ADVERTISING : As Companies Get Tight With Ad Budgets, Agencies and Media Firms Feel Squeezed
Whooooooooossh. A windy sound whistles its way out of radios tuned to KYW in Philadelphia. “You have been hearing about it all day,” says the announcer. “The storm warning is up. The temperature is falling and you can feel that cold in your bones.”
It’s not a weather report; it’s a frosty introduction to Storm Radio--Campbell Soup’s latest way to lure customers. A computer tracked weather reports last winter and automatically triggered the commercials across the country when a storm approached.
Campbell also hit the ski slopes. On 200 slopes across the country last winter, 2-by-4-foot posters were mounted on ski lift towers with such reminders from Campbell as, “America’s favorite lift. Soup is good food.”
“It is great stuff,” says Paul Mulcahy, president of CSC Advertising Inc., Campbell’s 4-year-old, in-house advertising agency. “You ride up that ski lift. What do you have to do but look at the snow? . . . You have to read it!”
Campbell Soup, which spends close to $150 million a year advertising its soups and other products, is looking for new, cheaper and more effective ways to push its brands. It’s an attitude that is increasingly prevalent among the country’s largest advertisers. While perhaps not as experimental as Campbell Soup, names such as Procter & Gamble, Nabisco, Coca-Cola, Sears, General Motors, Ford and IBM are becoming more cost-conscious than ever.
And that miserly attitude is rippling through the $101-billion U.S. advertising market and being felt, sometimes intensely, on TV and radio, in newspapers and magazines, and in the advertising agencies themselves.
Nowhere is the financial pinch being felt as dearly as on television, where disappointing purchases by advertisers for the fall season have forced the big networks to cut prices and lay off hundreds of employees across the country.
For years, advertising seemed to be immune from economic reality. When prices went up during the go-go years of inflation, so did the price of advertising. Even when the rate of inflation dropped, advertising rates continued to go up dramatically. Ad budgets had managed to escape corporate cost cutting partly because companies felt they needed to maintain or increase advertising to remain competitive.
“What’s causing so much trauma in the ad business is that most people in the industry weren’t aware that disinflation was affecting most industries and companies,” explains Robert Coen, senior vice president and director of forecasting at McCann-Erickson, a New York-based advertising agency. “The focus had been on holding down increases in all areas of business . . . these hard-nosed management activities that began to appear in 1981 for the rest of the economy didn’t hit the advertising world.”
Jerry Dominus, network vice president of sales at CBS in New York, says: “When we talk to people at Ford, they talk about the cost of advertising, the cost of steel, the cost of labor, the cost of glass, and how they haven’t been able to get big increases out of their car prices. . . . The network used to be insulated from this kind of situation.”
For television viewers, the biggest change may come this fall in what may seem like a clutter of commercials during prime time. For the first time, all three major networks are opening up more commercial time for 15-second advertising as a cheaper alternative to 30-second spots. While commercial breaks may not last any longer, there may be twice as many messages.
Rates for a few hit prime-time programs, such as NBC’s No. 1 rated “Bill Cosby Show,” were up to $350,000 to $400,000--40% more than a year ago. At NBC, the prime-time leader, total up-front sales were up an average 5% to $1 billion, but the network was originally seeking a 10% to 15% increase.
In contrast, up-front sales for ABC and CBS, at a combined $1.4 billion, were flat against a year ago even after the two networks put up more time for sale. Overall network up-front sales are expected to be flat at $2.4 billion.
The disappointing ad sales come at a time when both CBS, which successfully fought off a takeover attempt by Ted Turner, and ABC, which was acquired by Capital Cities, are in the midst of general cost-cutting efforts.
Thomas H. Wyman, chairman and chief executive of CBS, recently projected that weaker than expected network television advertising would mean a decline in second-half revenue and profit. “The combination of disinflation, slow real economic growth and increased competition have resulted in the weakest network marketplace since 1971, when cigarette advertising was banned.”
He added that industry analysts have reduced their estimate for 1986 three-network marketplace growth to 4% from 6%, but “we now believe there will be little or no growth in 1986.”
The 15-second commercial is one way the networks are seeking to shore up advertising. Until last fall, advertisers had to buy 30-second time slots, although they could split the time by featuring two different products in 15-second segments.
Despite criticism that the 15-second commercials would create more clutter, they have sold well this year because they enable many TV advertisers to remain on the tube and allow others to experiment with TV for the first time.
But Joel M. Segal, executive vice president and director of network and cable TV at Ted Bates Advertising in New York, explains that an advertiser might cut back by taking three 15-second commercials instead of two 30-second commercials. Some television observers believe the shorter commercials are taking some advertising away from magazines.
In all this year, companies are expected to spend a total of $101.9 billion to advertise in the United States, up 7.6% from last year but less than projected six months ago, according to Coen.
Buying Power Eroded
“Media prices have tended to go up much faster than most manufacturers are able to increase their prices. The net effect is the buying power of the marketing budget is being eroded,” says Dan Pearson, director of media at Reynolds Tobacco. “Our budget isn’t up as much as the price of media has increased.
“Then you combine that with the fact the relative pay-back of different kinds of marketing devices--broadcast versus print, promotion versus advertising--is changing somewhat. With the tobacco industry, the pendulum is swinging from advertising to promotions.” A sharp drop in print advertising by tobacco companies has helped to depress the advertising market.
In addition, sales of many well-established brand-name products are not rising fast enough to justify huge increases in their advertising, industry experts say. A number of companies are diverting some advertising dollars to other promotional efforts such as coupons, sweepstakes and deals for retailers. Marketers say such techniques are more effective sales tools because they provide incentives and rewards to loyal and new consumers.
In addition, changing life styles and buying habits are making it more difficult for advertisers to reach consumers through traditional media and marketing strategies. With the majority of women now working, daytime TV is no longer one of the best vehicles for advertisers to reach them.
Network TV’s overall audience has fallen dramatically in recent years. The three networks’ share of audiences was down to 73% in the 1984-85 season, compared to 91% in 1977-78.
“The biggest rate increases have been in network television. People are reluctant to keep paying those tremendous increases,” says Mulcahy of Campbell Soup. “It is the one service that sells less every year for higher prices. We started experimenting with different media and different approaches.”
Shifting to Cable
Campbell and other advertisers are electing to advertise on less expensive cable and syndicated TV programs.
Another factor depressing the national advertising market is said to be the absence of any new product that is taking the country by storm. At the same time, last year’s hot advertising categories, which included computers, home electronics and overnight mail services, have declined so far this year, according to advertising executives.
Changes in the local marketplace have other unsettling effects as well. The demise of Gimbels in New York, for instance, is estimated to have cost the New York Daily News about $10 million in lost advertising. Retailers in some parts of the country also have scaled back the promotional and price-cutting efforts that characterized last year’s selling and have shifted to other strategies instead.
Real estate advertising is soft because developers no longer need to advertise heavily now that interest rates are low enough to lure home buyers.
Although the Newspaper Advertising Bureau is forecasting an 8% increase in 1986 expenditures, spending was up only 3.7% in the first quarter. National and retail advertising was up less than 2%, but classified advertising increased 8.1%.
Magazines have been experiencing the softness, too. Advertising revenue rose 6% in the first quarter, but magazine publishers were disappointed because they were expecting an 8% gain industrywide. Magazine advertising rates have grown and, as a result, ad revenue has grown as well in the last few years. But since 1984, the actual amount of advertising, as measured in pages, has dropped slightly.
Industries Spending Less
The news weeklies are continuing to feel the decline in tobacco and liquor advertising. Both industries are spending less because of lackluster sales. The Magazine Publishers Assn. also reports delines in advertising by cleaners and waxes, home electronics, major appliances and computers. Gains have come in food, candy and soft drinks, apparel, pet food, insurance and airline advertising.
But there are some advertising bright spots. Local TV stations in markets such as Los Angeles and elsewhere are enjoying double-digit increases from a year ago. Demand is up among local advertisers, which include car dealers promoting incentives, local telephone companies, health-care companies and insurance, which is driving up prices. Outdoor advertising is enjoying gains too.
Industry cost cutting is not just affecting the companies that print or broadcast the advertising but the people who create, produce and place it.
“You are seeing more advertisers exerting more control and paying more attention and putting more staff resources devoted to managing the agencies advertising function,” observes Pearson at Reynolds.
Companies also are looking for alternatives to paying the traditional 15% commission to advertising agencies. RJR Nabisco, for example, formed a joint venture, RJR Nabisco Broadcast, in April to buy all the national TV advertising time for all Nabisco brands and Del Monte. The combined $175-million budget gives the company more negotiating clout with the networks and more importantly saves money.
Paying Lower Fees
A recent survey by the Assn. of National Advertisers showed that more companies are paying less than the traditional 15% commission to advertising agencies. The survey indicated that only 43% of the respondents pay that rate, compared to 52% in the previous survey three years ago. About 28% are paying smaller commissions, and 28% are paying their advertising agencies a flat fee.
Meanwhile, major advertisers continue to experiment--sometimes with offbeat ideas. Last fall, Campbell’s placed small ads for its Recipe brand dog food on parking meters in Baltimore. The idea was to catch the attention of people walking on the street or parking their cars.
“We ran it for two months, we had some feeling of interest, but we couldn’t get a real fix on what was in it for us,” Mulcahy explains. “That was probably the most off-the-wall thing we’ve done.”
Two years ago, Campbell tried advertising on the back of the Catholic Church Bulletin in five markets. Mulcahy says the six-week campaign during Lent had a high awareness factor, but Campbell hasn’t tried it again.
Campbell, Procter & Gamble and some other advertisers have tried posting small billboard-like signs at counters in health clubs. P&G; also sponsors an increasing number of “publicity programs” that are designed to bring new attention to its products. There is the Lava Machine for the race-car circuit where the company can reach big users of its Lava brand pumice soap. Then there is the Mr. Clean look-alike contest.
Advertising in stores--on supermarket clocks, on shopping carts or on overhead aisle signs--is becoming increasingly popular. Act Media of West Hampton Beach, N.Y., which specializes in in-store advertising, used to have a difficult time convincing advertisers. Now its clients include P&G;, Campbell, General Foods, General Mills, Kellogg, Quaker Oats and Pepsi.
“Stores are increasingly important places because the media opportunities there have grown and are reasonably priced,” explains Mulcahy at Campbell. “An advertiser is getting to people at the very last minute. It’s not like a commercial shown on Tuesday when people don’t shop until Saturday.”
