Nov 26, 2008

Marketing in a recession



The best strategy for ad agencies in the recession is to anticipate and support their clients' likely desire to shift from brand-building to hard-sell advertising for the duration of the downturn. That's according to Nick Brien, speaking at Ad Age's Media Mavens Awards event. Brien is the CEO of Interpublic Group of Companies' Mediabrands, a unit designed to coordinate the holding company's media assets. Brien was formerly CEO of Univeral McCann, where he won wide recognition as a savvy corporate turnaround artist.

No doubt the economy will have an impact on just how consumers consume. According to RGE Monitor, the U.S. housing sector is still far from stabilizing. Housing starts keep plunging, and demand keeps following supply downward, resulting in inventories not getting worked off and remaining at record highs and placing even more downward pressure on home prices. The most recent Case-Shiller Index showed home prices are down 23% from the peak and the pace of decline keeps accelerating every month. The consensus is now that home prices have still a long way to go before reaching a bottom.

the housing market is central to Americans’ perception of wealth. But the wealth losses for households related to the decline in home values has already reached $3 trillion, and some estimates it will eventually reach the $6-8 trillion range. The loss represents a negative wealth effect of 6 cents on the dollar, and the reduction in personal consumption could amount to a whopping $500bn. Factor in the losses related to the decline in stock market prices, down 40% from its record-high on October 9th of last year, the lack of flowing credit, and the impending dark cloud of staggering unemployment and its easy to see why retailers expect holiday sales to plunge by almost 50% this year and extending the slump well into 2009.

Back in May, I wrote a short piece for some of our agency's clients that mentioned we’ve reached an “inflection point” where the credit-fueled, Boomer-led, 40-year American consumption binge is unsustainable. We live in a different world today than in 2007, and it’s permanent. Americans have no choice but to save, and we’re already beginning to see signs that they’re doing just that. In fact, the national savings rate has been ticking upward since midsummer 2007, coincident with the subprime meltdown.

This as a significant point of change as we undergo a generational shift in this country. Gen Xers, entering their prime earnings years, show little evidence of wishing to follow in the excessive paths of their Boomer elders. Rather, they seek balance, downsizing, for example, from Boomer McMansions. At the same time, Millennials are entering adult life saddled with an average of $20,000 of student loan debt, and are fired up to get out from under that burden.

A new era is upon us where consumer values of balance, thrift, savvy, responsibility, self-reliance and control are ascendant. We are entering an age when established, tried-and-true life strategies and maxims will make a roaring comeback: “Waste not, want not”; “A penny saved is a penny earned”; “Save for a rainy day”… It’s no coincidence that the last generation to practice such a sensible approach, those seniors who entered adulthood during the Great Depression, are generally in excellent financial condition.

Even in a downturned economy in which consumers will put a greater emphasis on saving, consumers will continue to spend. Clearly, there will always be a need for essentials like food, housing, or energy. But sanity is also an essential. Despite a recognized drop in “small indulgences” in the short term, consumer spending will happen in areas such as health-and-beauty products and services, televisions, or vacations. Yet when consumers do spend, they will want to save. Helping consumers easily identify the strength of a product or service's value proposition will rise to the top in almost every possible transaction, as the Dollars and Sense economy shapes a new generation of marketing and consumption.

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