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Has Marketing Turned 'Skinflint'?

At 3am on 10th July 1973 a 16 year old American boy living alone in Rome was kidnapped from Piazza Farnese. He was blindfolded, imprisoned in a mountain hideout and a ransom note for $17 million dollars was sent to his mother along with a note which began, “Dear Mummy – since Monday I have fallen into the hands of kidnappers. Don’t let me be killed.”

His grandfather was Jean Paul Getty, founder of the Getty Oil company and officially the richest living American, according to Fortune magazine. Yet Getty point blank refused to pay, stating, “one penny now [and], I’ll have 14 kidnapped grandchildren.” Three months later, the captors chopped Getty junior’s ear off and sent it to a local newspaper. Images of this hit the press, but with no cash forthcoming, the bandits were forced to reduce their demands by $14 million.

Incredibly Jean Paul Getty still would not cough up the full amount. Instead he agreed to pay $2.2 million, the maximum that his accountants said would be tax-deductible and loan the boy’s father (his son) the rest, at a rate of 4% interest. Three years later Jean Paul Getty died – he was worth more than $2billion. This is probably the most extreme example of ‘skinflint’ cash hoarding, but could reflect global economics at present.

Today, despite massive problems resulting from reduced spending, many companies are hoarding cash. As of the end of March, the Federal Reserve calculated that nonfinancial corporations had an estimated $1.74 trillion in liquid assets on their balance sheets. This is $12.6 billion more than at the end of last year, and up more than a billion fold on a decade ago. US Consultants Treasury Strategies believe 77% of liquidity across Europe and UK is in overnight cash.

This trend is spreading across the globe. HSBC sees the once unassailable Indian economy as a “gasping elephant”.  In the Q1 2012 it grew at just 5.2%, one of its worst performances since the crisis of 2008. As one Forbes journalist explained “It has taken a cue from US peers and is saving breath, as in money. Indian companies, like US companies, are hoarders.  Cash hoarding has hit India now, too.”

This is already is causing fierce political debate in the US in run up to the elections.  The estimated $2,000 billion spare cash not being invested back into the economy is having a knock-on affect on employment and the implications for the tech industry seem especially severe. Ordinarily any spare money is put back into areas such as technology and M&A. Now this is simply not happening, a fact which seemed especially apparent over three consecutive days this July. On the 17th Intel announced that revenue for this quarter would fall below Wall Street forecast. On the 18th IBM reported an increase in quarterly earnings, but 3% drop in revenue; whilst on the 19th Microsoft revealed its first quarterly loss in 26 years.

“They’ve been making money, and they haven’t been spending it,” confirmed Jared Bernstein, a former economic adviser to President Barack Obama. But what is the reason for this, and what does it mean for B2B marketers? The majority of economists appear to believe it is caused by a “lethargic economy” with little room for profit. However, the other option is plain fear. Whichever is true, if this is taking place at the top, it is bound to trickle down to all areas of the business. There is no way marketing can remain untouched.

Companies have cash, but they’re not spending it.  Maybe is little wonder that UK marketing execs’ confidence in the prospects for their industry dropped sharply in the second quarter of 2012. And the IPA’s Bellwether report shows that while direct advertising budgets were revised up slightly, the ‘all other’ category was down nearly 9%.

What do you think will happen to marketing spend over the next year? Is business suffering from ‘skinflint economics’?

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