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Recession prompts ad-agency rethinking as budgets dwindle

The original Henry Ford, the man who introduced America to the mass-produced economy car, is reported to have once said, ''I know my advertising works half the time. The problem is, I don't know which half.''

Despite modern measuring methods and all the sophisticated marketing research now available, advertising often remains just as much an enigma to the big-budget advertisers of today. Even when the economy is booming, the need for advertising is frequently questioned and its value challenged.

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So, in the current pinchpenny economy it's not too surprising to find that the frequently misunderstood advertising entry in an overstrained marketing budget is the first to feel the pinch. In some extreme cases it's being eliminated altogether.

For corporate advertisers and the creative professionals who staff the ad agencies alike, the recessionary economy is uppermost in their thoughts these days as they glumly survey the advertising scene. At a recent gathering in New York of advertising people from across the country and around the world, a workshop entitled ''Creating big ideas with small budgets'' was crammed to capacity in both morning and afternoon repeat sessions. Sponsored by Advertising Age, a weekly publication serving the advertising community, these workshops were part of a four-day conference that attracted some 750 advertising professionals from nearly 50 countries throughout the world.

''It looks like your clients all cut their advertising budgets this year,'' remarked Tom McElligott, creative director of Fallon McElligott Rice, a Minneapolis agency.

Allen Rosenshine, chief executive officer of BBDO International Inc., a worldwide ad shop headquartered on New York's Madison Avenue, observed that ad agencies found themselves in the position of being nibbled away by budget cutbacks at a time when advertising expenditures should be increasing to match the heavier marketing burdens advertising is expected to fulfill.

''The lesson of the last recession in 1974-75 held up through the beginnings of this one,'' Mr. Rosenshine stated. ''Advertisers learned through post-recession studies last time that brands which kept up their advertising pressure through the recession enjoyed increased shares of market after the recession, which more than repaid the profits they could have taken by cutting back during the difficult times. Brands which did indeed cut back lost share to the extent that it cost them excessively to regain it later, and in many instances they could not afford the cost of an uphill share battle at all.''

He pointed out that as this recession got started late in 1980 through most of 1981, the pace of advertising held fairly steady and no one felt the squeeze too much. ''But now it hurts,'' he added, ''and it will go on hurting for the foreseeable future. This is not a typical recession where you slide into it fast and zoom out of it faster. If and when the turnaround comes, it will be a 'crawl-around,' and industry will have a long, hard, slip-and-slide path toward prosperity.

''What this recession means for us in advertising is redefinition,'' Mr. Rosenshine added. ''We have learned enough, I think, not to fall prey to the 'hard-times-demand-hard-sell' syndrome. We know enough, I think, to know that any time demands the most effective sell and that the old definitions of hard and soft sell are no longer valid.''

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Not all all advertisers are solving budgetary problems by cutting back on advertising. Two notable exceptions are Pan American World Airways and General Motors, both of which have substantially increased advertising with the expectation of increasing sales in a declining market. GM chose this period to launch a new corporate campaign for its full line of cars and trucks.

Even in tight-money times, advertising agency failures, unlike banks, are almost unheard of. In the labor-intensive advertising industry, where staffing an agency represents about 65 percent of overall costs, the quick and effective way to cut costs is to reduce personnel - or at least put a freeze on hiring. One of Madison Avenue's largest advertising agencies has had a broad hiring freeze in place for over a year now.

This makes the recessionary economy tough on younger people trying to enter the advertising field, and it makes it a difficult time for seasoned veterans to find work in advertising. Barbara Dana, of Placement Associates, a New York recruitment firm that specializes in finding creative executives for advertising agencies, reports a very poor placement picture this summer. ''August is usually one of our best months,'' she states. ''This year it was the worst. This is the worst time I've seen in my 20 years in the business.''

One hopeful sign comes from Martin Friedman, editor of New Product News released by Dancer Fitzgerald Sample, a New York-based packaged-goods agency. He reports that August ''was full of new product pep.'' The total number of new products for the month was 129, which was more than one-third more than August 1981. And the total number of new products for the first eight months of 1982 was 8 percent more than for the same period in 1981. ''Of course,'' he adds, ''there's always the question of how many of these products will survive in test market and go national with full-scale advertising campaigns. And that could be 18 months down the road.''

Alvin Hampel, the recently appointed chairman of D'Arcy-MacManus & Masius, was inclined to look on the brighter side. ''Of course some of our clients have been cutting back on their advertising expenditures. Other clients are taking a much closer and harder look at advertising production costs and what they're getting for their money. But the net result is there's an even greater emphasis on creating innovative advertising for our clients - finding new ways to make advertising communicate more effectively. And if that's what's happening, it can't be all bad.''

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