February 2008 - Online Strategies

What a Recession Means to Online Marketing

By Aaron Kahlow

Subprime mortgages and structured investment vehicles (SIVs) have dominated the financial pages for some time now. We’ve seen a decrease in consumer spending over the holidays. And now, we are hearing about a weakening job market. So, for those who question whether we’re experiencing a recession, I hate to be the bearer of bad news, but we’re in one. And I don’t say this just because a recent headline in The New York Times reflected a similar sentiment. In my opinion, the mortgage crisis was the tipping point (and a weighty one at that)-a culmination of all the bad loans, over-extended credit and increasing cost of living that have all been taking our economy in the wrong direction for the better part of a decade. Many of us were sounding warnings since last summer after the write-down of more than $100 billion by major banks.

OK, so we have a recession upon us. So what! What goes up, must come down-and then back up again. It really just means that we as marketers will have to be smarter about our efforts and more exacting on our spending. And therein lies the good news for the online marketing community. “Measurable,” “affordable” (at least relative to larger-scale branding campaigns on TV and print) and “infinitely flexible” are terms that help define online marketing. For me, it all comes down to three things:

It’s become so predictable that you can count on it: when times are bad, the first thing to get cut is the marketing budget. This won’t change. What will change is that when evaluating what to cut, the CFOs of the world will look at what is the most expensive-from CMOs to TV spots-and lop them off like the stems on the tops of strawberries, all without hesitation or regret. Then, we will shift the analysis to examine some of the fundamental marketing campaigns and efforts, and we’ll ask, “what’s giving us an ROI?” So, we’ll cut some print ads and trade shows because we cannot prove the ROI-and maybe even some of the creative staff responsible for the execution of these initiatives (so we begin to see a trickle-down effect from corporate marketing departments to the agency departments.)

So, now what’s left? The core of the marketing department or team that actually gets work done. The online marketing efforts like search and e-mail-because we could see click-throughs and conversion numbers-and a few other fundamental efforts that are important to the company. In the end, the actual dollar amount attached to the interactive campaigns may go down, but the percentage of the newly slashed budget devoted to online will go up. So, there will be a need for supporting the success of these campaigns and making smarter decisions (e.g., less spending on so many of the ridiculous banner ads that still get such miniscule conversion rates).

So, both in the internal marketing departments of agencies and the corporate marketing departments, those who do good work will shine. Theirs and other ROI-producing efforts will finally be recognized and the “fat” that has been riding solely on its tenure will finally be cut.

This will also be true for interactive firms-specialists in search, usability and e-mail. Those who do good work and who are adept at proving the ROI of their efforts will see a lot more business. This means that, in many instances, it will be a case of the rich getting richer. And the myriad of traditional boutiques, three-person development shops and large agencies that “do” interactive, as opposed to “excelling and specializing” in interactive, will suffer.

The large firm will be hit hardest because it has the highest fees and demands the greatest share of the budget (just like its CMO golfing buddies and exorbitantly priced TV commercials). Developers will have to focus on web development and not pretend to do all things for all people (e.g., SEO, design and usability); lackluster efforts in non-core activities will stand out like sore thumbs. And finally, the boutiques that say they are “full service” will have to determine their core competency before their clients tell them they are “full” of something else.

In the end, this will create a “perfect storm” for online marketing. First, the marketing industry as a whole will become more educated on the space due to the added scrutiny that will be placed on it. Executives will finally start seeing the light when it comes to matching budgets with consumer preferences: customers are spending more time online, so more budget is needed.

Second, by weathering the budget-cutting storm and getting a larger-and deserved-percentage of the marketing spend, online will be able to gain bigger dollars as budgets eventually increase when the sun starts shining again. Additionally, the scrutiny on ROI will impress the CFOs of the world, and they will become fans, too.

Lastly, as a society, we will all be spending more time online. More time communicating through social networks. More time bargain-hunting for deals online and cutting out the broker or middleman. As our buying and social behavior continues to change, we will see the importance of better addressing the needs demanded by this high adoption rate, once the clouds clear.

In the final analysis, we will all be hurt in the immediate short term by a recession. This is the case even for the quality online marketers, because budgets are likely to be frozen for six to 12 months in addition to being cut. There will be less money out there, so it will be more challenging for everyone to make a buck. And deals will take longer, be more competitive and require much more “proof” provided by the vendor. However, ultimately the online marketing community (both agency and brand marketers) will suffer a lot less than their old-school brethren. For the long term, just as affordable broadband during the 2001-2003 downturn accelerated online adoption, so this recession will bring to light unnecessary marketing/advertising spending and shift the dollars online.

Aaron Kahlow is managing partner of BusinessOnLine and chairman of the Online Marketing Summit. He can be reached via e-mail at [email protected].


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