Ad executives are bracing for history to repeat itself: When the economy sputters, companies frequently reduce their advertising and marketing budgets.
“In the next few months, if you have not already been asked, you’re going to be asked to cut your budgets, you’re going to be asked to find ways to save money,” said Bob Liodice, chief executive officer of the Association of National Advertisers, a trade association whose members include Coca-Cola, Walmart and McDonald’s. “This is not the time to do that.”
Mr. Liodice, while speaking at a marketing conference last month, argued that brands win when they continue to make their case even in difficult economic times.
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But marketers are facing not only challenges such as higher prices but also considerable uncertainty about just how difficult the economy is going to become. Companies and executives are facing pressure to re-examine budgets, cut spending and justify existing projects and investments, but with limited visibility ahead.
“We have a set of scenarios, but nobody really knows [what’s coming],” CVS Health Corp. CMO Norman de Greve during a meeting of The Wall Street Journal’s CMO Network this month. “We have all the consultants and we’re asking all of them what’s happening…but it’s really hard to figure out where we’re heading.”
Choosing the right strategy as conditions develop will require flexibility. “There’s no such thing as a set forecast right now,” said Sophie Kelly, senior vice president of whiskies at Diageo North America, speaking at the same event. “We are doing quarterly forecasting, and as a result, spend is moving around.”
Magna, a media-investment firm that conducts industry research, reduced its U.S. advertising growth forecast for 2023, saying a weaker economic environment is likely to cut into spending. The firm, a unit of Interpublic Group of Cos.’ Mediabrands, cut its growth forecast for next year to 4.8% from an earlier prediction of 5.8% in June. “Economic uncertainty and rising inflation are affecting several industries and driving brands and local businesses to moderate their marketing expenses in the second half,” Magna said.
WPP CEO Mark Read said the advertising holding company isn’t expecting a slowdown in marketing spend in the fourth quarter.
PHOTO: ERIC GAILLARD/REUTERS
Still, WPP PLC and other large advertising holding companies continue to update their full-year guidance, as marketer clients continued to spend in areas such as communications, e-commerce, data, technology and public relations.
WPP Chief Executive Mark Read said the company’s clients’ appear to be continuing their spending in the fourth quarter. “We’re not expecting a slowdown in the fourth quarter,” Mr. Read said. “And actually, a couple of clients are looking to increase their budgets.”
Meanwhile, Omnicom Group Inc. again increased its organic growth forecast for the year, as its chief executive said the advertising holding company is “well equipped to handle any economic downturn” even as uncertainty for the ad market lies ahead. The New York-based company, which owns agencies including BBDO, DDB and TBWA, said it was increasing its forecast for organic revenue growth to a range of 8% to 8.5% for 2022, up from an earlier forecast of 6.5% to 7%. Organic revenue growth is a metric that removes the effects of currency fluctuations, acquisitions and disposals.
But higher inflation and an economic slowdown have different effects on different consumers, and therefore the marketers that cater to them.
Items such as food, drinks, personal care and household goods are at risk of consumer cutbacks, as higher prices could prompt buyers to look for cheaper options. But many luxury-good sellers aren’t feeling the same pressure to cut marketing budgets, thanks to a booming market for luxury cars, travel packages and other premium products.
“There’s no such thing as a set forecast right now.”
— Sophie Kelly, senior vice president of whiskies at Diageo North America
Most luxury brands could theoretically stop marketing since they can’t produce goods fast enough to meet current demand, but smart marketers are spending more to build long-term equity, said brand consultant Simon Sproule, who formerly held top marketing and communications roles at Tesla Inc. and Aston Martin Lagonda Global Holdings PLC.
Marriott International Inc. boosted its marketing budgets this year for premium names including the Ritz-Carlton and St. Regis, motivated by increased demand for high-end hotels, said Chris Gabaldon, senior vice president of luxury brands at the hotel chain.
“As wealth rises, people tend to accumulate higher-end experiences as they go,” Mr. Gabaldon said.
Social-media companies, on the other hand, have seen their ad revenues drop for much of this year as many other marketers pulled back or redirected their spending. Last quarter, Facebook parent Meta Platforms Inc. posted its second revenue decline in a row.
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Advertising revenue on Google’s YouTube video platform fell for the first time since it started reporting the unit’s performance in 2020, and the company’s search business turned in an unusually modest 4.3% growth.
That was “probably a very good indicator of expanding caution and weakness among small-business marketers,” said Mark Mahaney, an analyst at Evercore ISI.
Even TikTok, which has attracted advertisers’ gaze with its rapid user growth, has lowered its target for this year’s advertising revenue to $10 billion from at least $12 billion, Chief Executive Shou Zi Chew told staff in an online meeting that took place in recent weeks, according to the employees who attended the meeting.
Focus on return on investment. “As CMOs, our job is to continue to reinforce the value we get from spend,” said Ms. Kelly, the Diageo executive. “And the only way to do that is to really understand the business and to have a business conversation about the value that we’re spending and what it’s going to put back.”
Be flexible about tactics. Airbnb Inc. slashed its advertising spending and invested in brand marketing, lessening its reliance on search-engine marketing. In Airbnb’s earnings call, Chief Financial Officer Dave Stephenson said the company is happy with the return on investment it is seeing with the different approach to advertising. The change began in 2019, before many of the challenges now confronting marketers, but is a reminder to scrutinize ongoing strategies.
Align with business goals. Walgreens Boots Alliance Inc. is planning to reinvigorate its pharmacy business partly through a marketing push designed to regain customers that stopped spending with the chain during the Covid-19 pandemic. Walgreens’s marketing team will focus on customers that haven’t shopped at the drugstore chain over the past couple of years and how best to bring them back.
Maintain your identity. CVS Health plans to keep focusing on equity in consumer health even as economic challenges swirl. The company last month embarked on a new campaign highlighting commitments to women’s health, for example, which includes cutting the costs of its own-brand menstrual products by 25% and paying the tax on period products on behalf of customers in 12 states. “It’s even more valuable to that customer set in the recession,” said Mr. de Greve, the CVS Health CMO.
If you can help consumers in tough times, say so. Walmart Inc. ads this year said it was keeping prices low as consumers get squeezed. “We knew that people are changing their behavior,” said William White, Walmart’s chief marketing officer. “So it’s important for us to be clear in the role that we can play.”
Innovate. Some marketers are exploring creative ways to appeal to customers. Raja Rajamannar, Mastercard Inc.’s chief marketing and communications officer, said his brand is using multisensory marketing—including a set of fragrances named for its marketing slogan “Priceless”—to reach consumers in new ways. Hollister Co., the Abercrombie & Fitch Co. retailer popular among teens, is rolling out a new system that lets shoppers pass their carts to someone else for payment. “We’re optimistic that inflation is going to start to moderate a little bit, but we’re controlling what we can control and a big thing we can control is our experience,” said Samir Desai, chief digital and technology officer at Abercrombie & Fitch.