Last week we reposted this article by Jason Calacanis advising 250+ startups he invested in on how to prepare for and weather an economic downturn. This week, we will look at some potential outcomes, both positive and negative, in this type of environment as it relates to advertising, and offer some tips to help you plan ahead.
Disclaimer: I in no way pretend to be more qualified in predicting the timing of an economic downturn than your local Ouji board or Magic Eight Ball. What I do know is that the good times will end, and even though I don’t know when I also know that you don’t know either. That is the purpose of this article: To acknowledge its inevitability and to help you stay well prepared for such a downturn.
First things first, you’ll need money for any of this to be relevant. How you do that is between you and your Financiers, but all signs point to the fact that if you don’t have any type of war chest, nothing will matter. You’ll cut everywhere you can, struggle to raise more funding, and have to sit out on any meaningful opportunity to position yourself for long-term gains if you cannot afford to play. Do with that what you will.
Now when it happens, to whatever extent, make no mistake, your advertising performance will likely suffer. Unless your business model is designed to support those who are struggling financially and have a way to help them avoid hardship or save money, your ads will simply not work as well as they have in a Bull Market. That said, only you can know if your offering is the type that will be harmed by a downturn or if you are solving a problem that allows you to thrive. The best available data suggests you will see an average decline in Return on Ad Spend between 1.6 and 2.7%. Doesn’t sound too painful, but you don’t want to be the one pulling down the average.
You already know that periods of slower economic growth or contraction will thin the herd and send some of your competitors running for the hills, either through hasty exits, closing up shop, or simply hiding under a rock until the storm passes. Herein lies the opportunity. Because others in your category will be operating from a weakened state, those who can continue to spend and even increase spend, will gain market share at accelerated rates beyond what previous marketing efforts were able to achieve.
Marketing intelligence service WARC provides this visual to demonstrate the correlation between increases in advertising spend and corresponding gains in market share during a recession.
Notice the clear demarcation between those who increase budgets below 20% vs. 20% and above. You will not move from 4% to 18% market share by upping your budget, but a meaningful investment will pay dividends for years to come.
This is where the real return on investment occurs. Eight decades of observed performance and research will testify: as the economy begins picking up again, those who were forced to retreat and contract in their marketing efforts will take years to catch back up. You on the other hand, will have created significant momentum and will have a long runway to leverage your enhanced position and ride the momentum you have created for yourself. The lag benefits or negative effects, depending on how you play it, can last 4-5 years post the recession.
Bottom line: cash will be king more so than it has been during our Bull Market and those who are prepared will be ready to capitalize like never before. If you have the money, here is what you can do before and during a downturn to position yourself for success:
1. Test everything now: while your budgets may increase, you will probably increase your risk aversion for testing new channels. To prepare for this, and reduce the risk of optimizing yourself out of existence, now is the time to gather as much data as possible about how channels perform. This will help you make your wartime plan more reliable because you’ve already decoded the market during the good times.
2. Make friends with remnant: right now, clearance may be a priority. Media networks coast to coast are talking about “sold out inventory” and the intense demand they are experiencing. This will change, and good ol’ remnant media will come back into fashion like acid washed jeans. Start dabbling now so you’re ready to crank it up as inventory becomes available and Managers of said inventory become suddenly more flexible.
3. Restructure your deals: when people start to panic and fickle advertisers start to bail, this is the time to call your partners. Assure them that you are in it for the long haul, but negotiate reduced costs so that you can maintain your consistency throughout the tough times.
4. Focus on value messaging: you might be able to hook people today by focusing on luxury, convenience, and fancy new features, but these points will take a back seat when Middle America needs to tighten the purse strings. Make sure your brand has a story to tell about the relative value of your product, compared to alternative offerings.
5. Get serious about performance: you might have a Brand Manager working to soft-sell you into brand acceptability, or enjoy the fun of less measurable channels like Outdoor. But when the storm comes, it’s going to be time to put the brand study on hold and focus on your old friends: CAC and ROAS. That means disciplined measurement, media, and messaging. Every word and every cell of every plan needs to sell.
6. Lock up turf-war media talent. While the competition is running scared, you can grab all of the endorsements that they have abandoned, or never bought, and probably for a lower cost and commitment than all those times when inventory was tight.
7. Negotiate exclusivities and FROR to block your competitors when things pick up. They will have to get your permission before they can enter or re-enter channels that you will now occupy if you are a serious enough player during the hard times. On this, know that the people who control the inventory at established media channels always remember who their friends were when times got tough. It’s good to show loyalty where you can justify it. This will pay you back in preferential treatment in the long run.
8. Consider your brand positioning strategy when there is a chance to leapfrog your competitor(s), with a little help from this article.
9. Proceed with caution on promotions so as not to cheapen your product, but know when to bring out the bargain hunters in the right way.
That’s enough for now. Our position at Oxford Road is that the purpose of advertising is to sell products and services. As such, we tend to behave like we’re in a recession, even as we thunder upward toward the top of the market. Now is the time for you to do the same, and build the disciplines into your marketing practices that will serve you well when the hard times come. Though we hope this downturn will wait another ten years, whenever it comes, we can all be ready.