commercials. Some analysts believe that the ability to more closely monitor the results from Internet campaigns may keep demand for online ads high, regardless of economic conditions.