To Promote or Not to Promote Lessons of The Great Depression
We’ve all read the recent Chicken Little headlines about the economy and where it’s going. It’s pretty easy to have one’s own optimism and confidence shattered by such gloom and doom. These pronouncements are the equivalent of being hit over the head with a cudgel: the reality of how bad things are seems quite convincing. It’s natural in face of such “news” to duck and go from offense to defense.
But are these headlines actually predictions of the future or are they merely a record of group think which is always too little, too late? The question arises: what’s the best way to respond to downturns, recessions and even depressions? The usual response is to keep one’s hands in one’s pockets and try to minimize the damage. Stop Loss! becomes the mantra of frightened investors. But is being careful and retrenching the best advice? What are the lessons of the Great Depression?
Here’s what Warren Buffet, the most successful investor of perhaps the last 50 years had to say recently on national television.
“To succeed you need to be greedy when others are fearful and fearful when others are greedy. “Service not income or fame is what matters. But if playing your game well happens to include income and/or fame as interesting by-products, well, they can sometimes help you to serve better. “Produce don’t panic. In times that others panic, figure out how you serve well and focus on increasing that.”
Buffet’s advice of being greedy when others are fearful and fearful when others are greedy is essentially a restatement of the contrarian principle of buy low and sell high. Group think operates instead on what we could call the “conformity principle:” buy high and sell low.
The recent housing boom-bust cycle would serve to illustrate this point. For example, new high rises are built in a burst of enthusiasm as the housing market nears its peak. But it takes a couple of years, at least, from planning to construction stage. Meanwhile the bubble bursts and demand plummets.
The result? Idle units go begging and large scale real estate projects lose their financing before the ground has even been broken. Similar boombust cycles have recurred over and over again in human history, be it with silver, tulips or South Sea Islands. John Mackay’s seminal book, Extraordinary Popular Delusions and the Madness of Crowds, written in 1841, should be on the must-read list of every executive.
Another nugget of group think is that one should economize as the first step in response to emergency conditions. However, the social philosopher, L. Ron Hubbard, advocates the opposite tack: promote! Here is an excerpt from a now famous lecture in 1965 entitled, The Five Conditions of Existence:
“There is an actual formula of Emergency. It does exist in this universe. It’s in the woof and warp of the universe itself. And its first line is, the first broad, big action which you take is promote. “You better jolly well promote. And that carries with it on the part of an individual or factory the idea that he better make his intentions known, and so on. “Now, after you have promoted and after you’ve got that well in hand, you economize. But you have to do that first. Don’t bother about economy; bother about promoting. “Exactly what is promotion? Well, look it up in the dictionary. It’s making things known; it’s getting things out; it’s getting oneself known, getting one’s products out or something like this.”
Let’s test this advice in the test tube of the worst economic collapse in American history, The Great Depression. Does the principle of promote first actually work?
Yes, it does, according to an examination of successful companies during that era. Companies that promoted in the Great Depression as if their life depending on it (in fact it did!) as the first action emerged stronger and larger. In other words, they ignored the bad news championed by group think. They didn’t agree with the gloom and doom. They continued to make markets instead of waiting for markets to make them.
On the other hand, those companies which went down with the ship cut their advertising budgets as a first action. As a result they fell out of communication with their own markets. Eventually they ceased to exist, first in the public mind and then on the balance sheet. Most haven’t been heard of since. If a company economizes first where are the bucks going to come from to promote? Advertising equals communication. Without communication an individual or groups of individuals (companies, etc.) are dead.
Case in point: W.K. Kellogg, the company that made Wheaties famous, continued to promote (unlike its competitors) as the United States sank into the Great Depression in 1930. Instead of cutting back, Mr. Kellogg doubled his advertising spending - and company sales increased and it is still going strong today.
Proctor and Gamble had a core philosophy of maintaining their advertising budget during good times and bad. Hence, they actually grew during Great Depression. As one researcher has stated: “While their competitors were swinging the budget axe, P&G actually increased their spending.” As a result, by following the formula of promoting as a first action, P&G prospered during periods of economic crises.
Chevrolet is another example of the promote first, don’t economize first wisdom. It upped its advertising budget during the Great Depression when others were cutting their throats by cutting theirs. As a result Chevrolet caught up to and surpassed Ford in a key sales category and kept the lead for several years.
Camel Cigarettes is another case study. During the 1920’s Camels was the king of the hill. Subsequently it lost ground to its two major competitors. Despite the dwindling spiral of the depression, Camel struck back with a huge increase in their advertising budget and they were soon back on top again.
Economic bad news is never one size fits all. In any down markets certain other markets will always be found to be flourishing and prospering. Let’s take the Great Depression again as a yardstick. Radio and print media were both growth industries in the Great Depression. And what is print and radio driven by? Advertising. Who was advertising? Well, of course, the Proctor and Gambles, Chevrolet Motors, Camel Cigarettes and Kellogg’s of the world.
It’s said that P&G virtually took radio on its back in the thirties. By 1939 P&G was bankrolling no less than 21 radio programs and actually doubled their radio ad budget five times during the decade of the Great Depression. Car ads by Chevrolet reportedly carried some publications and helped
others thrive.
Famously, the Chinese ideogram (symbol) for “crisis” is made up of two characters signifying “opportunity” and “danger.” If we equate promotion with opportunity and economizing (as a first action) with danger, we’ll get it straight and pull out of any economic crisis.
Does the principle of promotion-first work in an economic emergency? The verdict is in. The answer is an emphatic yes!
- Tampa Bay Informer
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