Andrew Walmsley on digital: A downturn is no time to compensate

investments, marketing budgets are easy to alter in the short term,
making them vulnerable to plundering to make up shortfalls in wider
profitability.

In some senses this is a logical tactic to adopt. If corporate
performance is affected, share price could slip, and all sorts of
unpleasant consequences ensue.

Jean-Claude Larreche's book The Momentum Effect divides strategies into
two types - momentum and compensatory. Momentum strategies require the
organisation to be pulling in one direction. These are powerful and
effective, but require a singular determination to align an organisation
around the achievement of a single goal.

Compensatory strategy describes a situation in which a business takes
action to make up for shortfalls elsewhere in the organisation, rather
than to achieve its goals. Larreche argues that this is sometimes
legitimate because we have to live in the real world. A manager with a
target to make may pull forward business from the following year to meet
it. He will have to make it up later, but if he doesn't, he may not be
in the game anyway.

The problem occurs when compensatory strategy becomes the dominant
strategy, and a company devotes so much energy to maintaining
equilibrium that it fails to move forward.

This is what we see when marketing budgets are cut in tough economic
times. If you see marketing as a cost, you shouldn't be doing it at all.
It should be an investment - and if it pays back, then you should do it
regardless of the economic climate, both to maintain sales and the
health of the brand.

When the share price is already under pressure, it's an obvious
short-term compensatory strategy to shave marketing budgets. We're
seeing the impact of this right now on the Bellwether report.

But as we've seen, internet advertising, particularly search, is still
making gains.

Internet advertising is more cost-effective and accountable, which makes
it less risky than other forms of media. In uncertain times, people are,
not surprisingly, attracted to anything they perceive as reliable.

Search advertising is apparently less risky still. Its cost-per-click
basis means a transfer of business risk from the advertiser to the media
owner. This transfer has driven search's stratospheric growth curve, but
it is a simplistic model. While it's a valuable marketing tool, it
fulfils, rather than creates, demand.

Advertisers are right to continue to invest in search during a downturn
- after all, it's more important than ever to be catching every
customer. However, search depends on other activity to stimulate demand.
If businesses are drawn to spend more on search because of its lower
perceived risk, they may find themselves spending still more on this
activity to compensate for slower demand.

What might have been a short-term compensation strategy to maintain
corporate performance could erode efficiency and inflate costs at
exactly the time when better performance couldn't be more important.

- Andrew Walmsley is co-founder of i-level

30 SECONDS ON ... POST-9/11 BELLWETHER

- The research for the IPA's Bellwether report for the third quarter of
2001 was carried out between 13 September and 2 October of that year, in
the immediate aftermath of the terrorist attacks in the US.

- The report suggested that advertisers expected any downturn to be
brief, as 42% of firms that set new budgets for 2002 during the quarter
set them higher, in real terms, than their existing revised budgets,
while just 23% reported a lowering of budgets.

- Cuts were most common in financial services, travel and entertainment
and media.

- The sharpest decline in current budgets and the weakest growth in new
budgets was for media adspend, reflecting a shift to direct marketing
and sales promotions.

- Spending on internet-related marketing was reported to have fallen as
a proportion of total spend from an estimated 2.9% the previous quarter
to 2.7%.