Is a Bad Economy Good News?
Can a bad economy actually be good news? Not only can it be good news, it can also represent exciting and substantial growth opportunities for leading organizations. Not all firms will be able to reap the rewards of a bad economy, but good—especially great firms—will be better off in the long term. These firms will not only continue to grow, albeit at a slower pace in some cases, but as less able companies under perform or fail the best suited will disproportionably capture market share and reap the rewards of lower customer acquisition costs.
Thinning the Herd
Before faltering firms join the corporate dust bin of failed companies, they typically go into a few different, but common, foolhardy cycles of decision making.
Unsuccessful firms typically cut marketing, advertising, and/or sales to “save” money. This is the beginning of their death spiral. Marketing cuts by these troubled firms are particularly advantageous to their competitors who pursue a more balanced marketing approach. As firms begin to drop their business development activities, it makes gaining new clients and increasing market share much easier for their better suited competitors by leaving fewer choices for customers and lowering overall advertising and marketing costs.
Another common step in the death spiral occurs as the firms, desperate for cash and short on ideas, look to sell their most profitable divisions or product lines. Better firms snap these assets up at bargain prices, and as a result, increase their customer base and position in the market.
Bad decision number three typically runs counter intuitive to the first decision. The firm decides to become a “sales” organization and shifts its focus from improving its products and services, core marketing strategy, or position in the market to focusing on increasingly aggressive sales tactics meant to strong-arm potential clients into buying their inferior or poorly positioned goods.
Short-term thinking abounds. Bad or unprofitable deals flood in, and the chance to reverse the death spiral is all but gone. Who wins in this situation? The best firms, of course. Armed with good products and services, emotionally compelling creative, and campaigns that generate qualified traffic, these well-positioned organizations see conversions improve.
To understand the opportunities in better context, let’s review some industry data and trends.
Industry Trends
Although reports indicate an overall decrease in advertising spending to the tune of approximately 5 percent, reports indicate that this trend can not be directly linked to the economy. Spending on traditional media has been in a gradual decline since 2006 and is predicted to continue until at least 2010, as reported by eMarketer.
However, as spending on traditional media decreases, spending on online advertising continues to increase--up 12 percent in 2008 alone according to TNS Intelligence. The increases continue despite a downturn in the economy and the cutting of marketing budgets by many companies. Lower profits serve as an even greater impetus for firms interested in the potential of reaching a much larger customer base for a fraction of the cost of traditional print and television media. As online marketing continues to mature with its ability to allow for the creation campaigns that can zero in on a firm’s target audience, along with its measurability, it is becoming increasingly the preferred medium for savvy marketers.
TV and Radio Taking a Big Hit
While radio has been the big loser with an 8.8 percent drop in ad spending since just last year, other media forms are taking a beating as well (TNS Intelligence). Local TV networks are struggling to sell their air time, and even national networks are feeling the pinch. The Holy Grail of TV ad space, the Super Bowl, has announced thirty second ads will cost 3 million dollars each for 2009, and many Super Bowl mainstays are not willing to pay including GM, FedEx, and Garmin as reported by CBS News.
Comparatively, in 2008 with thirty second spots average costing approximately 2.5 million dollars, the majority of spots were filled by September (CNNMoney). Increasingly, the perception has become that TV air time is not as cost-efficient, or as effective, as other advertising avenues.
As a result of an overall spending decrease on these media forms, firms that continue to invest in marketing are potentially able to reap the advantages of a less competitive market. Consequently the media market has been forced to actively pursue clients, and bargains are to be found as media companies struggle to maintain clients. “Significantly lower prices will be available for TV and radio commercial time, Internet ads, and even print media [in 2009]”, says Ron Geskey, publisher of the Thumbnail Media Planner according to a recent press release.
The decline in TV and radio costs coupled with fewer competitors creates fertile ground to increase brand recognition, increase marketing efficiency, and acquire new customers. Smaller companies that previously pursued limited campaigns due to cost are now able to increase air time. Lower costs also allow larger firms to boost exposure by advertising more often and buying longer time slots. Ford and Toyota’s current advertising presence compared to GM and Chrysler illustrates this point very well. Each commercial is an opportunity for them to hammer home their core product messages, reinforce their brand, and do it more cost efficiently with the added benefit of GM and Chrysler running fewer ads.
Interactive Stays Hot, but at a Slower Pace
The advantages of interactive marketing, including the ease of tracking the efficacy of campaigns as well as the cost advantage over traditional media, are even more appealing as companies see profits decrease. This trend is reflected in the growth figures for interactive media.
Even though overall marketing growth is down 5 percent, figures for online media don’t reflect this trend and in fact show an increase of 8 percent since 2007 (The Economist; TNS Intelligence). Online advertising continues to be viewed as an effective channel for firms looking continue their marketing and advertising campaigns.
Despite the continued growth of interactive marketing, it is growing at a much slower rate than previously estimated. Compared to the 30 percent growth predicted for 2008, the 8 percent increase in interactive marketing is a significant slowdown (Zenith Optimedia). Interactive marketing firms are being forced to be more pro-active in pursuing customers, and their strategy for doing so includes lower costs and increasingly imaginative campaigns to generate interest.
Who is Reaping the Rewards?
There are many firms that are growing despite the economic decline, and they often share common characteristics such as quality, well-positioned products, as well having strong, recognizable branding and messaging. Spotlighted below are three firms that not only are growing, but are growing fast and have kept their advertising / marketing foot on the gas so to speak.
Apple
One of world’s most respected and recognized brands, Apple has recognized the benefits of ramping advertising efforts in the current market. By creating an aggressive advertising campaign that brilliantly positioned Microsoft as the PC, Apple has successfully become a major player in the personal computer industry dominated by Microsoft-based computers. In 2008 alone, Apple has seized 8.2 percent of the US laptop / desktop market (BNET).
“We’re delighted to report 43 percent revenue growth and the strongest March quarter revenue and earnings in Apple’s history”, Apple CEO Steve Jobs stated in a recent Apple press release. In 2008, year to date, Apple has spent nearly $486 million on advertising according to BNET.
As demonstrated by the growth above, Apple is taking advantage of the current conditions by spending their money where it counts. By successfully portraying Apple products as dependable and innovative, using clever, but pointed ads, Apple has generated demand and enhanced brand loyalty despite the current environment.
VIA Networks
VIA Networks, a leading provider of managed hosting services and one of the world’s first Microsoft-based hosting providers, has not slowed their marketing. In fact, with several key events planned in the first quarter of 2009 as well as an aggressive SEM campaign, they are defying the current market conditions.
In an industry where growth is tough and profits are lean, they are thriving. According to Jennifer Krasovec, VIA Networks’ Director of Marketing, not only are their marketing and advertising campaigns in full swing, but they will end 2008 up 20 percent compared to 2007.
Socks4Life
Another example of a company pursuing an aggressive marketing strategy with successful results is Socks4Life. Being one of the Web’s leading online socks outlets, Socks4Life has built its business model on providing American-made socks at the lowest possible cost. Thus, they are heavily incented to keep operating costs low and marketing campaigns efficient.
Socks4life has not only continued to invest in interactive marketing, they have actually ramped their spending significantly this year. Moreover, they initiated a major transition to an improved ecommerce system. These activities have helped Socks4Life improve its conversion rates as well as add to its consumer exposure leading to increased revenue with an explosive 80 percent growth in 2008, according Heather Johnston, Socks4Life’s Senior Campaign Manager.
In Conclusion
Even in bad market conditions opportunities abound. Weaker firms fail leaving less competition. Advertising and marketing become more efficient as costs decline, allowing better firms who continue to run their advertising and marketing campaigns to reap the benefits. In each economic downturn’s post mortem, the analysis shows organizations that are best positioned to succeed actually increase their market share. During the great depression, Procter and Gamble increased advertising using an innovative new technique called radio advertising and enlarged their market share to become the dominant player in their space.
The point is that even if budget cuts become necessary, significantly cutting marketing and advertising allows the competition to gain new customers at lower costs increasing their position and their market share. As the old saying goes—buy low and sell high. Keeping your campaigns in full swing in the midst of a bad economy may be a very smart and lucrative move.
