by Mike Woosley, Chief Operating Officer, Lotame
It’s hard to believe that when 2022 started, there was no meaningful Omicron surge, no war in Europe, no soaring inflation, and supply chain issues were thought to be abating. Now the digital advertising world is reckoning with recession signals from around the world that are sending marketing plans and budgets back to the drawing board.
While global markets brace for contraction, in the UK, commentators are still treating a recession as a mere possibility as they ride the optimism from May’s slight growth in GDP. July, however, is not expected to return any good news, with economists expecting an overall downturn in Q2.
Advertisers, marketers, and publishers need to move on from asking “how likely” a recession is, to “how long?” and “how deep?” it will be. Recessions are identified after the fact, and every sign suggests that the UK is already waist-deep in decline. This is uncharted territory for the digital marketing industry, which was still in its adolescence when the 2008 recession hit and which remained robust during the pandemic. Will it fare as well in the coming recession? And how should marketers prepare?
Responses to the looming recession have been mixed among major players in media and advertising. Both Zenith and GroupM have acknowledged that growth in marketing and media spend is slowing down, but are still expecting growth of about 9% this year; exceeding inflation by 3%, shrugging off a 26% plunge in spend in Eastern Europe, and dismissing the impact of a lockdown-driven recession in China which contributes 20% to that global forecast.
Meanwhile, Snap’s CEO Evan Spiegel conceded that the company’s previous 20–25% Q2 forecast had been scrapped, and while he still expects to see growth, estimates have been revised “below the low end of our guidance range.”
Optimism is far lower outside the digital advertising world, especially in the UK, where inflation is forecast to peak above the US and eurozone and last for longer. The Financial Times has been in conversation with global companies, who are braced for a recession. The confidence of advertisers and marketers is predicated on their clientele still wanting to spend, and it’s not clear yet whether they will.
At Lotame, we have already seen softness in media for Q1 via signals from our global data marketplace, while Q2 hangs in the balance. It’s in our interest that prognosticators from GroupM and Zenith and their call for “slowing growth” are on the mark. We’ve seen some stability in Q2, and we’ll choose to read that as a sign that these optimists are correct. The predictions of solid growth against all that’s happening are brave — hopefully not dangerously so.
Marketing in a recession
While the Great Recession may as well have been 100 years ago in digital marketing terms, much of the marketing advice offered at the time still applies despite the industry’s rapid transformation. The Harvard Business Review’s marketing guidance is particularly prescient: “Companies that put customer needs under the microscope, take a scalpel rather than a cleaver to the marketing budget, and nimbly adjust strategies, tactics, and product offerings in response to shifting demand are more likely than others to flourish both during and after a recession.”
Our marketing tools may have changed in the interim, but the core message holds true. During a downturn, the marketers that continue to deliver ROI to their clients will be the ones who closely monitor changes in consumer behaviour to identify pockets of opportunity where brand messaging can still make an impact.
So, what can we expect consumers to do in a recession? They hunker down as their spending power is diminished though smaller pay rises, high inflation, and soaring costs for petrol and energy. Gratification and regular “retail therapy” take a backseat to value, redistributing attention from luxury brands and status symbols to products and services that promise bang for your buck.
If you are a marketer in the FMCG space, your competition will shift from other branded products to stores’ own brand items, as consumers explore beyond their usual buying habits and hunt for savings. Grabbing attention among all this brand-hopping requires cooperation between marketers, product managers, and brand strategists to get value-sized and value-oriented packaging and pricing onto shelves as soon as possible. Once consumers settle on new staples they can be hard to budge, so time is of the essence.
Marketers promoting durable goods must also stay nimble due to unpredictable supply chains. War, pandemic, and embargoes continue to affect availability of raw materials and components, as well as shipment of finished products. Marketers don’t typically have to consider logistics, but there is now a risk of wasting resources on products that can’t be stocked. Campaigns for supply-constrained products should be able to be activated and deactivated easily and with minimal disruption to account for this unpredictability.
Travel and leisure brands may be enjoying increased activity from pent-up pandemic demand, but should still emphasise the value of their offerings to stand out during the long consideration phase of budget-constrained consumers. In travel, this might mean promoting shorter excursions and opportunities close to home; with UK airports in chaos, consumers won’t need much of a push to consider a staycation or a European train-hopping holiday.
Regardless of sector, if you see cuts in your budget, you’ll need to focus on channel mix to grab consumer attention at the right time and place, with direct and action-oriented campaigns. Patience for more subtle, awareness-building campaigns will be limited across both consumers and brands, turning budgets towards bold messaging and measurable results.
While speculators inside and outside the industry hum and haw over the possibilities of a recession and the ability for digital marketing to continue its growth, marketers must prepare now. In the best-case scenario, you will be more efficient and robust, in the worst-case, you will have the infrastructure and resources to survive a period of low to no growth.