Depending on who you talk to, 2009 will either be the year that a full-fledged depression begins or one that gets much better as it goes along. Since Brandweek doesn't have a staff economist and it probably wouldn't make much of a difference if we did, we can only work with conventional wisdom.
It's not going too much out on a limb, for instance, to say that this will probably not be a great year for the auto industry and that advertising in that category overall is likely to suffer. At the same time, no matter how dire the economic situation seems to get, consumers will, in the words of one analyst, live in their car before they give up their cell phones, so since that category is still growing at a respectable clip, we can expect advertising spending to as well.
But some categories are a bit dicier. Most consumer packaged goods companies, for instance, continued to increase their advertising and marketing spending as they boosted their prices in 2008 and enjoyed fairly decent growth. But by the end of the year, private label competitors seemed to be making some inroads.
Will 2009 be the year that consumers decide once and for all to junk their beloved brands for cheaper store brands? It's certainly possible, especially if the recession drags on. Will branded CPGs be able to convince consumers that they are better off spending a few nickels extra to get "value"? That's also possible, though it's hard to see why private labels can't make the same argument.
In short, 2009 can be a real test for branding. One Web site, The Big Money, has already proclaimed "the implosion of the Great Brand Myth" and reasoned that names alone are fairly worthless. "Does anyone think that Microsoft would sell fewer copies of Office if it changed its name tomorrow?" asks writer Mark Gimein. He's not the first to make such a pronouncement. In a 2004 Wired article, James Surowiecki argued that the transparency of the Web would let consumers see through branding. Though the argument is logical, that didn't happen and Wired eventually admitted as much. Gimein's argument is similarly flawed. Does anyone seriously think Office sales would not be affected if Microsoft changed its name? Sorry, but brand names are definitely worth something. This year we'll find out how much.
Autos: Navigating a Tough '09 With Help from the Feds
Both domestic and foreign carmakers slash marketing outlays for new-year models as production grinds to a halt and sales skid; a friendlier administration could help.
— By Anthony Crupi, Mediaweek
Although Most Americans are understandably relieved to see the car wreck that was 2008 receding in the rear-view mirror, for the U.S. auto industry the road ahead remains decidedly bleak.
Driven to the brink of collapse, General Motors and Chrysler now have until March 31 to demonstrate long-term viability, a task that hinges on whether both companies are able to secure concessions from suppliers, creditors and the UAW. Were the prospect of union negotiations and debt-for-equity swaps not daunting enough, Detroit somehow must pull out of the worst sales skid in 26 years at a time when dealers cannot extend credit.
As the Big Three fight to stay out of receivership, production has screeched to a halt, which will result in a reciprocal asphyxia of marketing activity. Even Ford, which to date has not accepted a share of the $17.4 billion federal loan that is keeping its confederates above water, will pare its ad spend by as much as 1 percent next year. And while GM was the lone domestic automaker to increase its advertising outlay in 2008—from January-September the company upped its measured media spend 15.7 percent to $1.59 billion, per TNS—the nation's No.3 advertiser has already pulled out of high-profile sponsorships, including Super Bowl XLIII and the Academy Awards.
Per terms of GM's recovery plan, the automaker will trim $600 million from its marketing budget between now and 2012. It's not a massive cut, and GM will continue to flex its marketing muscle in support of new releases like the 2010 Chevrolet Equinox, a compact crossover due in showrooms this summer.
Unfortunately, media outlets that depend on a strong auto market aren't likely to see much relief from the non-Detroit carmakers. In late December, Honda slashed its full-year profit estimate by 62 percent, as the global recession and withering consumer confidence took the air out of its tires. Meanwhile, Toyota warned it would post the first operating loss in its history.
Industry observers are hopeful that the incoming Obama administration may prove to be a friend to Detroit. The bridge loan is "insufficient to see them through what is shaping up to be a worst-case sales scenario in 2009," said IHS Global Insight analyst George Magliano, who added that the money stopgap or no, the alternative is unthinkable. Per employment figures supplied by the Center for Automotive Research, should the Big Three drive off a cliff in 2009, 2.95 million jobs will disappear." The $17.4 billion is simply not enough," Magliano said. "The difference is, when they return [to Washington] in March, they may find an administration and Congress that are more willing to help."
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Outlook '09: What's in a Brand Name?
Jan 2, 2009
Beverages: As Hot Spots Cool Off, Cola Biz Refocuses on Fizz
Pepsi to spend $1.2 billion on the category over the next three years to boost North American sales; brand packaging, sizing will experience a significant overhaul.
— By Kenneth Hein
Over the years, the cola giants have been given false hope by various growth segments. Most recently, energy drinks and enhanced waters seemed indefatigable. Now those segments are sucking wind.
"They've tapered off for a variety of reasons, the economy being one of them. This makes it all the more important to focus on carbonated soft drinks," said Gary Hemphill, managing director at Beverage Marketing. Rather than wait for the next big beverage trend, Coke and Pepsi are going back to basics by focusing on carbonated soft drinks once again. Pepsi CEO Indra Nooyi has pledged to spend $1.2 billion on marketing over the next three years to jumpstart North American soft drink sales.
Former Victoria's Secret marketing chief Jill Beraud, who was named global CMO last month, will spearhead the No. 2 cola player's soft drink revitalization plans. And in a bold move, brand Pepsi also jettisoned BBDO, New York, after 40 years. It named TBWA\Chiat\Day, Playa del Rey, Calif., as its new creative agency. The Arnell Group, New York, was brought on board for new brand identity and packaging projects.
Pepsi, Tropicana and Gatorade already have unveiled design updates and other top brands, including Mountain Dew, are set for a makeover. "Consumers are going to see dramatic changes in packaging," said John Sicher, editor, Beverage Digest. Coke and Pepsi are both testing sizes, including smaller 16 oz. bottles, plus alternatives to the 2-liter bottle and 12-packs.
The category is expected to get a boost for the new, all-natural, no-calorie sweetener Reb-A. The Food and Drug Administration approved it late last month. Coke immediately announced the launch of Sprite Green and two new Odwalla juices using the sweetener. Pepsi followed suit with zero-calorie SoBe LifeWater. Dr Pepper Snapple Group also said it is planning new low-calorie lines. The debut of Reb-A "could be significant depending upon the products. Taste is key," said Sicher. "Consumers are still concerned about calories."
This is why a number of new low- and no-calorie innovations are set to launch. Tropicana 50 and Starbucks Frappuccino Lite are on deck for Pepsi. Coke is readying Vitaminwater 10, Dasani Essence and a reformulated Powerade.
Such launches are necessary to keep people interested, said Hemphill. "You have to continually reinvent the category to get consumers excited, create news and buzz. You need to give consumers a reason to take another look."
Entertainment: A Hollywood Ending for '08 Makes Case for Escapism
Despite recessionary trends, 2008 box office was even with 2007 figures as consumers flocked to theaters to drown out bummer headlines.
— By Becky Ebenkamp
Fifty years ago, Americans headed to the drive-in on Saturday nights to take part in an ingenious fad that merged the two industries the U.S. is most famous for: the automobile and the motion picture. Today, one of them may go away, and it's not the one we would have guessed five years ago after giggling out of a Gigli screening.
Sorry, Ford. When the going gets tough, the tough go to the movies. People want their escapism, dammit, so a recession is hardly a death knell for entertainment. In fact, the 2008 box office kept right on ticking. It's expected to be on par with 2007's $9.68 billion in sales.
"The good news for Hollywood is people are going to the movies consistently over the past three months, and that isn't going to change as long as the movies in the mix are appealing and they have great marketing," said Paul Dergarabedian, box office analyst for Hollywood.com. "Two-thousand nine can be as strong as 2008. In terms of sequels, we'll have Terminator: Salvation, the next Transformers, the X-Men Origins, Star Trek, which isn't really a sequel but more of a re-imagining, Night at the Museum 2. Another big trend is 3-D, with like 14 or 15 films being released. Imax is continuing to show viability and popularity."
While most executives agreed that theatrical ad spending over 2009 will be flat in terms of dollar amounts, no big shifts were expected in terms of media strategies either. Studios plan to spend the lion's share on air, with the rest going to alternative media. "The most important vehicle will always be television," said John Nuzzi, evp/managing director at media planning and buying agency Initiative Media, who counts film studio Lionsgate, as well as CBS and Showtime, among its clients. "Everyone looks at the broadcast networks but, overall, TV is strong and consuming entertainment is going to continue to grow in a recession."
This past year, women proved their clout at the box office. "Young females have been driving the money train through Hollywood this year," said Dergarabedian. Studios have Confessions of a Shopaholic, He's Just Not That Into You and more on their slates.
With domestic box office revenues hovering around $150 million apiece, so-called "chick flicks" Sex and the City ($152M), Twilight ($151M) and Mamma Mia! ($143M) were the Nos. 10, 11 and 12 earners of 2008. Melissa Silverstein of Women & Hollywood, a New York-based marketing consultancy that specializes in reaching out to bloggers and influential buzz builders—and getting them to movie screenings—said the last "chick flick" in the top 10 was My Big Fat Greek Wedding. "Hopefully there's a sense that something's shifting here," she said. "I don't ever want to hear the word 'fluke' again."
Packaged Goods: Food's OK, But Some Can't Stomach More Ad Increases
Eat-at-home trend helped brands like Campbell, but P&G cut its overall U.S. spend and Clorox is flat with last year.
— By Elaine Wong
Bad times are good times for private labels. At least that's the conventional wisdom. As consumers become more price-conscious, they also become less brand-conscious.
For retailers with a strong private label presence, that's good news. In November, for instance, Wal-Mart announced that sales of corporate brands like Sam's Choice and Equate were growing 2.5 times the rate of national brands for the past few months.
Supermarket chain Wegmans, meanwhile, has been promoting its line of branded food products via heavy in-store marketing. In an earnings call with analysts last month, Walgreens president Greg Wasson said the retailer has seen "good increases in over-the-counter items and our private label brand as people trade down and look for value." In 2008, private label sales jumped 15 percent, the retailer reported. Overall, sales of private-label items increased 10 percent last year, according to Nielsen, owner of Brandweek.
Store brand products may be poised for even bigger growth in 2009. When prices of commodities go up, as they did in early 2008, brand marketers like General Mills and Kraft benefit because they buy in much bigger bulk and are more insulated from price increases than private labels. Those brands were also able, by and large, to pass on price increases to consumers. But now that many commodity prices have fallen, private labels can cut their prices even further. Branded CPGs, which spend a lot more on advertising and marketing, are much more constrained when it comes to price.
What's a branded CPG marketer to do? So far, they've been fighting back with a variety of value pitches. Procter & Gamble recently rolled out campaigns for Pantene and Gillette, among others that stress bang for one's buck. The former touts the haircare brand, which has suffered from lagging sales, as an affordable salon alternative. A pitch from BBDO, New York, for Gillette Fusion, similarly, positions the pricey razor blades as delivering "high-performance" shaves for "as little as a dollar a week." P&G rep Kelly Vanasse said the change was meant to address an old notion about the brand."Guys have consistently told us that they think our blades are costly, so reframing the true expense for them makes good sense," she said.
Some brands, faced with tighter-fisted consumers, have reacted by completely repositioning themselves.
Unilever introduced Ragu pasta sauce microwaveable pouches as a mess-free, meal-friendly topper this past spring, but now advertising is all about value. One print ad from Ogilvy & Mather, New York, reads, "With Ragu and a pound of pasta, you can feed a family of four for less than four dollars . . . Who knew you could still get so much for so little?" Above the jar of pasta sauce is a photo of a pregnant woman and opposite her, a child, holding her hands to her stomach. Tagline: "The perfect meal when your family is growing and the economy is shrinking."
The pitches seem to be working for now, at least for peddlers of food products, who benefit from the fact that more consumers are eating meals at home as they cut back on their restaurant outings. Such food-focused brands continued to be liberal with their ad spending in '08 and some at least tell investors that they plan to be in '09. For instance, Campbell upped its ad spend from $296 million to $307 million this year. General Mills, likewise, hiked consumer spending by 21 percent in 2008, and the spike is expected to continue by "double digits in 2009," Pillsbury president Juliana Chugg told analysts in December.
Kellogg, whose advertising spend makes up about 9 percent of sales (the industry average for packaged food makers is 5 percent), has also pledged to increase spending in 2009. According to TNS, the packaged foods category increased its measured media spending by 6 percent from January to September 2008.
Hit harder are those CPGs with slim food portfolios. Consumers still have to eat, but maybe they don't have to clean as much. Or at least they can clean with store brands. Maybe that's why primarily nonfood CPGs aren't increasing their ad spends as much. Clorox's ad spend for its first quarter (which ended Sept. 30) was flat with the year-ago period and P&G has slashed its U.S. ad spend by 6 percent (to $2.3 billion) from January to September of this year, per TNS. P&G CEO A.G. Lafley told analysts the strategy in 2009 would be to focus on maintaining "a share of voice."
Kimberly-Clark, which has seen private label bite into its paper towel brands and has had a particularly tough time with high commodity costs in the last year, has dutifully increased its market spend only to see earnings take a hit. Nevertheless, K-C CMO Tony Palmer said it's important to ride out the recession by balancing brand equity and consumer needs. "You can have a value proposition that accentuates good value, but you don't want to walk away from the core proposition of the brand," he said. "That's the only thing you have to protect yourself."
Telecom: Calls for More Spending
The wireless industry is still growing and still increasing its advertising, but iPhone data pricing plans may be prohibitive.
— By Mike Shields, Mediaweek
When looking ahead to 2009, observers of the telecommunications industry are throwing around phrases like "customer growth" and "continued spending" that aren't being uttered often these days in a marketing world rocked by a brutal economic downturn.
Analysts agree that the wireless business generally remains in solid shape despite a deep and potentially prolonged recession. Amazingly, more Americans are expected to become cell phone users next year. The Yankee Group forecast that wireless subs in the U.S. should climb by 4.5 percent in 2009 to 285 million from 273 million.
"Cell phones are not thought of as a luxury these days," said Carl Howe, director of Yankee's Anywhere Consumer Research group. "The old joke is that you'll sleep in your car before you give one up. As a result, the mobile industry is growing at a healthy clip."
That's why the category's heavy-spending advertisers are likely to keep pumping out media dollars. "You won't see marketing or advertising budgets reduce . . . they will stay the same and could very well increase as efforts to get switchers become more important," said SprintNextel CMO Bill Morgan.
Gartner analyst Ken Dulaney agreed that the recession—though perhaps warranting some caution—won't handcuff advertisers in this highly competitive industry. "They have to take a very long-term view," he said. "They can't look at a recession as a long-term thing. This market is noncyclical to some degree. Plus, a younger generation is growing up without land-lines, and they are not going to cut their cell services."
That's probably why wireless firms will shift a higher percentage of their media dollars onto the Web (13 percent in 2013 from 7 percent this year, per JupiterResearch).
Yet for all the signs of health in the wireless space, it's not immune to the economy. One indicator to watch, Dulaney said, is pricing on data plans, which he believes must come down for the average consumer to move beyond just calling and texting. Dulaney cited Wal-Mart's recent announcement that it would begin selling a $197 iPhone, which may carry a prohibitive data charge for many. "Who goes to Wal-Mart and can afford a $30 data plan?" he said. "These guys are not giving you any bargains." Another economy-driven trend to watch for is prepaid phones, said Howe, who predicts that nonsubscription, pay-as-you-go offerings will gain in popularity.
So what does that say of all the high-end, attention-grabbing iPhone wannabes that have recently launched? Howe cautioned that such smart phones currently make up just 15 to 20 percent of the market, while 65-70 percent is still made up of 'feature phones,' i.e. "your average flip phone," he said.
Dulaney expects the iPhones and G1s will influence the mainstream market in a bad way. "There are a lot of bad touch screen phones coming," he said. "You're already seeing it."
Won't the influx of cool, multimedia, user-friendly devices inspire more innovation? Not from the carriers, said Dulaney, which are not innovative by nature. "Why does it take Apple and Google to innovate?" he said. "Why didn't Verizon have it's own Apps Store?
The answer, said Dulaney is "they don't get it . . . the innovation will come from the suppliers."