Charlie Makin, chief strategic officer, Arena BLM looks at how we should not always trust our instincts in a recession.
As markets plunge to ever-lower levels, marketers are faced with some harsh decisions: Should they slash budgets for 2009 or hang in there and hope that extra investment pays dividends as rivals retreat?
These are tough calls and in one respect it hinges on one crucial factor: how consumers respond to the steady drip-drip of bad news about the economy.
Although the instinctive reaction might be to assume that everyone will clamp down on non-essential spending, the real picture is much more complex. And it’s very different to the last time we had to tighten our belts back in the early 1990s.
The irony of the present situation is that those who remain in work and have debts could end up benefiting from interest rate falls designed to lesson the impact of the downturn.
Official statistics are not uniformly negative; the total number of people in work for three months or more in July was just less than 30m, up nearly 340,000 year on year.
Consumers with a reasonable security of employment and who don’t need to move house, may perversely have more disposable income over the next few months.
Those that do have more money will find that the offers on the high street and beyond become ever more competitive.
Since the last recession, consumer definitions of what is non-essential have also changed. Our research shows that what was a non-essential 10 years ago may now be regarded as non-negotiable. Summer holidays, for example, remain a priority for 2009.
Mintel reveals that shopping for clothes and shoes remains a priority with home and garden improvements and furniture on the back burner.
Credit card debt may be reduced but many consumers are willing to use savings to fund their current lifestyle.
The challenge for brands will be to access this consumer cash and to do so they will have to leap the hurdle of uncertainty. Anything that requires a loan or an overdraft will be a big commitment so successful messages will focus on reassurance and value.
In the run-up to Christmas the majority of consumers are unlikely to be planning to spend more than they did last year.
They will, however, consider switching to brands that offer trust and reliability. Brands that over-claim will be ignored in favour of the safe option. Think Bosch and VW not obscure Asian consumer electronic brands.
The key theme will be low-cost indulgence as consumers make small sacrifices to retain the high-ticket non-essentials they love. Internet reviews and price comparison will become a feature of retail life for Christmas and beyond.
Brands that combine escapism with value are likely to do well. The box office smash of the summer is Mama Mia, attracting nearly 13m consumers, likewise the feel-good Disney smash High School Musical 3 is expected to break the million pound mark barrier in advance ticket sales (out-performing the new, gloomier Daniel Craig Bond).
Other winners include DVD sales, up 6.5% in the third quarter year on year and the takeaway business. Domino’s Pizza sales are up nearly 18% on a like for like basis.
For marketers the message coming from the advertising industry has focused on how essential it is to continue spending at current levels. That’s unrealistic in a climate where most businesses are looking to reduce costs across the board.
What isn’t being said is that in 2008 and 2009 the media environment offers not only better value but also greater accountability than ever before. Marketers with lower budgets can still make a big impression, if they can be flexible.
The media landscape is very different from previous downturns. It’s more competitive, more accountable, more flexible and more open to risk-sharing deals with advertisers who can make the right case and – in conjunction with their advisers – identify the real opportunities.
Online ad spending is likely to the chief beneficiary of the current climate as it offers an accountable, sales-driven channel where investment can be tailored and adjusted according to performance.
We predict online revenues could be up 15% in 2009, powered by search advertising (up nearly 20%) rather than display (0-8%). Digital media owners are willing to share the risk and this makes them very attractive.
Traditional media will be hard hit in revenue terms but will continue to offer great communications potential, particularly when combined with digital. TV costs are now at 1990 levels in real terms, for example.
National press will attract a stronger audience as uncertainty bites and remains a powerful persuader in the hard times. Opportunities to build partnerships will only increase as the sector’s traditional retail revenue falls away.
Despite all the gloom and doom there is a strong active consumer for businesses to target and revenue-hungry media businesses will bend over backwards to assist brands make their most of their resources.
Brands that can provide both value and reassurance will out-perform their peers.
Check out 12ahead, our brand new platform
covering the latest in cutting-edge digital marketing and creative technology from around the globe.
12ahead identifies emerging trends and helps
you to understand how they can apply to modern-day companies.
We believe 12ahead can put you and your
business 12 months ahead of the competition. Sign up for a free trial today.