Wednesday, October 8, 2008

Profiting From The Coming Recession

I won't say it was a first, but I received a very thought provoking unsolicited commercial email today. Not normal spam, but somehow my email address had got on a legitimate company's marketing list.

To an extent nearly everyone in an Internet business is dependent on advertising for our respective businesses' income. It doesn't matter if that revenue is from CPC/CPA marketing, building websites to advertise businesses, selling domains or on-line journalism it's advertisers who are paying the bill. Since this recession started my parking CPC advertising revenue is off by 30% and I've heard others mention similar percentages.

I've heard that during past recessions companies who maintained or increased their marketing spend do better than their competitors, and was planning on researching that for a blog entry when this little gem dropped into my mailbox giving me the leads I needed. I've checked out their quotes and found expanded versions and they seem genuine, at least as far as being on the web. I haven't traced anything back to the original source.
"In a study of U.S. recessions, McGraw-Hill Research analyzed 600 companies covering 16 different SIC industries from 1980 through 1985. The results showed that business-to-business firms that maintained or increased their advertising expenditures during the 1981-1982 recession averaged significantly higher sales growth, both during the recession and for the following three years, than those that eliminated or decreased advertising. By 1985, sales of companies that were aggressive recession advertisers had risen 256% over those that didn't keep up their advertising."

Have a look at their graph. It shows that the aggressively competitive companies had only a slight advantage over their competitors in the years leading up to the recession. Their sales growth was middling as the recession hit, but while competitors cut back in year one, or two, or both, they continued to invest in advertising and promotion.

All these firms continued to grow during the recession, but after it was over the difference really showed. Those who had cut back stayed at more or less the same slow level of growth while the aggressive advertisers left them behind at a much faster rate. "By the end of 1985 the companies that didn't cut back had grown a whopping 256%."

MarketSense compared 101 household name brands during the recessionary period 1989-1991. Jell-O, Crisco, Hellman's, Green Giant and Doritos saw sales drop by as much as 26-64%. Jiff peanut butter raised ad support and sales went up 57%; Kraft salad dressings saw a rise of 70%. In the beer category, overall spending was down 1% while Bud Light and Coors Light, each spending ahead of the category, saw sales increases of 15% and 16% respectfully. Pizza Hut sales rose 61% and Taco Bell's 40% thanks to strong advertising support, with McDonald's volume down approximately 28%". Investopedia
All Business Reports:
"During our last economic downturn, while aggressive marketers such as Proctor and Gamble took advantage of reduced media rates to expand their advertising program, K-Mart decided to decrease advertising during September and October, 2001.
The result? K-Mart sales dropped a resounding 5% during October. By late fall the company had lost far more in sales than it had saved in marketing expense.
At least a dozen other studies ranging from 1923 through 1991 show nearly identical results. Meldrum and Fewsmith showed in a series of six studies that, for all post World War II recessions, those firms that kept advertising aggressively increased profits as well as gross sales during the recession."
Compared to equivalent OECD nations, NZ business is badly under represented in terms of having web presence. My pick is that the NZ businesses that survive well will tend to be those who are aggressive in their advertising across multiple media, including investing in their web presence. We need to keep telling people why having quality web sites and advertising, including having generics, is good for their business. In any recession some people go to the wall while others thrive, mainly by improving their businesses to make them more efficient and profitable. If they perceive that they need to aggressively keep on with the Internet marketing and advertising to improve or maintain their sales then businesses like ours also have a chance to grow.

I've recently been asked "Do you think aftermarket sales will fall off due to the recession?" I think the answer is "maybe" and to a large extent it depends on people like us. To be honest, I briefly considered a fire-sale but decided I still believe in this business so I just increased the list price of my portfolio. I believe if we can hold steady, or better still go forwards during the downturn, we should be placed to reap the rewards.

What does concern me is the downturn in advertising revenue. My mini-sites are producing more, my two fully developed directories are holding steady, but my parking revenue is down by about a third! Part of it is that my traffic is down a bit, but more of it is because I'm making a smaller amount per landing. I think the reason is that less people are bidding for keywords, so there's both less ads to show and I get less for each click. It's hurting me in the wallet, hence my renewed interest in affiliate marketing and restarting and monetising some previously moribund sites, but it is survivable and when the recession is over I intend to be on the net making money.

1 comment:

Biz said...

Amazing- Thanks for the share.