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The “R” Word and the Marketing Budget Pie
June 3, 2008

The jury is still out on whether we are currently in, or are likely to be in, a recession; so far so good (well, sort of): last week, the Feds showed that the GDP grew 0.9% in the first quarter of 2008, compared to 0.6% in Q4 of 2007. Now, remember, a “recession” is officially defined as two successive quarters of negative economic growth. So, while growth in the last two quarters has been far from lackluster, at the very least it is not negative. Still, with gas prices now officially at record highs and everything else going up proportionately, whether we call it a recession or not hardly seems to matter. People are in an economic bind. It’s like having severe, debilitating chest pains and being told “It’s not your heart.” That’s fine, but it still hurts,

The point is that whether it’s a textbook recession or just the perception of a recession hardly even matters at this point; heck, the economic slump of 2001 wasn’t a recession by this definition. But as we all know, the first thing to get cut when companies go to ground is the marketing budget. I’ve always described the marketing budget as a pie, and all the various media and platforms that are available are slices of that decidedly finite pie. And when the pie shrinks, the slices shrink accordingly—or, more commonly—some media and platforms don’t get to have any pie at all. So if the economy continues to go south, a lot of people won’t be getting any pie.

ClickZ gives us some data about how this may play out (is there anyone in the world not doing market research on marketing these days? jeepers; it’s starting to look like the printing industry where it seems like there are more analysts and consultants than actual printers; but I digress....). To wit:

According to a summary of IDC’s new “U.S. Internet Advertising 2008-2012 Forecast and Analysis: Defining Economic Crisis,” Internet advertising will boom during the coming years despite a general “contraction in ad spending overall.” IDC believes overall Internet advertising revenue will double from $25.5 billion in 2007 to $51.1 billion in 2012, reflecting a compound annual growth rate of 14.9 percent.

The company predicts the Internet's share of the overall U.S. advertising market will increase from 8.6 percent to 15.6 percent during the period and will be second only to direct marketing by 2012, blowing past broadcast television and newspapers along the way.

“Even though spending on advertising overall will contract this year, spending on Internet advertising still increases,” said IDC Program Director, Digital Media and Entertainment Karsten Weide, who authored the new report. “What that means is that advertisers are accelerating moving budgets out of the old media and into the new.”

Can we really think of online advertising as “new media” anymore? Anyway, the reason for this trend will likely be that Internet advertising is cheaper than advertising or marketing in old media. And of course we have seen bullish forecast after bullish forecast of online advertising—the classic “it takes a crowd to draw a crowd” phenomenon. “Well, Martha, if everyone else is advertising online, we migh as well, too...”  Oh, it’s also kind of effective, which probably also has something to do with it. Anyway, the article goes on:

IDC believes search ads will remain at the top of the Internet ad hierarchy with revenue, pegged at $10.4 billion last year, to reach almost $18 billion in 2012. But search will lose a bit of its market share as other formats, primarily video, gain ground. IDC believes search, now having almost 41 percent of the market share, will have just above 34 percent by 2012.

Video will gain at the expense of broadcast TV advertising, said Weide. His report says online video ad spending will grow from about $500 million in 2007 to $3.8 billion in 2012 and its Internet advertising share will expand from 2 percent to 7.4 percent. “The Internet now is capable of delivering actual video for a majority of consumers and people are embracing it with a vengeance,” said Weide.

Referral and lead-generation services will see the second strongest market share gain, after video, “as some search advertisers move budgets from search into the more effective and accountable lead/referral services.” IDC believes revenue from referral and lead generation services will grow from $2.3 billion in 2007 to $5.9 billion in 2012.

Mobile advertising will also show robust growth but the segment will still have “just shy” of 1 percent of the overall online ad market by 2012.

I’m skeptical by nature, but we will have to see, I guess. The point is: periods of sluggish economic growth are the worst times to cut marketing budgets. Why? Well, the way to boost business is not to stop trying to get business! It is complete and utter shortsightedness for any company to stop spending money during what is, let’s face it, a cyclical slowdown. There was a time when companies understood natural business cycles; whatever happened to them?

Secondly, the point of marketing is to stick out from the crowd. I would find those media and platforms that are declining—according to the forecasts—and immediately seek them out (assuming they make sense—broadcast radio? nuh-uh). If yours is the only postcard mailing someone gets, how much attention do you think it will get? On the contrary, how much e-mail do we all simply delete sight unseen because there is so fracking much of it?

So these studies can be useful—but not always in the ways that the researchers intend.

And we should not be afraid of economic slowdowns. We should see them as opportunities for gutsy companies to tread where wimpier ones fear to tread.

Posted by Richard Romano on June 3, 2008 | Comments (0)