Advertising in a Slow Economy

When the economy slows, marketing budgets get the cut first. Not everyone gets hit the same way, though.

Local retailers and service providers, local attorneys, dentists' offices, mom-and-pop stores, and the like tend to be most affected by short-term changes in the economy.

Ad spending by these local businesses has slowed sharply, rising 2.3% in the first nine months of 2007 from the same period a year earlier, down from growth of 11% during the first nine months of 2006, according to TNS Media Intelligence in New York.

TNS projects that total U.S. ad expenditures will climb 4.2% this year. But expectations of big gains from political campaign spending and the Beijing Summer Olympics hide weakness in the core ad market.

Expected to slide further this year: Real Estate, where spending sank 13.9% during the first nine months of 2007 from a year earlier, and retail, which slipped 1.8%, including a 2.1% decline among department store chains, according to TNS. Financial services will also falter. Despite all the turmoil in the credit markets, ad spending by Wall Street held up surprisingly well, climbing 10% during the first nine months of 2007, 5% in the third quarter. Retail banks and even mortgage lenders refrained from pulling their advertising last year, hoping to drum up business and maintain market share, a common response in the early stages of an economic slowdown. Brand marketing will also take a hit. During good times, big brands typically devote part of their marketing budgets to campaigns aimed at strengthening their brand visibility and equity over the long term,

During tougher times, those brand-building campaigns tend to get dialed back, particularly for low-margin, high-volume consumer packaged goods like food products, apparel and footwear.

Which ad categories should hold up? Automotive advertising, which sank 7.1% during the first nine months of 2007, won't decline as much in 2008. Relentless competition from Japanese automakers forces U.S. car companies to advertise if they want to keep their names in front of the public and minimize further losses in market share Consumer electronics is another category that should remain steady. The marketing efforts of personal technology manufacturers don't follow ups and downs in the economy because they are more geared around product cycles and a big fourth-quarter holiday blitz. Online