Advertising Firms Retooling In Economic Crisis
ANDREA SEABROOK, host:
President-elect Barack Obama threw his weight behind a short-term bailout for American carmakers today. On NBC's "Meet the Press" this morning, he suggested that some auto executives might lose their jobs. That call was echoed by a key Democrat in the Senate. Banking Committee Chairman Christopher Dodd said the chief executive of General Motors, Rick Wagoner, has to move on.
With all that going on in Washington, it's a tough time to sell cars or to be the ad agency trying to convince people to buy. Brad Linder checks in on the advertising business in one city, Philadelphia.
(Soundbite of car advertisement)
Unidentified Woman: (Singing) Drivedavid.com, Drivedavid.com.
Unidentified Man #1: If you have less than perfect credit, our financial power with the bank means that you're going to get the best terms possible, and you're going to get approved...
BRAD LINDER: That's an ad auto dealer David Kelleher was running in Philadelphia last year. It claimed that 90 percent of the people who came through his door qualified for auto loans. This year, he had to kill that commercial because he can't promise those loans. Kelleher replaced the spot with ads emphasizing price cuts.
Mr. DAVID KELLEHER (Owner, David Auto Group, Philadelphia, PA): There are times when I'm taking losses on cars because in the greater good, it will be served to get the inventory under control or to make sure my people get paid. I'd rather have them selling cars and getting paid for it than having to come to me for loans which, unfortunately, some have.
LINDER: With the auto business reeling, Kelleher says his dealerships are doing about half the business they did last year. He used to spend about $170,000 a month on advertising. Now, just $60,000. Kelleher says about 17 percent of his revenue goes to advertising, and that's all he can afford.
Professor BILL MADWAY (School of Business, Villanova University ): The traditional way of calculating a marketing budget is, it's a percentage of sales, and that produces results that are actually, you know, backwards.
LINDER: Bill Madway is a former ad man. Now, he teaches marketing at Villanova School of Business.
Prof. MADWAY: That means, when times are good, I'm going to spend more money in advertising. And when times are less, I spend less. And its got things in the reverse order. Marketing leads to sales. It's not the other way around.
LINDER: Madway suggests that while consumer spending may be down during a recession, American shoppers are still spending a lot of money. If companies don't advertise, they stand to lose a significant share of that pie. And sometimes, that means making tough calls, like deciding not to dramatically cut prices just to get people in the door.
Prof. MADWAY: Because the problem is, if I slash my prices in order to get you to buy now, that you're going to remember that the next time you want to buy my product. That's what American car companies have done. I'm not going to buy an American car without a huge rebate, without employee pricing, etcetera. They have permanently changed people's perception of the value of their product.
LINDER: Madway says it's important for companies to acknowledge hard times without undervaluing the product or talking down to customers. Take a recent ad for a financial services firm.
Prof. MADWAY: Where a guy is opening a bottle of wine and talking about, there's one thing about the stock market we can always know. It's going to be up and down. Jeez, that's the kind of simplistic, vapid comment that drives me crazy at a time like this. That's the best you can come up with?
LINDER: That's the type of reaction Molly Watson is trying to avoid. She's vice president of one of Philadelphia's largest advertising firms, Tierney Communications. She says businesses need to keep advertising during a recession, but they need to seriously retool their messages.
Ms. MOLLY WATSON (Vice President, Tierney Communications): For luxury items to go out there with sort of a slice of life commercials, you know, you can afford a beach house, and how about that cruise on the Queen Elizabeth II? Things that are ludicrous even for really wealthy people is probably the wrong move.
LINDER: One company Watson's firm is taking a new approach with is electric utility PICO Energy.
(Soundbite of TV advertisement)
Unidentified Man #2: Using 10 percent less energy can save you up to $15 a month. And it's good for the environment...
Ms. WATSON: We're actually encouraging consumers to use their product less, which does more for their relationship with PICO Energy in times like this than just continuing to go out there with our regular message.
LINDER: Watson says the recession has been hard on everyone, including ad firms like hers.
Ms. WATSON: It's really very, very scrappy out there right now.
LINDER: There's new competition, too, from some of the biggest names in advertising that used to only manage campaigns measured in the hundreds of millions of dollars. Watson says those Madison Avenue firms are going after smaller campaigns now, like the ones Tierney Communications specializes in. For NPR News, I'm Brad Linder in Philadelphia.