Caught again between a rock and a hard place

Stuart%20SmithConventional wisdom has it that the best way for marketers to navigate their way through a recession is the counter-intuitive tactic of upping their ad spend. Whether this advice holds good for one-company self-engendered crises remains to be seen, but Adam Applegarth, chief executive of beleaguered bank Northern Rock, is certainly having a go at applying it.

Yesterday, the newspapers were ablaze with a campaign proclaiming “We’re open”, in a tone reminiscent of plucky East Enders weathering the Blitz. Simultaneously, but more controversially, Applegarth continued to sanction ads peddling the unalloyed virtues of Northern Rock’s unsecured loans. Any takers out there?

Applegarth’s chutzpah is no doubt ascribable to the fact the Bank of England has bailed his bank out – and the further knowledge that, if he goes down, so does the Chancellor of the Exchequer.

The rest of us must take a more circumspect and necessarily longer-term view of the so-called sub-prime credit crisis that has brought about Northern Rock’s predicament. How serious are its ramifications, and what should be done about them?

Suggestions that marketers, led by the financial services sector, will immediately immerse themselves in a bout of budget immolation seem wide of the mark. Caution, not panic, should be the watchword. Why cut back when there is little or no sign of consumer confidence waning – so far?

That there will be a reckoning of some sort does, however, seem increasingly likely. The history of financial crises offers little scope for optimism on this score. At some point, financial incompetence spills over into the real economy with disheartening effect. And it’s at that point advertisers cut their budgets, arguably exacerbating the crisis they are trying to counteract. It happened in 1973-5 after the secondary banking crisis (which the present “credit crunch” most closely resembles); and again after the stock market crash in the late 1980s (the economic bust was delayed in masterly fashion into the early 1990s by lax management of the money supply).

The startling exception was the recession of the early 1980s, brought on by the OPEC oil heist and industrial confrontation in the early Thatcher years. Some believe the net effect may actually have been to boost the service economy at the expense of industry (not least because of all those petro-dollars being recycled).

Statistically, then, the record does not inspire confidence that a downturn in spend can be avoided over the next year or two. That may, or may not, chime with Sir Martin Sorrell’s recent prediction that good times still lie ahead, thanks to the Olympics and US presidential elections in 2008. He did, after all, add the caveat that things may turn sour thereafter.

Of course, the past is not always a reliable guide to the future; confidence may go up as well as down; advertisers may once again have the courage to buck the trend; our regulators and political masters may be more adept in the light of over 30 years’ experience defusing financial crises… But that’s a lot of conditionals.

Stuart Smith, Editor


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