In the early 1970s, the concept of "light beer" hadn't yet caught on with most beer drinkers, particularly men. So to help promote its new Miller-Lite brand, Miller Brewing turned to ad agency McCann-Erickson -- which came up with an ingenious idea.
The company began running a series of commercials featuring Bubba Smith, Mickey Mantle and other legends from the sporting world arguing over Miller-Lite in the now famous "tastes great/less filling" debates. By positioning the beer as less filling rather than low-calorie, it was perceived as being more "manly" -- you could drink more of it.
The ad campaign propelled sales of the brand from just seven million barrels in 1973 to 31 million in 1978 -- unprecedented growth for a beer company. Today, Miller-Lite is one of the top selling beers in the nation, and the light beer category accounts for roughly half of the domestic beer market.
Of course, that's hardly an isolated example. Advertising has played an instrumental role in the success of just about every popular product from toothpaste to auto insurance.
To say the last couple years have been a cost-cutting period for advertising would be an understatement. But the hibernation period is over and those same companies are waking from their slumber. And they're hungry. An aggressive increase in marketing activity should occur as they start reaching out to customers once again.
ZenithOptimedia, which keeps close tabs on the industry, has raised its outlook twice since December and is now forecasting global ad spending of $456 billion in 2010, a +$10 billion (+2.2%) increase over last year's total. While the percentage increase is modest, keep in mind that it follows 18 consecutive months of downward revisions -- so any positive number signals a major shift. Any big moves made by stocks in this sector are likely to come in the early stages of recovery, not after it has come and gone. This could indeed just be the beginning. The growth outlook for next year has been lifted to +4.1% and 2012 is expected to bring an even sharper uptick of +5.3%.
Where will the cash come from? Well, consider that Coca-Cola (NYSE: KO) alone spent $752 million to advertise on TV, newspapers, Spanish-language magazines and many other places last year. Procter & Gamble (NYSE: PG) dished out $4.8 billion to promote brands like Pampers and Duracell. AT&T (NYSE: T) and Verizon (NYSE: VZ) were close behind, saturating the airwaves with a combined $4 billion in their fierce battle for mobile market share. Other big spenders include Wal-Mart (NYSE: WMT), and General Motors (NYSE: GM).
Follow the Cash
Newspapers still account for an 18% chunk of advertising, but that percentage is spiraling downward. As circulation rates dwindle, key advertisers like department store owner Macy's (NYSE: M) have pulled the plug and cut ad spending by more than 50% during the past few years.
Magazines and traditional radio haven't fared much better; both suffered harsh declines of about 20% last year. With fewer eyeballs glued to the tabloids and traditional radio giving way to satellite radio and MP3 players, I don't expect either to reach their former peaks.
Fortunately, that money has to go somewhere.
Outdoor billboards are expected to be a good way to capture drivers' attention this year. Cable and network television spots are also forecast to rake in more revenue.
But simple intuition will tell you the strongest industry growth drivers are found in the digital realm. Video game advertising enjoyed brisk double-digit growth last year. The same thing goes for mobile phones.
Paid search and other online marketing also remains in high demand. In fact, the Internet now captures more ad revenue than magazines and is expected to post healthy growth of more than 13% in 2010.
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