Empty Room Budget Prepared especially for: Holland America
Recent Headlines “Markets in turmoil” “Travel spending declines 1st time since 2001 ” “U.S. to take over AIG” “Cruise ships prepare to enter pirate-infested waters” “visitor arrivals in Hawaii decline by double digits”
Don’t Touch that Ad Budget • The Impact of heavy Ad spend cuts on Premium brand share • “The clear findings was that those with the highest ad spend at the begining of any period were most likely to increase their share during the period.” • A study of the three economic downturns over the past 30 years shows that those brands who maintained advertising continually performed better than those who cut ad spend in terms of market share. • 2002 ARF Study
Don’t touch that Ad Budget • Advertising in a down economy clearly creates a competitive advantage. • - It relays a more positive message about the company’s commitment to its products and services. • - More importantly, it also keeps those companies top-of-mind when purchase decisions are made. • Profit Impact of Marketing Strategy (PIMS) • Profits of companies were higher both during and following recessionary periods. • - Research based on 1,000 global companies from 1973 – 1999 • - 2 years before and 2 years after recession
Recession Study Jif Peanut Butter and Kraft Salad Dressing increased their advertising and experienced sales growth of 57% and 70% respectively Coors light and Bud Light increased advertising and saw sales jump 15% and 16% respectively. Miller cut budgets and saw a 4% drop. Among fast food chains, Pizza Hut sales rose 61% and Taco Bell’s 40% thanks to strong advertising support, reducing McDonald’s sales by some 28% as they slowed advertising. MarketSense concluded the study: “The best strategy for coping with a recession is balanced exploitation of ad spending for long-term consumer motivation, plus promotion for short term sales boost.”
McGraw Hill Research’s Laboratory of Advertising Performance analyzed the performance of 600+ firms: those firms which maintained or increased their advertising expenditures “averaged significantly higher sales growth” during and for the three years following the recession compared to those which eliminated or decreased advertising. • McGraw Hill Laboratory of Advertising Performance 1985 • American Business Media Study: “Sales and profits can be maintained and increased in recession years and (in the years) immediately following by those who are willing to maintain an aggressive marketing posture, while others adopt the philosophy of cutting back on promotional efforts when sales appear to be harder to get.” • American Business Media 1974 - 1975
Advertising studies Pre-Recession & Post Recession • Buchen Advertising Inc. tracked a ‘large number’ of business to business companies: sales and profits dropped off, “almost without exception”, at companies which cut back on advertising. Post recession, those companies continued to “lag behind” companies which maintained their advertising budgets. • Buchen Advertising Inc. 1949, 54’, 58’ , 61’ • Harvard Business Review report of 200 companies: largest sales increases reported by companies that advertised the most during the recessionary year. • Harvard Business Review 1923
Ad Cutbacks Backfired for Bankruptcy Victims Mervyn’s, Bennigan’s, Sharper Image all cut ad budgets deep! • New York Aug 2008 - In the really tough times, It’s almost instinctual for a company to dial back on marketing, but there’s a growing body of evidence… and bankruptcy filings… to suggest that cutting ad dollars can be the ultimate false economy. • Advertising levels 12 months prior to bankruptcy • -25% • -75% • -82%
Fair weather, but clouds gathering on thehorizon! • In an effort to quell a gloomy season effected by a bad economy, cruise lines have reacted quickly and reduced pricing drastically. Finding the proper price point has been critical to the continued success of this industry. At the same time, fuel prices have dropped to comfortable levels. Additionally, advertising campaigns have been effective in showing the value side of cruising as avacation alternative. • Additional ships have and will be introduced adding more than 20,000 cabins on the open seas during high season. Competition is on the rise. • Fuel prices will remain the wild card going forward through 2009, and the future. Recent oil trends indicate that prices might average about $55 a barrel in 2009. This however is predicated on making assumptions that OPEC will follow similar patterns in pricing. Further, a new voracious appetite for fuel has been developing as China’s middle class takes hold, reversing the current softing demand.
Conclusion… • We all can agree on the facts: • U.S. economy is, at best, unstable. Consumers are changing spending habits. • Occupancy has remained stable, but pricing has adjusted down. • The opportunity to grab additional market share with maintained or increased advertising is NOW! • When times are good, you should advertise. When times are bad, you must advertise.
But there’s nothing left for an ad budget! conserve your cash… • Reserves must be kept to meet obligations: • Payroll / Pensions • Maintenance • Lease payments • Infrastructure • Taxes • Security • unknown variables
Create a media budget using empty cabins. • Every day you set sail with an empty cabin, an asset withers on the vine, and is written off as a loss to the company. • The expense to keep operate your cruise line are relatively static regardless of what your occupancy is. • With an increased “inventory”, leveraging your empty cabins makes more sense than ever.
Calculating your budget * Figures based on double occupancy, taxes & port charges additional. Annual Barter Budget Using Just ½ % of Rooms – $5,900,000
Calculating your budget • In this example, I have illustrated the basic concept of how an advertising budget can be created. • Depending on cruise ship, cabins used, and destination, data will vary. • Using this basic concept and making the allowance for higher priced staterooms, a budget can be put together using just 1 or two cabins per cruise.
Choosing the Right Mix of Media • In-Flight Magazine • Radio • Metro Traffic Spots • Outdoor Media
Please contact me ! Rob Fogarty, Director of Sales 21198 Beavercreek Rd. Bldg. B Oregon City, OR 97045 800-858-8973