March 9, 2009 / 6:58 PM / in 9 years

Ad industry confronts grim research on spending

NEW YORK (Reuters) - An advertising industry that has witnessed consumers abandon vacations, quit shopping and drop cable TV subscription should be prepared for such dramatic shifts in spending to stick around for awhile -- even after worldwide economies recover.

So cautions Nick Brien, a senior executive of advertising giant Interpublic Group (IPG.N), who predicted the sharp pullback in consumer spending would force companies to adjust by cutting global advertising expenditures by 10 to 15 percent this year.

U.S. ad budgets could be down 20 percent, although spending on marketing, like special promotions or public relations, should hold up better, he said in an interview.

“If this economy is changing the game for consumers, it then changes it for marketers and ad agencies,” Brien said, citing a new research project by IPG’s Mediabrands. “The consequences are far-reaching.”

Brien will present an advertising conference in Sydney on Tuesday with the latest research, which suggests behavioral changes seen by consumers in the United States, China and Australia are here to stay. That, he says, means marketers will have to rethink how they sell their products and services.

“I started in 1982 and I’ve never experienced anything like this, where it’s a global phenomenon, where the anxiety level is so very serious,” said Brien, chief executive of Mediabrands, which has responsibility for Interpublic’s media agencies Universal McCann, Initiative, Magna, J3 and a handful of others.

Brien, previously worldwide chief executive of Universal McCann, took over his role at Mediabrands in July, giving him management responsibility over agencies that handle billions of dollars in spending for marketers such as Johnson & Johnson (JNJ.N), Microsoft (MSFT.O), Home Depot (HD.N) and Sony (6758.T).

Based on 90-minute interviews with consumers, Brien is using the new research to help advise clients on how to spend during the recession -- and once economies start to recover.

For instance, the research found that consumers are willing to sacrifice traditional cable TV and landline telephone accounts if they are feeling the recession’s pinch. But they will not easily give up their Internet and mobile phone accounts.

In other words, if companies are cutting advertising budgets, they would be well-advised to take money out of traditional TV commercials, while maintaining funding for Web search ads; or they should abandon a newspaper campaign, but keep spending to zip-targeted text ads to cellphones.

    “That means the challenge for traditional media cannot be underestimated,” Brien said. “We’re telling clients that while budgets may be cut, don’t cut innovation or your commitment to emerging technologies. Because this is where you’ll find consumers.”

    Brien said both clients and consumers appear “shocked by the speed of economic collapse” and now he does not believe that the advertising market will recover before the middle of 2010.

    “I can’t see anything in 2009 that gives me any confidence there will be a bounce,” he said. “I feel like we’ll hit a bottom by the middle of 2009, but I don’t think ad budgets will come back right away.”

    Indeed, Brien said the research shows that consumers do not see themselves returning to pre-meltdown spending even after their jobs, homes and savings are more secure.

    While they may start taking vacations again, the trips will be shorter or less luxurious; they may remodel their kitchen, but are likely to save for it rather than finance a new dishwasher, refrigerator and cabinets with credit, according to the study.

    “If consumers change how they shop, the advertising approach has to change, to be more promotional-based, value-based,” said Brien. “I don’t think you’ll see the advertising going back to its traditional mix anytime soon.”

    Reporting by Paul Thomasch, editing by Matthew Lewis

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