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Study: Cutting Marketing Could Prove Costly

Household and personal-care companies that cut spending on marketing in a recession could suffer immediate and long-term business losses, according to a new study. Analysis by a University of North Carolina professor shows home and beauty companies that reduced marketing in previous economic slowdowns lost share to private labels and failed to regain it.

The results of the study are especially timely, as a significant number of these companies slashed marketing at the end of last year. Using data provided by TNS Media Intelligence, which tracks advertising media, multiple researchers have found household and personal-care companies lowered marketing spending by 14% on average in the fourth quarter of 2008. For the year in total, the companies reduced marketing by 8.8%, ahead of the 5% cut by advertisers across all industries.

According to data from Goldman Sachs, a handful of personal-care companies did choose to increase marketing spending late in 2008, contrary to trends. For example, Procter & Gamble Co. devoted more money to advertise its laundry detergent brands, hoping to at least maintain sales and protect against gains from rivals. Further data provided by Information Resources Inc., a marketing services firm, showed foreign-based multinational companies tended to outspend U.S. companies in the home and beauty industry. L'Oréal, for instance, boosted its fourth quarter advertising spending and could stand to benefit in expanded market share.

Conversely, according to the UNC study, about half the share lost to private labels in past recessions has never been recovered by household and personal-care companies. However, research shows leading premium brands that maintain advertising budgets in a recession do not lose business to smaller non-premium labels.

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