DOWNTIME OPPORTUNITY Marketing and Media Innovation in Times

DOWNTIME OPPORTUNITY Marketing and Media Innovation in Times of Recession Bucharest, 15 th of December 2008 -0 -

WHEN TIMES ARE GOOD, YOU SHOULD ADVERTISE… WHEN TIMES ARE BAD, YOU MUST ADVERTISE! 4. 3 -0. 8 1. 7 0. 6 Source: PIMS database, 1999 0. 9 Source: AMB, 2001 Businesses which had increased their marketing share were, on average, not significantly less profitable during recession (10% - 9% - 8%) Ø Market share and profits of those firms that maintained or increased market spend during and after recession, outstripped the ones that cut back Ø Ø Maintaining ‘share of mind’ costs much less than rebuilding it later on Ø Economic downturns reward the aggressive advertisers and penalise the timid ones -1 -

AND FOR THOSE ADVERTISERS THAT WANT TO OPTIMIZE THEIR A&P BUDGETS: ZERO BASED BUDGETING Product-market growth High Star “growth” Cash cow “maintenance” or “harvest” Question mark Dog “harvest” or “divest” Source: BCG Low High Competitive position THE TRADITIONAL MARKETING BUDGETING PROCESS IS INCREMENTAL AND LACKS STRATEGIC PRIORITIES: 1. 2. 3. It gives only limited consideration to the significant differences in A&P intensity and sensitivity among market segments and countries It fails to recognize the fundamental choices to be made among growth, maintenance, and harvest strategies for each brand, segment and country Market share and the impact of A&P investments on profits are not measured, and, as a result, share targets are not linked to A&P budgets -2 -

ZERO BASED BUDGETING CAN FREE-UP MORE THAN 20% OF YOUR A&P BUDGETS! F One FMCG’s distribution of A&P investments in brands as a percentage of turnover High 1 5 3 25 22 Market growth 2 4 19 Illus trati 17 on 6 22 17 Low Source: BCG analysis Weak Contested Strong Competitive position MANY COMPANIES DON’T OPTIMIZE THEIR PORTFOLIOS - Investments in brands with a weak market position (boxes 1 and 2) are relatively small and below the minimum investment level: little impact - Investments in brands with a highly competitive and growing market (box 3) are also limited: unexploited potential - Investments in brands with a low-growth but highly competitive market (box 4) are insufficient, but too high for a harvest strategy - Investments in brands with a leading market position (boxes 5 and 6) are far in excess of the level required for maintenance -3 -

WORST OF TIMES…… DOW JONES INDUSTRIAL AVERAGE RECESSIONS 15, 000 10, 000 5, 000 0 11/73 -3/75: Oil shock, energy crisis. Staglation (inflation, economic stagnation). “Whip inflation Now. ” The Great Depression, including the cataclysmic 1929 -33 recession and a deep 1937 -38 recession 1930 1940 1950 1960 1970 7/81 -11/82: Part 2 Of back-to-back Recessions. Continued tight monetary policy to fight inflation. Double-digit interest rates, soaring unemployment. 1980 1990 Nov. 21, 2008: Bear market intraday low of 7, 449 2000 Source: Bloomberg -4 -

Key stats for four mafor recession periods STATS 1929 -33 1973 -75 1980 -82 2008 Real GDP -13. 0% -0. 5% -1. 9% 1. 2% NA 57. 6 51. 7 55. 3 Unemployment 24. 9% 9. 0% 10. 8% 5. 8% Inflation -9. 9% 11. 0% 13. 5% 3. 8% Real ad spending -13. 1% -4. 4% -3. 7% -3. 8% S&P 500 % drop -86. 2% -48. 2% -25. 8% -52. 7% Univ. Of Mich. Consumer Sentiment Source: Ad. Age Data. Center research; IHS Global Insight; Group M; National Bureau of Economic Research -5 -

THE AUTOMOTIVE INDUSTRY The Great Depression (1929 -1932) Ø Car sales went down with 71% between 1929 and 1932! Ø Innovations: Chevrolet offered its dealers $ 50 for each unsafe trade-in they send to the junkyard; shrink the supply of second hand cars Ø GM’s Buick began a campaign to promote used upscale Buicks; factory support of used cars helps maintain resale prices Ø The Motor and Equipment Association started in 1930 an ad campaign promoting repair and maintenance; additional revenue streams through maintenance and parts sales Ø Ø Chrysler introduced in 1932 its cheapest car ever, a $ 495 Plymouth; value for money Other recessions: Ø Patriotic pitches in later downturns; buy local In 1981, GM and Ford started to offer subsidized car loans to consumers at a time that interest rates were surging (21%); defreeze credits Ø -6 -

FINANCIAL SERVICES The Great Depression (1929 -1932) Ø The Dow Jones Industrial Index dropped 89% between September 1929 and July 1932 Ø More than 7600 banks failed in the US between 1930 and 1933 Ø Innovations: The Federal Home Loan Bank, created in 1932 by Congress to support mortgage lending, started an ad campaign in 1933 to encourage consumer borrowing Ø Recession 1973 -1975 Ø Innovations: Congress created in 1974 the Individual Retirement Accounts (IRAS), encouraging workers to take more responsibility for their retirement finances Ø Ø Discount brokers occurred, slashing stock-brokerage commissions (Charles Schwab) Ø The Vanguard Group created the first indexed mutual fund in 1976 A Chicago supermarket chain helped pioneer the concept of using credit cards to pay for groceries in 1974 Ø -7 -

CONSUMER PRODUCTS AND RETAILING The Great Depression (1929 -1932) Ø Real Consumer Spending fell with 29% between 1929 and 1933 Ø Innovations: Ø GE starts to sell refrigerators with a 4 -year service-contract policy (1930) Ø General Foods began test marketing a range of frozen foods in 1930 Sears (retail) diversified in 1931 into auto insurance, in 1932 introduced what was effectively a debit card (passbook savings account) Ø Ward (retail) introduced in 1934 a service allowing catalog customers to shop by phone Ø Recession 1973 -1975 Ø Real Consumer Spending in 1974 fell with 0, 8%, the biggest decline since 1946 Ø Innovations: Ø Frederick Smith launched Federal Express amid rocketing fuel prices Ø Bill Gates and Paul Allen started Microsoft in 1975 Miller launched Miller Lite in 1975, the first lower calorie beer to gain acceptance among men Ø -8 -

MEDIA The Great Depression (1929 -1932) Ø US ad spending plummeted 54% between 1929 and 1933 Ø Innovations: Ø Time Inc. launched Fortune magazine in 1930 Ø Crain jr. launched Advertising Age in 1930 Ø Esquire launched in October 1933 Recession 1973 -1975 Ø Real ad spending fell 4. 4% in 1974 and 4. 3% in 1975 Ø Innovations: Time Inc. launched People magazine in 1974. People is now the nr. 1 magazine in number of ad pages and revenues Ø Recession 1980 -1982 Ø Real ad spend fell 3. 7% in 1980 Ø Innovations: Ø Dawn of cable: launch of CNN (1980), MTV (1981), Disney Channel (1983) Ø Gannett launched USA Today in 1982, now the largest daily newspaper in the US -9 -

ADVERTISING AGENCIES The Great Depression (1929 -1932) Ø Innovations: Ø Mc. Cann and Erickson merged in 1930 Recession 1973 -1975 Ø Innovations: Buy low, sell high: Warren Buffet bought more than 10% in Interpublic Group, and also a big stake in Ogilvy&Mather (1974) Ø Recession 1980 -1982 Ø Innovations: Gaining scale: Saatchi&Saatchi acquired Compton Communications in 1982 for $ 57 million; Chiat/Day bought Regis Mc. Kenna (Apple) in 1981 Ø - 10 -