A good example to use when explaining what firms do as they come out of a recession

Students of the recent recession in the UK will know that the UK advertising industry declined sharply during the downturn as businesses (on balance) trimmed their advertising spend to conserve cash and reduce costs. What might students expect to see as the economy exits the recession phase?

Advertising is tyically viewed as a cyclical industry, so a return to economic growth might reasonably be expected to be accompanies by higher advertising spending. The evidence from one of the UK’s biggest advertisers seems to support that expectation.

The Telegraph reports how consumer products giant Procter & Gamble is expecting to increase its £200m advertising spend by more than the growth in revenues during 2010.

That will be good news for businesses like ITV and the newspaper and magazine publishers who have suffered from a sharp decline in their advertising revenues during 2008 and 2009. However, there might be a couple of stings in the tail.

Firstly, the suggestion is that P&G will follow the well-established trend of swapping spending on traditional media (e.g. TV, radio, print) to digital media.

Secondly, the article hints of a pending battle between stakeholders (customers & suppliers) - with P&G as a customer looking to negotiate better advertising rates with the likes of ITV. The key quote is:

“We are looking at different ways of spending on TV programmes and new kinds of advertorials and we are asking them for efficiency savings,” Mr Lee said. “What we are trying to do is come up with a philosophy of ‘more for more’.”