Share losses to private label amplified by ad spend cuts

Posted by Daniel Palmer on 7th April 2009

Cutting advertising spend in a downturn is likely to lead to a loss of market share to private label that is unlikely to be regained in the years ahead, according to research from the University of North Carolina.

Brands in the consumer products sector are becoming increasingly vulnerable to private label, with many brands slashing advertising spend in a bid to cut costs as consumer demand wanes. TNS Media Intelligence data evaluated by Sanford C. Bernstein last month, established that there was a 5% reduction in ad spend overall. Such a dramatic drop-off is anticipated, by a team of researchers from the University of North Carolina (UNC), to cause significant long-term pain.

Their research, covering decades of purchasing behaviour and multiple recessions, discovered that private label growth during recessions leaves lasting impressions on manufacturers, as market share gains are only partially recouped. In fact, only about half has ever been recovered, according to their analysis.

The researchers recommended brand managers become more proactive, and consequently treat a global recession as an opportunity rather than a threat. The majority of those who maintain or increase advertising expenditure during the previous recessions have been seen to be among the most successful in repelling the private label threat in the past.

“Companies and categories that are able to turn a recession into an advantage are (those) going against economic trends,” Jan-Benedict Steenkamp from the UNC, said, according to AdAge. “Ultimately, it takes courage. But it pays off in share and in terms of the stock market.”