- It's clear that economic conditions
around the world are challenging.
Interest rates, inflation, we've got cost of living crisis,
fuel prices going up, but the question for us as marketers
is what happens to digital marketing in a recession?
But today we're going to look at: how to prepare,
what's likely to happen, and how to make sure
that your business not only survives
but potentially thrives during an economic downturn?
Now, it can be difficult to analyse
how digital marketing will be impacted in the next recession
because actually a lot of the digital marketing channels
that we're using today weren't available
or were in their very early stages
in the last non COVID recession,
which was a bit of an anomaly.
But nevertheless, we can look back at consumer behaviour,
marketer choices, both good and bad
to work out what sort of decisions we want to be taking
in the next economic downturn
to make sure that our businesses
not only survive, but thrive.
Now, understanding consumer behaviour is key.
No two downturns are alike.
But one thing that they all have in common
is consumer confidence takes a hit.
When consumers lose confidence, they stop spending.
And when they tighten their belts
because they have less disposable income,
this means that less money is flowing to businesses.
Customers tighten their belts, they think more carefully
about their purchases.
And this leads to reduced spending.
Unemployment usually goes up.
People have less disposable income
and credit is more difficult to come by.
All of these combined to mean
that there is less cash floating around in the system.
Now in a marketing department, this can result
in a vicious cycle.
Because consumers are spending less,
the businesses will try to do
everything they can to cut expenditure.
They will also slash prices, they'll stop investing.
And it's often marketing that is one of those areas
that businesses will stop investing in.
Now on the surface, this kind of seems logical, right?
You've got less cash coming in,
so you're gonna spend less
on investment stuff like marketing.
Seems logical, but actually
in this Harvard Business Review research
published during the last recession, they found that cutting
the marketing investment too dramatically
can actually be counterproductive.
Now here, it helps to think of marketing as a zero sum game.
Because many digital marketing channels are a zero sum game.
So if your competitors slash their marketing spend
in a bit of a knee jerk reaction,
that can actually make your marketing
less competitive and less costly.
So you might be able to pick up more customers more cheaply
precisely because your competitors have pulled back.
This data from Total Retail, for example,
shows how cost per click on Google Ads
dropped during the early days of the pandemic.
As soon as the pandemic and lockdowns hit,
retailers instinctively pulled back
on their marketing budget
which meant they were spending less on Google Ads,
which meant that because Google Ads is an auction system,
CPCs went down.
But what was interesting is that over time
these same retailers realised that actually
digital marketing was gonna be their route out
of this downturn.
They started investing again
and the space became more competitive,
cost per clicks continued to rise and have risen ever since.
So think about those advertisers that kept up their spend
during the early days of the pandemic
when all of their competitors
kind of instinctively pulled back.
Those businesses that kept investing
or even increased their investment
were able to make huge profits
because competition in the space
meant that customer acquisition costs went way down.
Now the same is true for most digital marketing channels
whether SEO, content marketing, social, PR,
in most digital marketing channels there is a finite amount
of attention that is up for grabs.
And when your competitors are pulling back
when they're being conservative and fearful,
the space is more open for businesses
that want to be more aggressive to do a bit of a land grab
and make some traction.
You know that Warren Buffet saying,
"Be fearful when others are greedy,
and be greedy when others are fearful."
In an economic downturn, most people are fearful.
It's very difficult to be greedy.
It takes a huge amount of self control and a lot of guts.
But that's what the winners do.
And I appreciate it's very difficult
to go against the crowd.
It feels terrifying at that time.
When you see a stock dropping,
it's terrifying, it's difficult to buy.
But that's why this uncommon behaviour can be so profitable.
There's a great story from Forbes
during the 1990 and 1991 recession
when McDonald's decided to slash their marketing budget
in response to the economic downturn,
meanwhile Pizza Hut and Taco Bell
decided to take advantage of this
and actually increase their marketing spend.
As a result, Pizza Hut saw their sales go up 61%,
Taco Bell 40%, whilst McDonald's
who pulled back on their advertising,
saw their sales drop 28% because they were fearful,
Pizza Hut and Taco Bell were greedy.
Okay, so practically speaking,
what do you need to do right now to prepare?
One of the things that you can do
is re-profile your customers.
Because not all consumer groups
are impacted in the same way by a downturn.
You may have profiled your customers
by interest or age or demographic.
That's usually how most businesses
break out their customer profiles.
But this Harvard Business Review article
actually recommends re-profiling your customers
in a downturn into these four groups.
Group one is the slam on the brakes.
These are the people that are hit the hardest in a downturn.
They cut their spending dramatically.
They tend to be the lower income brackets,
although this group can also include people
in higher income, but that are very scared.
The second group is the patient but pained.
Now, these people still cut their spending
but less aggressively,
they're long term optimistic about the future.
But in the short term, they recognise
that they're going to have to make
some living standard changes.
The third group is the comfortably well off.
Now on the whole, the comfortably well off continue spending
but they're gonna be a little bit more selective
about their purchases and a little bit less showy,
aware that some people
are going through a really tough time.
The fourth group is live for today.
They're basically unconcerned
about the wider economic carnage
and they're just gonna keep going as they were before.
They're gonna keep spending. They're gonna keep going out.
They're not too bothered.
They tend to be younger.
They're much more carefree
and they tend to live in urban areas.
So which group do your customers most fit into?
This is important because you might want to change
your marketing message or highlight particular features
of your product or service
based on what sort of situation
your customers are going to be in.
Because when consumers are less confident,
the marketing messages that they respond to, change.
Okay, so let's do a quick marketing message review
and see how you might want to tweak
your marketing message
according to which group your customers sit in.
So the slam on the brakes crew,
how do you change your marketing message
if your customers fit into this segment?
Well, one place to look is with budget supermarkets.
During an economic downturn
you'll notice budget supermarkets up their advertising
and they are frequently talking about cost savings.
Advertisers to the slam on the brakes group appreciate
that their customers
are in a really tight situation economically.
They know that they're in a squeeze.
So you'll see them align themselves with this squeeze.
We're on the same side.
We help you get more for less.
This is the sort of message
that most appeals to this group.
Now as for the pained but patient group,
remember these are the people that are long term optimistic
but short term, they recognise
that they're gonna have to make some trade offs.
This group still want to treat themselves on a Friday night,
but rather than going out for a restaurant meal
they might be having a meal in with some wine, for example.
So this is about recognising
that the pained but patient group
will still want to treat themselves,
but they might be more selective about how they do this.
Now, the comfortably well off group,
remember, these are the people that are broadly unaffected,
but they're still gonna be a bit more choosy
and they're gonna be a bit less conspicuous
about their spending.
Well, the marketing messages
that are gonna most appeal to them
are basically gonna be the same.
But you'll notice more logical arguments being made
to justify the price.
For example, it might be emphasising quality
and showing how higher quality means it's worth this price.
The best marketers that are comfortably well off
appreciate that their customers still want this thing,
but they've got a little bit more doubt
that they'll have to overcome
before they'll make the purchase.
Now, what about marketers of the live for today crowd,
the carefree younglings without any commitments?
What you'll notice here that the marketing messages
will all be about escapism.
Advertisers to this segment won't tone down the fun
in their marketing,
the theme here is that you deserve it,
you deserve a break from the gloom.
One thing that's always fascinated me
about studying marketing during economic downturns
is that consumers tend to gravitate
towards brands that are familiar,
like old school brands that are familiar and reassuring.
And you'll notice that consumer groups
whose stock tends to go up as soon as the downturn hits,
are the ones that have a stable of well known, well loved
established traditional products.
Because investors know that these groups
will be buoyed during a downturn.
And marketing also tends to favour
more conservative reassuring messages
as well as those that emphasise affordability.
So whether you're talking about payment terms,
making things more affordable, saving money,
or just emphasising quality, which justifies a higher price,
the important thing with your marketing messaging
is to make sure that what you're saying
is going to resonate with where your audience is actually at
and their experience of their economy.
Now, I couldn't give you a video on digital marketing
during a recession without leaving on a really positive note
about recession winners.
General Electric, General Motors, IBM,
Hewlett Packard, Microsoft, Electronic Arts, Uber, Airbnb,
these are all businesses that started during a recession.
Salesforce, Google, Facebook,
these are businesses that started just before a recession.
Just because there is a recession,
this doesn't mean existential crisis.
This is a cycle.
It's a cycle that repeats and it always has repeated.
And as long as fear and greed-driven faulty illogical humans
are in charge of the world,
there will always be economic cycles of boom and bust.
That's just how things go.
There are times when the most entrepreneurial businesses
and marketers are able to not just get traction,
but actually grow and thrive
and use this as a basis
of the next decade or more of their business.
There's a famous quote from Sam Walton,
the founder of Walmart, someone asked him,
"What do you think about a recession?"
He said, "I thought about it.
And I decided not to participate."
Now, a lot of people will listen to that
and just say, right, I'm gonna put my head in the sand,
and forget that this thing is even happening.
That's not what he said.
He said, I thought about it and decided not to participate.
I suggest exactly the same approach for you.
Think about it,
make sure you're analysing your marketing messages
against where your customers are going to be at.
Is your positioning well suited to this economic condition?
Re-profile your customers and figure out
what their experience of the recession is going to be.
And then have a look at the data.
Just because your competitors
are pulling back from their marketing,
doesn't mean that you need to.
Remember Warren Buffett,
"Be fearful when others are greedy
and be greedy when others are fearful."
And if all else fails and it is horrific for you,
just remember, according to CNBC,
the average recession over the last 100 years
lasted 15 months.
So this is not a permanent state of affairs.
Things will get brighter and they will get better.
Of course, whatever the economic situation is,
it's a really good idea
to maximise the traffic to your website.
In this video, we show you ways
to triple your website traffic,
doing both paid and organic methods.
So go and check out this video right now.
And by the way, if you haven't already subscribed
to our channel, do so.
Leave us a comment.
Where do you think the economy is going
and how do you think your business
is going to hold up?