Those of us working in media who are old enough to remember Fraggle Rock probably also remember the 2008 recession; most industries were hit hard, and clients pulled back on their ad spending in an effort to cut costs and ride it out while maintaining profitability. Around the agency hallways, VP’s could be heard echoing the party line of the times: “When the economy is good you should advertise, but when it’s bad you need to advertise.”
What We Learned From 2008
An article in Forbes that came out in September of last year, titled “When a Recession Comes, Don’t Stop Advertising,” hit that idea on the nose by outlining four reasons to continue advertising during a recession:
1. The “noise level” in a brand’s product category can drop when competitors cut back on their ad spend.
2. Brands can project to consumers the image of corporate stability during challenging times.
3. The cost of advertising drops during recessions.
4. When marketers cut back on their ad spending, the brand loses its “share of mind” with consumers, with the potential of losing current – and possibly future – sales. An increase in “share of voice” typically leads to an increase in “share of market.”
These pro-awareness campaign arguments clearly supported an agency’s position, yet many advertisers didn’t buy into it back in 2008, as it was tough to rationalize an expenditure that generally contributed to long-term objectives like brand equity and awareness. When revenue takes a hit for a prolonged period of time, any expenditures not directly tied to generating short-term sales are going to be under scrutiny.
How is This Relevant Today?
Fast forward to today, where this pandemic-induced recession has caused many advertisers to behave as they did in 2008, and with such a rapid decline in revenues amidst so much uncertainty, many are right to cut their ad spending. There are two key differences that exist now, however:
1. The economic impact of this pandemic has been disastrous for a number of industries, such as travel, hospitality & automotive, while being a huge boost for other industries, such as e-commerce, health & wellness, grocery, pharmacy & pizza delivery.
2. Digital media in 2020 is light years ahead of where we were in 2008, when programmatic had yet to change the way online ads were bought and Facebook advertising was only in its infancy. Measurability across all levels of the marketing funnel has become the norm, and brands can easily set campaign KPIs and track everything at the awareness, engagement or conversion level of a consumer’s journey.
What’s mind-boggling is that many of the industries that are currently thriving are reducing their spending as well. With products flying off the shelves and demand far exceeding supply, most grocery stores have scaled back on advertising. When their Amazon storefront is sold out of product, health supplement companies have stopped advertising. Both of these examples highlight a train of thought where advertising is viewed only as being linked to the lower funnel activities of driving sales, and that’s where these companies are making a huge strategic misstep.
Shifting Strategic Focus
Any company whose revenues are not only being sustained but are growing amidst this global health crisis is lucky. While it might be true that advertising need not be used to drive sales right now, the overall financial health of these companies should motivate them to spend differently, as strategic priorities shift to adapt to current market conditions. Now is the perfect time for upper-funnel awareness-driving advertising. Here’s why:
Online traffic is skyrocketing as a result of people self-isolating and working from home, creating more available impression inventory across a number of sites*:
– Media sites up 33%
– Finance sites up 29%
– Food-related sites up 22%
– Healthcare up 15%
– Pharma up 5%
Key takeaway: The supply of online advertising has increased.
I’ve already mentioned how certain industries, like travel, hospitality and automotive, have taken the biggest hit, and as a result have significantly cut back their ad spending, if they haven’t stopped spending entirely. Think about what happens when global advertisers like Toyota, Delta, Marriott and every tourism bureau hits pause on their campaigns – there’s a major effect to ad ecosystems around the world as these key advertisers stop bidding on inventory in open exchanges.
Key takeaway: The demand for online advertising has decreased.
It’s a basic economic principle: an increase in the supply coupled with a decrease in demand results in falling prices, and over the past few weeks we’re seeing CPMs fall across a number of verticals:
-52% on News sites
-22% on Medical Sites
-21% on Portals
Everyone is now hoping for the same thing: that this “new normal” reverts back to the old normal as soon as possible. When this happens, we can expect an opposing scenario, where people abandon their screens and race back outdoors and advertisers feel comfortable enough to resume campaign spending.
Key takeaway: The current market conditions that favour upper funnel advertising are temporary.
No one knows for sure how long we’re going to be cooped up indoors, but as long as these conditions exist, and as long as companies can afford to continue advertising, then they need to shift the strategic focus of their marketing to aim higher up the funnel, widening the top and filling it with more high value potential customers who can be engaged with and moved along to purchase once the current economic trajectory changes. So for any advertiser that never had the budget to get video views, collect emails, publish whitepapers or blanket the Internet with display ads…well, there’s no time like the present.