THE ECONOMY AND ADVERTSING

If you’ve heard me talk about the economy lately, then you could probably quote me as saying, “I think consumers are concentrating on two things right now; gas prices and groceries.” But consumers aren’t the only ones feeling the pain of inflation fueled by rising gasoline and grocery prices. Inflationary pressures and a rocky economy are forcing businesses to adjust as well. Some companies are really suffering, such as trucking companies, while others are adapting and some are even profiting, like Wal-Mart and other discount chains.
The average inflation rate for all products in February was 4 percent, according to the U.S. Department of Labor’s Bureau of Labor Statistics. The food and beverage inflation rate was slightly higher at 4.5 percent but both pale in comparison to the spike in gasoline prices during the last year. The average price of all gas soared 33 percent during the past 12 months based on a sample of prices in 80 cities.
The soar in gas prices definitely has an adverse effect on the auto industry which spends more than half of its ad revenue on TV. Auto industry analysts have lowered U.S. car industry unit sales forecasts several percentage points to around 15 million light vehicles (passenger cars and small trucks). That compares to more than 16 million sold vehicles last year and a recent high mark of 17.3 million units in 2000. The much discussed economic slowdown, falling home values and rising commodity prices, particularly for gasoline, aren’t helping.
This doesn’t look good for the nation’s TV networks. Automotive is crucial as the largest category in U.S. Advertising, accounting for 10.2% of total U.S. advertising in 2007, according to TNS Media Intelligence, while second-place financial services weighs in at 6.1%. While expectations are low for automotive –a category whose fortunes ride a roller coaster- there are some bright spots emerging, according to B&C’s Robert Marich. For starters, TV is expected to keep its share of automotive ad spending despite carmakers’ infatuation with the web. “There is little evidence that advertisers are shifting budgets away from television,” says a recent report about U.S. online automotive advertising from consultant JupiterResearch. While forecasting that automotive new media spending will soar from $1.1 billion in 2007 to $3.4 billion by 2012, JupiterResearch notes consumers still watch plenty of TV.
“Research shows that TV advertising drives a lot of Web usage, so I think TV will remain important for automakers,” adds Charlie Rutman, CEO of MPG North America, the media buying agency that places $3 billion in North America ad buys annually. The places you are seeing a decline are in magazines and radio, as well as declines in out-of-home, such as conventional billboards and transit ads. Indeed, auto TV advertising seems to be holding ground even as automotive internet spending alone rose 20% in 2007 to $750 million.

Even though the economy seems weak, unemployment remains low and parts of the economy are strong, such as technology and export manufacturing (helped by the weak dollar). As families start to cut back on extra expenditures, such as movie rentals, eating out, etc, HH impressions should increase and benefit those companies that are aggressively seeking market share through consistent television exposure. I’ve often said during tough times, those companies that continue to run commercials and generate interest in a declining market will slowly gain market share from their competitors. I’ve used the car companies with their significant research dollars to prove the point that television advertising should be where you are spending the majority of you ad dollars. I also want to reiterate how important your website presence is and the fact you should consider running banners on different sites besides the ones you’re already on. For instance, Waterfowler TV receives over 300,000 unique hits each month the program is on the air. All of Powerhouse’s programs drive viewers to the web and ultimately delivers proven consumers to our advertisers.