A Question Of Advertising

Question:

What industries fared relatively better and worse in terms of pricing and demand during the Great Depression of 1929?  Do the industries reflect a hierarchy of demand from essential consumables to deferrable purchases to capital goods?  What specific companies did well in any industry and what distinguishes those companies.

Answer:

To begin, not all was gloom and doom during the Great Depression.  It was a time when those who knew what they were doing made great economic strides and the very nature of the depression itself was an economic boon for them.  It was a time when several companies benefited from aggressive marketing while their rivals cut back.  A good example of that would be Kellogg besting C. W. Post during that time.  Consumers didn't totally stop spending during the depression, most just looked for better deals and the companies providing those better deals came out stronger after the depression ended.  When spending picked up, consumer loyalty to those companies remained.

To state a generality, those companies who not only survived but did well and grew during the Great Depression are those who continued to act as though there were nothing wrong and that the public had money to spend.  In other words, they advertised.  These are industries who didn't wait for public demand for their products to rise, they created that demand even during the most difficult of times.  Because so many companies cut spending during that era, advertising budgets were largely eliminated in many industries.  Not only did spending decline, these companies actually dropped out of public sight because of short sighted decisions made about spending money to keep a high profile.  These advertising cutbacks caused many customers to feel abandoned and associated the effected brands with a lack of staying power.  This not only drove customers to more aggressive competitors but caused a certain among of financial mistrust when it came to making additional investments in the no longer visible companies.

Both anecdotal and empirical evidence support the case that advertising was the main factor in the growth or downfall of companies during those years.  To put it bluntly, the companies which demonstrated the most growth and which rang up the most sales were those which advertised heavily.  The Great Depression offers classic examples of the power of brand advertising even during times of economic crisis.

Proctor and Gamble - This is a company which has a philosophy of not reducing advertising budgets during times of recession and they certainly did not make any such reduction during the Depression.  P&G has made progress in every one of the major recessions and that is no accident.  When their competitors were swinging the budget axe, P&G actually increased their spending.  While the Depression caused problems for many, P&G came out of it unscathed.  Radio took P&G's message into more homes than ever.

Chevrolet - During the 1920s, Fords were outselling Chevrolets by 10 to 1.  In spite of the Depression, Chevrolet continued to expand its advertising budget and by 1931, the "Chevy 6" took the lead in its field and remained there for the next five years.

Camel Cigarettes - in 1920 Camel was the top selling tobacco product.  American Tobacco Company then struck back with the Lucky Strike brand and by 1929 Lucky had overtaken Camel as the number one brand.  Two years later in the heart of the Depression, Chesterfield also overtook Camel.  Camel countered with a massive increase in advertising spending and by doing so demonstrated the power of advertising during depressed times.  By 1935, it was back on top.

Now, these examples count as anecdotal.  But in addition to these examples, studies have demonstrated that during times of recession, companies that maintain advertising during these periods experience higher sales and profits during the downturns and afterward than companies who cut their advertising budgets.

It was also the very nature of this advertising that spurred the growth of two other industries during the Depression.  The first of which was radio broadcasting.

Let's return to Proctor and Gamble for a while.  P&G first turned to radio in 1923 advertising Crisco on a New York station.  Other products such as Ivory and Lava soap were advertised on 'product oriented' shows which were similar to today's infomercials.  But in the heart of the depression P&G took a step which changed not only that company but the broadcast medium forever while creating great demand for its products.  The president of P&G at the time was Richard Deupree.  In spite of the fact that shareholders were demanding that he cut back on advertising, he knew that people were still buying essential household products.  So he created radio programming that did not focus on a product.  Because of that, we now have a cultural attribute known as the "soap opera."

In 1933, P&G went on the air with its first "soap" - "Ma Perkins," sponsored by Oxydol.  P&G was so satisfied with the increase of sales, they went on to introduce "Vic and Sadie" for Crisco, "O'Niells" for Ivory Soap and "Forever Young" for Camay.  By the time 1939 rolled around, P&G was sponsoring 21 radio programs and they doubled their radio advertising budget every two years during the Depression.

Radio was one of the fastest growth industries of the depression.  P&G virtually built daytime radio with its advertising budgets and programming.  Two industries were thriving from the advertising budget of one.

The print media was also a growth industry during the Depression.  To give some reason for this, we now return to Chevrolet.  the first ads for Chevrolet appeared in print in 1914.  In 1927, they began to increase their print advertising budget.  As the country moved into the Depression a couple of years later, Chevy did not let its commitment to print advertising falter and its car ads not only kept some publications afloat, it helped many to grow.  In as much as the term "print media" covers many outlets, they pioneered the outdoor advertising medium, billboards.  Chevrolet also went into radio and sponsored such Depression Era classics as Fred Allen and Jack Benny.  Chevy's print ads appealed to the "emotional" side of a buying decision which was a great move in light of the economic uncertainty of the time.

So once again, those companies which took advantage of the Depression and came through in good form were those who kept their name in front of the public in spite of a lack of purchasing power.

Your question asks about a hierarchy of demand from essential consumables to deferrable purchases to capital goods.  In reality there was no such hierarchy.  I have tried to balance the examples given to show some spectrum across the board.  Proctor and Gamble represents essential consumables, Chevrolet represents deferrable purchases and Camel represents non-essential products.  So as you can see, the so called hierarchy of necessity and want was sidestepped by those who had the marketing gumption to ignore such distinctions.

However, capital goods information needs to reflect the entire economic structure of the Depression and not just those companies which were successful.  Overall, new production of capital goods less capital goods consumed during the years 1929 - 1939 was near zero.  The increase in the money supply during the 1920s also increased the prices of capital goods relative to the prices of consumer goods. This disparity set in motion a boom in real estate and stock market prices and interest rates were driven down by the "increase in Fed money.

It must also be noted that the preceding statement on capital goods is only one of many competing economic theories about the Depression.  There are some who say this compounding of assertions is wrong from beginning to end.  But in composing an answer such as this, there needs to be one which best meets the nature of the question and in conjunction with the material about public visibility covered above, this is the one your researcher ties into the equation. When money has entered the economy from whatever sources during business fluctuations in the past, has there been a disparity between the increases in prices of capital and consumer goods?  That alone is a subject which would take volumes to answer.  In fact, it would take volumes just to cover the debate without any resolution coming about.

As far as the end of your question as to what distinguished the companies that did well during the Depression?  They were the companies that kept their name in front of the public and created brand name recognition even during the worst of times.

Search - Google
 

Terms - great depression, company growth great depression, great depression success stories, brand name awareness great depression, advertising history, new industry great depression, benefits of advertising.

Websites used to compose the above:

"America's Great Depression - Causes and Cures" -
http://www.amatecon.com/gd/gdcandc.html

"H102 Lecture 19: The Great Depression and the New Deal" -
http://us.history.wisc.edu/hist102/lectures/lecture19.html -
University of Wisconsin, Stanley K. Schultz, Professor of History

"Sliding into the Great Depression" -
http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html - University of
California at Berkeley

"Great Myths of the Great Depression" -
http://www.uaca.ac.cr/acta/1998nov/lreed.htm - Universidad Aut noma de
Centro Am rica

"Economic Surpluses" - http://www.sjsu.edu/faculty/watkins/surplus.htm
- San Jose State University

"Accounting for the Great Depression" -
http:/www.stern.nyu.edu?~fperri/papers/account.pdf - a PDF file,
Acrobat Reader needed.

"Four Myths About America's Great Depression" -
http://www.libertyhaven.com/theoreticalorphilosophicalissues/economichistory/fourmyths.html
- From Liberty Haven

"EAP Vocabulary - Exercise" -
http://www.uefap.co.uk/vocab/exercise/buscycl.htm - some interesting
information about capital goods and business cycles here but mostly in
a modified glossary format

"Creating Mass Culture" -
http://xroads.virginia.edu/~CLASS/am485_98/graham/mass.html -
University of Virginia

"The Visitor in Your Living Room: Radio Advertising in the 1930s" -
http://xroads.virginia.edu/~CLASS/am485_98/graham/visitor.html -
University of Virginia

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