Marketers must resist pressure to cut ad spend

The customer is always right. That principle is taught in marketing kindergarten. But right now, the customer is angry about the recession, corporate mismanagement and financial crises and they’re looking for someone to blame.

In the US, people are putting pressure on brands over their marketing, especially those companies that have received government bailouts. Sixty-nine per cent of Americans would like to see less spending from companies accepting assistance, according to data from Performance Research.

People feel they have a stake in those businesses and are entitled to have their say about how their hard-earned tax dollars are being spent. But if the customer isn’t a professional marketer, could they be wrong this time?

Chairman of specialist agency Tangible Financial, Lucian Camp, says: “It is very difficult for consumers to see that the commercial case is actually quite reasonable.”

Customers, after all, are not experts in corporate activity. Marketing is an accountable business discipline that can generate effective returns for companies. Car dealers in the US begged General Motors to launch an ad campaign last month to stimulate car sales; the salespeople on the ground claim marketing is their best chance to boost sales and improve the economy.

The GM dealers are not alone in their belief that marketing can help businesses perform better. Earlier this month, Bank of America chief executive Ken Lewis – whose bank received $45bn (£30bn) in aid – hit back at critics of bailout recipients sponsoring events. He insisted: “It’s not wasted money,” citing internal data demonstrating every dollar spent on sports marketing generates $10 in revenue and $3 in profit for BoA.

Despite Lewis’ claims, however, consumer criticism of marketing has increased. According to the Performance Research data, US citizens claim that they are now likely to feel less confident about a company, rather than more so, if they sponsor events. This seems to have been borne out by reaction to high-profile corporate sponsorships. Bank Northern Trust, which received $1.6bn (£1bn) under the US rescue plan, was roundly condemned last month for continuing its support of a golf tournament. Sixty-nine per cent of Americans think there should be active restrictions on sponsorship spending, according to Performance Research.

The golf event, which brought together employees and clients with celebrities such as singer Sheryl Crow, caused one US senator to propose a bill to end such lavish practices; meanwhile, the chairman of the House of Financial Services Committee wrote to Northern Trust demanding it pay back what it spent on the golf event.

Discontent is not reserved for sponsorships. Some consumers are so disillusioned they would rather the bailed-out businesses didn’t advertise at all, prompting consumer comments such as: “If there is one thing I would like to see from all companies included in the federal bailout, it is less of them.”

Where the US goes, the UK tends to follow. There have been calls for an independent body in Britain to be formed to scrutinise marketing activities, among other commercial strategies, of banks that have received state support.

Royal Bank of Scotland, recipient of £20bn from the taxpayer, has already been on the receiving end of criticism. Its extension of the title sponsorship of the Six Nations Rugby Tournament was questioned, and its deal with Formula One team AT&T Williams, which will not be renewed next year, was slammed.

A senior RBS source maintains that despite the flak, it would be wrong to bow to consumer pressure and cut marketing in these profitable areas. He claims the public largely recognises that it is reasonable for a big retail bank to “have its name out and about”. But the source admits that the customer may be right to question the F1 deal, saying the “threadbare strategy that saw it get signed off in the first place is now irrelevant”.

While RBS’ marketing spend may be fractional in comparison to the huge bailout sums, this does not prevent consumer fury. There has been an outcry in the US over the awarding of $165m (£112m) in bonuses to AIG executives – a drop in the ocean when compared to the $180bn (£122bn) received by the firm in bailout funds. As a result, the company has removed its brand signage outside its head office and it is even considering a name change.

The RBS source says the bank now tries to categorise its high-profile marketing activities into two areas: those which are seen as supportive of specific talent or activity and those hospitality-heavy packages which connect less well with people on the street.

For example, the source says the bank considers its backing of Scottish tennis star Andy Murray as positive. If the bank were to withdraw its support of Britain’s most promising player for decades, it could provoke an outcry.

In terms of cutting back on those marketing activities with less public relevance, RBS has stripped back its entertainments at the Six Nations. Gone are the champagne receptions and free bars: guests to this year’s events were reportedly instructed simply to arrive at the stadium 15 minutes before kick-off.

The RBS source adds: “A bit like the anger directed at the bonus culture, the idea that bankers are being entertained while the taxpayer bails them out is unacceptable.”

Tangible Financial’s Camp says: “There is an absolute terror among financial institutions that they might be caught having a good time. They are paranoid beyond belief about negative publicity; the country is knee-deep in cancelled hotel rooms, boxes for events and the like.”

Public suspicion about marketing is nothing new, continues Camp: “There has always been a deep-seated public suspicion that marketing is a kind of way for organisations to burn money.”

He points to historical examples of such feeling, saying that once-nationalised companies such as British Gas and British Telecom were repeatedly castigated for spending vast amounts of money on advertising. This has only enhanced consumer belief over time that advertising is some kind of useless indulgence that serves only to increase prices.

The paranoia is not reserved for state-supported brands. Even the world’s biggest advertiser, Procter & Gamble, is said by sources to be becoming coy about sharing information on the extent of its advertising, apparently worried about being seen as out of step with its consumers.

While P&G’s mantra may be “the consumer is boss”, many in the marketing industry are calling for balance. Simon Carter, former Thomas Cook and Post Office marketer, says his recent consumer research returned an “overwhelming response” from consumers demanding to be entertained by ads. “Consumers are bored with talk about cutbacks and making ends meet,” he says. “The last thing they need is to be reminded of it every time their favourite brand advertises. They want to be entertained, not reminded that ‘times are hard and here’s another way to save 3p on carrots’.”

accentuate the positive

Carter advises that brands engaging in marketing need to be positive: “Motivate consumers with aspirational ideas about your products. Don’t add more wet grass to their small fire of optimism. Make them want to shop with you; don’t bully them into coming to you because your prices are a fraction lower than the next man’s.”

Ford UK marketing director Mark Simpson agrees. He says that while, like all motor manufacturers, he is having to make cuts in marketing spend, his decisions are based on Ford’s business goals and are not affected by pressure from any quarter. He claims he refuses to advertise slashed prices: “We don’t believe that’s the right strategy for us. How good does discounting make the consumer feel about the manufacturer?” he asks.

Simpson has decided to limit the number of vehicles from its range Ford needs to support with marketing: “I’m working on the principle that it is better to do a few things fabulously than everything poorly.”

But Microsoft managing director and vice-president of consumer and online UK Ashley Highfield warns that large companies can’t afford to isolate customers, especially in times of trouble.

He says that being sensitive to consumer needs is vital, but he too is convinced that corporations need to do what is right for the business: “You can’t afford to take everything they say as gospel. You have to take gambles and see what the effects are.” He warns: “No business can afford to rest on its laurels right now.”

There are many that have no laurels to rest on in the first place. With vandals targeting the house of former RBS chief executive Fred Goodwin last week to express their anger at his pay-off from the bailed-out bank, it is unlikely that brands have heard the last protest.

If the era of spend, spend, spend is over for consumers, they are insisting it is over for businesses too. The challenge for marketers is to find a balance between demonstrating that their job delivers return on investment and judging the public mood.