The Association for Qualitative Research
The Hub of Qualitative Thinking

When V turns to U

2001 has been a gloomy year for the advertising world. Over the last ten months hopes that the recession would be V-shaped have faded, and advertisers, their agencies and the research world are facing a slow and cautious U-shaped climb rather than a swift recovery.

The last ten months have seen a constant downward revision of media ad spend: a 5.8% decline, with an 8.7 % decline in the US. Forecasts of a V-shaped recession with a swift recovery have faded given an overall global economic slowdown, particularly in the US, Germany and Japan, as well as post-September 11th uncertainty in the travel and tourism industries.

Ad spend and overall economic health are inextricably linked: ‘There is a clear and strong correlation between the growth or fall in ad revenues and the rise or drop in the overall strength of the economy,' said Anthony Jones, European Research Director of the media planning agency Optimedia.

The NBR (National Bureau of Economic research) committee has recently confirmed that there has been a recession since March, with statistics on unemployment, industrial production, wholesale and retail trade and personal incomes pointing to the first recession since 1990-1991. However the end of this worrying dip may be in sight. Advertisers could soon be rising out of the ‘U’. Despite the NBR’s official statement that a recession has been happening, it also reports that the average recession lasts just under a year.

So will advertisers be out of deep water by next spring? Zenith Optimedia’s forecast paints an optimistic view of next year’s ad spend, suggesting a fairly rapid recovery to pre-March levels.

Zenith predicts that the decline in global advertising spending will shrink from 5.8% this year to 1.3 % in 2002. This improvement is mirrored in the US, where the decline in spending is now predicted to shrink from 8.7% this year to 3.5% next.

"It's appropriate for the market to be looking across the valley and taking the view that more of the recession is behind you," said Neal Soss, chief economist at Credit Suisse First Boston Inc. in New York.

The mood is one of cautious confidence, especially in the UK, which has borne up better than most. Our economy is continuing to grow by about 2% per year, with a very strong housing market and proposed government cash injections into the economy building on a sense of stability. According to the Bellwether Report, most companies are still making up their budgets for 2002, almost at a 2:1 ratio to those who are trimming budgets

However the advertising world has been particularly vulnerable to US insecurity. There have been job cuts in a spate of agencies such as AMV, Darcy and HHCL, and Zenith are predicting a 1.4 % drop in adspend next year.

So how will this impact on qualitative research? And how does this news fit with how research agencies themselves are looking forward to the coming year?

In the recent RDSi industry facts and figures report, 134 qualitative research agencies shared their statistics and predictions over 2001 and onwards.

Base All Respondents

Anticipated growth in qual business in the coming year

132

The growth sectors in the economy as a whole seem to be mirrored in the qualitative research industry. Research agencies are also reasonably confident, if cautious about their growth in 2002: 58% were expecting up to 7.5 % growth and 35% expecting over 7.5 % growth. Interestingly though, 17% did not know what their growth would be.

UK research agencies are reporting their biggest growth in FMCG, retail and consumer durables, though with finance and new media not far behind. These figures tally with predictions that advertising of consumer packaged goods will continue to hold up well because advertisers are exploiting plummeting prices for space, especially in TV. It has been a time of bold gestures such as Metro’s ‘Out of sight, out of mind’ campaign earlier this year was a hard-hitting reminder to advertisers not to cut budgets.

Base All Respondents

Which have been your main growth areas over the past year?

132

So why is fmcg so strong? Perhaps this can be partially explained by the fact that when consumers are spending more cautiously the big fmcg brands can perform very well by communicating on a quality/value platform, positioning themselves as essential and durable. In cautious times purchases still have to be made, and it will be those advertisers who continue to advertise to build loyalty that will benefit.

Whenever advertisers and their agencies are feeling vulnerable, research agencies must work even harder to demonstrate how their insights can add actionable value. In qualitative research, it will be those providers who are able to observe consumers’ changed behaviour and elicit their changing priorities who will be able to demonstrate most value to advertisers.

 

Gemma Ferst
Copyright © Association for Qualitative Research, 2002