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A Study of more than 23,000 Businesses Prepared and conducted by: Cahners Research Sponsored by: INFORMATION AND IDEAS FOR MANAGING EQUIPMENT AND TRUCKS INFORMATION AND IDEAS FOR MANAGING EQUIPMENT AND TRUCKS Exclusive Test! Finding the Right Backreamer...80 October 2000 www.coneq.com ® Paying More for Diesel May Cost You Less...53 25 Trailers Meet Heavy Hauling Challenges...92 Rent the Perfect Work Platform for Your Job...88 Paying More for Diesel May Cost You Less...53 25 Trailers Meet Heavy Hauling Challenges...92 Rent the Perfect Work Platform for Your Job...88 Special Supplement! LIGHT 2000 The Heavies Of 2001 The Heavies Of 2001 Our model-by-model analysis of the construction truck market...64 Our model-by-model analysis of the construction truck market...64

Cahners B2 B Recession Advertising

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Page 1: Cahners B2 B Recession Advertising

A Study of more than 23,000 Businesses

Prepared and conducted by: Cahners Research

Sponsored by:

INFORMATION AND IDEAS FOR MANAGING EQUIPMENT AND TRUCKSINFORMATION AND IDEAS FOR MANAGING EQUIPMENT AND TRUCKS

Exclusive Test!Finding the RightBackreamer...80

October 2000www.coneq.com

®

Peri

odic

al

Paying More for Diesel May Cost You Less...53

25 Trailers Meet HeavyHauling Challenges...92

Rent the Perfect WorkPlatform for Your Job...88

Paying More for Diesel May Cost You Less...53

25 Trailers Meet HeavyHauling Challenges...92

Rent the Perfect WorkPlatform for Your Job...88 Sp

ecial

Supp

lemen

t!

LIG

HT 2000

The Heavies Of 2001The HeaviesOf 2001Our model-by-model analysis of the construction truck market...64

Our model-by-model analysis of the construction truck market...64

Page 2: Cahners B2 B Recession Advertising

2

ADVERTISING DURING A RECESSION OR EXPANSION

Marketing to your audience is fundamentallysimple, it’s all about getting the right message,to the right person, at theright time — it’s the execution of that goalthat’s the challenge.Expansion and recessionperiods make marketingdifficult and complex, but understanding theimpact of these businesscycles is critical to understanding how to bean effective marketer.

Page 3: Cahners B2 B Recession Advertising

n our highly competitive business environments, we are all trying to meet the challenges and opportunities set forth by our customers and at the same time,obtain our revenue goals. This year, many businesses have faced tough businessconditions and declining profits. Shrinking revenues and sluggish buying habits haveforced businesses to make tough decisions to cut jobs and budgets all across theirorganizations. Often times these cuts are primarily made in marketing and sales,

which is actually one of the least effective strategies a company can implement.

This report demonstrates various business cycles in our history and shows the relationshipof marketing efforts to ROI, awareness and preference levels. To understand periodic business behavior it is necessary to understand the definition of “recession” and “expansion”. While some businesses defy convention and are counter-cyclical to normalbusiness, most companies experience periods of expansion and recession.

When your business is growing at a slower rate than the long term trend of the market youserve, the market is said to be in a “recession”. When businesses grow at a faster rate thenlong-term trend, we consider that the market is in “expansion” mode. Growth rates thatare within five-percent of the long-term trend of the market you serve are said to be “normal” business periods.

As the markets we serve become more global and connected to each other, the impact ofthese “recession”and “expansion” periods have wider implications on economies throughout the world. By taking a closer look and analyzing these periods, we can deter-mine what type of marketing strategies produce what kind of results.

Methodology:The sample for this research was selected from the Cahners database of businesses. Morethan 88,000 businesses were selected for this research. Results are based on the responsesof 23,341 businesses who participated in this survey and had non-zero media advertisingexpenditures. The businesses all described themselves as one of the following;building/construction, communications, electronics, entertainment, food, manufacturing,packaging, printing, publishing, retail and/or science. Cahners Research conducted thissurvey from July-September of 2001. For more information about this study, please contactSusan Mulcahy, Vice-President of Research, Cahners Business Information [email protected] or visit www.cahnerscarr.com

CARR Reports & Technical Notes:The Cahners Advertising Research Reports are a continuing series of media research reportsthat study business-to-business marketing and trends. This study is based on a 1982 report,entitled, “Media Advertising When Your Market is in a Recession,” which was conductedby Cahners Research and the Strategic Planning Institute (PIMS). This report has beenupdated to include additional industries, advertising mediums, and correlation betweenawareness and preference levels. For more information see www.cahnerscarr.com. The basesize for this study was 23,341 businesses in North America and the data in this report isaccurate within a 96% confidence level.

I

3

Business-to-Business AdvertisingWhen Your Market is in a Recession or Expansion PeriodBy Susan Mulcahy

Page 4: Cahners B2 B Recession Advertising

4

ADVERTISING DURING A RECESSION OR EXPANSION

Every analyst is being asked, whenwill the economy turn around, whenwill we pull out of this recession period? There’s only two ways out ofa recession, spend your way out of itor innovate your way out of it, andbelieve me, this one will take some of both.

Every analyst is being asked, whenwill the economy turn around, whenwill we pull out of this recession period? There’s only two ways out ofa recession, spend your way out of itor innovate your way out of it, andbelieve me, this one will take some of both.

Page 5: Cahners B2 B Recession Advertising

How Average Business ROI is Affected by Market ConditionsUsing the Cahners database, we see theimpact of several economic periods. Thischart shows the impact of ROI during dif-ferent stages of various business cycles,including normal, recession, and expan-sion periods.

During a recession, businesses typicallyexperience on average a 4% lower rate ofreturn relative to normal times. Expansiontimes tend to generate a higher level ofprofits than normal periods but do notincrease exponentially versus a recessionas might be expected. This is because it isincreasingly more difficult to gain marketshare during expansion periods.

How the Average Business Market Share is Affected by Market Conditions

Increased market share in a recessionhappens due to smaller businessesand major competitors decreasingtheir marketing budgets. Thus, normal to increased marketing effortsin a recession have a higher return onshare than they would in normal orexpansion business cycles.

Many businesses erroneously believethat others are being hit as severely bymarket recessions and lows, andblame their loss of sales on the severity of the downturn. These companies do not realize that theirmarket share and preference is erodedfrom these cycles and actually coststhem more when business returns to a normal or expansion period.

During expansion cycles, some businesses have difficulty meeting the growing demands of the market andtheir customers. This allows for a more competitive landscape and less overall profit on goods and servicesduring these up-turns. Subsequently, in our study we do not see the share growth increase as high as whenin a recession cycle.

5

Average Return on Investment (%)

Recession

22%

Normal

26%

Expansion

29%

Average Point Change in Market Share

Recession

0.75

Normal

0.15

Expansion

0.35

Page 6: Cahners B2 B Recession Advertising

6

ADVERTISING DURING A RECESSION OR EXPANSION

Recession periods hit us hardest when we don’tmanage our businesses well in expansion periods. Many companies just take a simpleapproach to down-cycles by cutting costs andhoping for the best. Hope is not a viable strategy over any business cycle and costs-cutsneed to be analyzed over specific businessmodels so they can have sustained value.

Page 7: Cahners B2 B Recession Advertising

Average Revenues Spent on All Marketing During Various Business Cycles

Our study of businesses reveals that mostcompanies do the opposite of what theyneed to do during recession periods.Since market share and ROI decreasemore substantially during a recession,marketing dollars that decrease on aver-age 4% during down-cycles have a muchlarger effect on brand awareness andpreference levels.

When we investigate expansion periods,an the average business increases theirmarketing budget 2% for a slight increasein ROI (on average 2%-4%). To capitalizeROI during expansion cycles, businessesneed to increase marketing spending at ahigher percentage than they cut during arecession period to capitalize on their ROI.

Average Percentage of Marketing Budget ExpendituresMarketing strategies go across all mediums. Currently these percentages are driven by a given company’s needs andobjectives. Percentage fluctuations canalso occur based on the market a specificcompany serves.

Percentage decreases and/or increasesoccur exponentially across all mediums atroughly the same rate. No one medium issubstantially cut more than another during a recession. And no one area isincreased at a higher rate than others during an expansion period.

7

Recession

7%

Normal

11%

Expansion

13%

Print Advertising

Sales/Promotion Materials

Television

Trade Shows

Web Advertising

Direct Mail (Print)

Direct Mail (Email)

Seminars

Newsletters

Billboards

Other

33%

22%

11%

10%

8%

6%

3%

3%

2%

2%

2%

Page 8: Cahners B2 B Recession Advertising

8

ADVERTISING DURING A RECESSION OR EXPANSION

As competition increases in all business sectors, brand awarenessand preference becomes imperative.We’re all searching for the secret on how to be the next Intel, Xerox andKleenex in terms of recognition.

Page 9: Cahners B2 B Recession Advertising

Average Business Awareness and Preference Relationship

The chart above plots the relationship between awareness and preference for all businesses. Each point represents a single company or companies with a given awareness and preference rating A line is drawnthrough these points to represent the trend of the data.

The upward slope of the line to the right illustrates that the relationship is a positive one. That is, as aware-ness increases preference increases. Notice also that the line is curved in a slight u-shape. This implies thatas higher levels of awareness are reached, the conversion to preference comes more quickly. For example,as awareness increases from 25% to 35%, preference increases from 10% to 15% (a 5% difference). Asawareness increases from 35% to 45%, the leap in preference is greater, from 15% to 23% (a difference of8%). The largest jump occurs between 85% and 95% awareness, where preference increases from 56% to71% (a difference of 15%).

Companies located near the lower end of the line should work toward increasing awareness to take advantage of the increasingly greater rate of conversion to preference that is likely to result. Companies atthe upper end of the line must, at a minimum, maintain their current level of awareness to prevent a sharpdecline in preference.

9

100

90

80

70

60

50

40

30

20

10

0

Pref

eren

ce %

0 10 20 30 40 50Awareness %

60 70 80 90 100

Page 10: Cahners B2 B Recession Advertising

10

ADVERTISING DURING A RECESSION OR EXPANSION

When creating marketing messages, think likethe customer. The only messages that haveimpact are the ones that your audience(s) thinkare important. It’s really about understandingthe customer, something a recession periodallows us to do. In addition, expansion periodsshould not be the opportunity to exploit ourposition within our markets. Managing andassessing customer needs is important in allbusiness cycles.

When creating marketing messages, think likethe customer. The only messages that haveimpact are the ones that your audience(s) thinkare important. It’s really about understandingthe customer, something a recession periodallows us to do. In addition, expansion periodsshould not be the opportunity to exploit ourposition within our markets. Managing andassessing customer needs is important in allbusiness cycles.

Page 11: Cahners B2 B Recession Advertising

Average Awareness Levels of Businesses During Business Cycles (Based on 50% Awareness During Normal Cycle)

High awareness levels are more important than ever due to continuallyincreasing competition. Recession periods are unique opportunities toincrease awareness levels versus com-petitors. This chart shows the averageawareness rate when a company has50% awareness in a normal cycle.Companies who have lower awarenessrates can expect an even more dramatic increase from these levels byincreasing marketing initiatives.

Volatile business cycles in the past 5years have had huge effects on marketing budgets and dollars.Average marketing percentages havedeclined to a five year low in 2001,where a seven percent decline inbudgets will undoubtedly have a largeimpact on ROI, awareness and prefer-ence levels.By 2005, businesses expect an all timehigh in what percentage of revenueswill be spent on marketing efforts. Thisprojection is assuming that the busi-ness cycle will be in an expansion ornormal mode at that time.

11

Expansion59%

53%48%

Normal55%

52%50%*

Recession61%

54%52%

* Based on average awareness level of 50% during a normal cycle

No Change in Ad BudgetUp to 20% Increase in Ad Budget20% to 60% Increase in Ad Budget

Average Revenues Spent on All Marketing

2005**Projected

14%

2001

6%

2000

13%

1999

10%

1998

8%

1997

11%

Page 12: Cahners B2 B Recession Advertising

Cahners Business Information, Cahners Research, October 2001275 Washington Street, Newton, MA 02458

www.cahnerscarr.com