![Dustin Engel - Digital Strategy, Online Marketing, and Analytics and <br/>Attribution Evangelist [dustinengel.com]](http://images.squarespace-cdn.com/content/v1/50ba5370e4b012760add8272/1468172070141-75YS7JN760P188PQEPPP/DustinEngel.comLogoV2.WhiteBack.png?format=1500w)
I’ve been asked a few times recently about the impact of a potential economic downturn on marketing strategy. Words like “crisis” have surfaced once or twice. My response to that, in the words of noted Stanford economist Paul Romer, is “a crisis is a terrible thing to waste”.
A little background here. I’ve had the unique luxury of living a professional life in digital since the late 90’s. While I won’t claim to have seen it all, I have seen a lot. I treasure my life experiences such as my first job in digital which was two blocks away from a scrappy small startup called Amazon.com, helping to launch the online DVD business at Blockbuster and thereby personally experiencing the slow growth and now gargantuan state of digital streaming, and watching business models too early for their time, such as Kozmo, reemerge into a thriving gig economy like Uber.
I also had the formative experience of working through two economic downturns. While 2008, was wide-ranging and systemic due to the larger financial meltdown, the dot com bubble implosion of 2000 felt more personal and also character-building as it made me question my profession and whether I should take a more orthodox career path. I did not, and now, I’m in a field that continues to grow and thrive above and beyond industry growth rates. Additionally, I saw companies thrive in the down markets and reemerge even stronger with a competitive advantage when the economy rebounded. I wanted to take a deeper look into some of those characteristics of some of those companies that not only survived but thrived in a down economy.
A sobering reality is that the economy is facing headwinds. It’s okay. Every market expansion has to end. Some statistical backing lies in overall global economic output slowing, a slowdown of manufacturing, a decline in long-term optimism, and business investment on the decline.
In addition, there are some broader global factors such as Brexit and the US-China Trade War that add to uncertainty and long-term business investment risk. Weather events driven by climate change can create unexpected economic impacts. Lastly, in our industry, digital privacy creates both regulatory challenges and a reduced ability to maintain a line of sight on marketing investments. In an economy that is cooling, these extraneous events are not helpful.
Now, the question becomes, what is the playbook for succeeding in a downturn. There are some best practices based on extensive studies of what successful companies do in a downturn, which I’ll briefly cover. There are also some thoughts on ways to take these larger corporate learnings and apply them to your marketing strategy.
Boston Consulting Group conducted an extensive study of more than 5,000 companies across the last four business cycles. In studying all US public companies with greater than $50 million in annualized sales, they found that nearly 75% of those companies experienced a decline in revenue growth. What’s interesting is that 14% of those companies not only accelerated revenue growth but also increased profitability. That runs counter to most of everyone’s assumptions about what is possible in a downturn. So how did they do it?
They acted early: Companies that proactively recognized the threat (by discussing the possibility of a downturn in their earnings calls before the 2008 recession) achieved 6 percentage points better Total Shareholder Return than those that did not.
They looked beyond the short-term: Companies that had a long-term orientation (based on scanning of SEC filings) achieved 4 percentage points better Total Shareholder Return than those that did not.
They focused on growth in addition to cost-cutting: Revenue growth was determined to be the biggest driver of Total Shareholder Return (nearly 50% of the total return) which was twice as large as the impact of cost reductions.
Now, you may not have the ability to change your overall corporate strategy, but you should have the ability to apply these learnings to your day-to-day in overseeing all or pieces of your company’s digital marketing strategy. While below are some examples, it would behoove the reader to think through what is both meaningful and also practical within the context of your unique company, organization, and risk tolerance.
Act early: It is not overreacting to start your planning now for a downturn. It is proactive and based on the research, it is prudent to maximize your opportunity both in and after a downturn. So, put in some thought as to how you budget, plan, and execute in differing scenarios. There is no “good scenario”, but you can guesstimate what occurs to metrics like media cost (ad spending typically goes down and in theory so should media prices based on lower competition), conversion rate (customers may not be as likely to buy in a downturn), promotional necessity (customers may seek more promotional offers to close the deal), and your ability to execute (hiring usually slows down so your ability to realistically execute across many initiatives will likely decline). Additionally, put some pressure on your team and your agency partners to think through these scenarios. You’ll be happy to have thought through them as opposed to them occurring and you having to react after the fact.
Look beyond the short-term: Value generated on mergers and acquisitions in a down economy is actually greater than in expansion. Additionally, these deals tend to be focused on new businesses as opposed to bolting on to the same business. Market downturns normalize and create sanity in the marketplace. Real value becomes clearer. That logic applies outside of M&A, so think about how to expand your business (when few others are thinking the same). One tip would be to aspire to be the best in your category in adapting to your customer’s changing behavior in a downturn. They will change drastically as their investments decline and their discretionary income becomes more protected. So update your customer profiles and personas. Do quantitative and qualitative research. Adapt your messaging. Create empathy for your customer’s changing outlook and optimism. Most importantly, refine your measurement. Remember, digital privacy is making tracking harder and not easier. So think about becoming more of a test and learn culture and deploying some tried and true measurement (that can withstand some of the digital privacy challenges noted above), such as media mix modeling and matched market testing.
Focus on growth and cost cutting in parallel: If you audit your media programs infrequently, think about putting your foot on the gas. Audits are a great means to not only find cost savings, but also identify levers that are hampering growth. If you are insourcing one function of your marketing but leveraging agency partners for another, it may be worthwhile to see if your agency partner provides auditing as a service. You can qualify their capabilities here based on them having a definable and documented process and proven case studies for situations where an audit yielded revenue growth at a higher return. You should also focus on de-averaging your strategy. Meaning, don’t take an “across the board” approach such as “I will reduce spend by 10% across all media channels”. Take a look at what is growing and what is declining and fuel the growth. There is an argument for protecting the core business but invest in areas that will grow at a higher rate than the core. However, you should take baby steps away from your core. This will ideally create outperformance in a period that will typically expect flat or declining performance.
In summary, we can learn from the past to not just survive but thrive in a down economy.