The economy slow down and online advertising
We surely are in an economic slowdown, if not in a recession. Some even say a depression. How long it is going to last isn’t easy to say. Some say months, some say quarters, some others (a few, in fairness) say years. I say at least quarters, and I say recession, without inflation.
So what is going to be the effect of such difficult times on advertising? Well, surely a cut in spend. Marketing budgets are considered (quite wrongly I would say) purely discretionary spend and the first ones to be cut. You spend a lot in marketing, when is good times, you tend to cut back, when it is bad times. What is a VP of marketing, or CMO, going to do with less money? Definitely going to adjust the advertising mix. Most of the cuts (if not all) will go into not easily measurable advertising (hence, I would say, offline advertising), especially brand advertising, the one that is used to create needs into consumers. Rightly or wrongly, this is what is going to happen. So I see radio, TV and magazine affected. I say rightly in this situation, as the consumer is very stretched and the chances you can create some needs which is not a real need are quite small. Online advertising is cheaper and more measurable than offline, so possibly it will suffer smaller cuts than offline. It might actually benefit a bit, even if, possibly, not all forms of online advertising. Reticent CMOs will try it out. Under budget pressure, some of them will try this “novel” and cheaper thing that is the internet. Everybody talks about it, and they say it kind of works. They will probably primarely focus on DR (Direct Response), as marketing will be under pressure not only to cut spend, but also to put the little money they have at work, efficiently and effectively. So DR will be the main benificiary of money migration from offline into online. Sponsored search and affiliate marketing will probably benefit, probably at the expense of brand (banner).
With less money into brand, the logical consequence is lower rates. Advertising is a perishable good, if you don’t sell it, it’s gone, wasted, so equilibrium will be sought on price. It’s like flying. Once the plane has taken off, you’ve got the cost but no revenues from the empty seats. You better had sold those seats for a couple of bucks. So is advertising. Rates will go down as the marginal cost of serving an ad is negligeable, and it will go down enough to keep the sale rate at a decent level. Premium property and formats will fall less then non-premium. Clearly, lower prices attract more advertisers (the bargain hunters), and price fall will stop.
DR prices will go up. With more competition, there will be upward pressure on DR rates, which are usually set by the advertisers themselves. This will make DR less interesting over time, stopping the migration of advertisers into DR. For some of them, DR will no longer be effective, hence pressure will ease. Or, consumer conversions will go down (affected by the economy), hence creating downward pressure on margins from both side: increased competitions, and decreased pruchase propensity. The bottom line will be the one suffering here.
The smart guys will try to mix and match brand and DR: on one side to create awarness with brand, and on the other to harvest with DR. This is the way advertising is supposed to be used, and the slowdown might accelerate the trend.
So it might be just that simple: more online spend, probably in affiliate and search, higher or stable prices in DR, and lower prices in brand. Bargains will be available in brand. You better catch them, brand advertising does have value, and it will likely be on the cheap side in the coming quarters. DR will be expensive, but quite measurable, and will therefore give you the confort of the numbers.
Sphere: Related ContentDid you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.
Comments
No comments yet.
Leave a comment