SEM, Economic Recession, & the Facts

The US economy is in a state of flux. The Dow has been up and down the past few weeks, and investors are not sure whether to reinvest or shore up for a time of economic recession. Consumer confidence appears to be in decline, and yet the High Street is gearing up for spenders as tax checks start arriving in the post…

As Canada is on the border of the US, and is affected by the economic status of the US (as is the rest of the world), this post applies. One specific point worth mentioning is that Canada has 66% internet penetration (Nov 2007).

How is this going to affect SEM?

Traditionally, the first thing to be cut in times of recession is marketing budgets. Companies decide to rely on their existing clientele, on word of mouth, and on old-line discounts and sales.

While it does appear as though traditional media will be hit during a recessionary period, the opposite seems to be the case for internet marketing initiatives.

Some data:

  • eMarketer is forecasting that the import US advertisers placed on social media throughout 2007 will continue. Their data indicates that the predicted social network spend of more than of $1.5 billion this year (an increase of 162% on last year) will not be solely focused on FaceBook and MySpace ads but on emerging, niche social networks.
  • TNS Media Intelligence expects internet share of adspend to surpass that of radio this year. They also predict that internet marketing will gain popularity at the expense of newspapers. The truth of this can be seen in the WSJ’s recent moves.
  • Piper Jaffray believes that the proven high ROI of online advertising will make online advertising resilient in the face of an economic downturn. They anticipate a 20% growth in online adspend this year compared to low single figure growth for all US advertising.
  • JP Morgan is anticipating a 20% increase in spend in the US geographical online display ad market this year (to nearly $8.6bn).
  • NielsenMedia saw a 15% increase in internet ad spend growth over the last three quarters of 2007 while all other ad spend remained stagnant (and decreased by 0.1% YOY).

So what does the data really tell us?

  • It tells us that the ROI from online advertising is higher than almost all other media in general.
  • It tells us that during the current/coming recession (depending on your view point) that online ad budgets will not be slashed as they were in 2000 when the internet as an advertising medium was still in its infancy.
  • It tells us that projections and predictions for online ad spend remain strong even in the event of a downturn.
  • It gives us a ‘take-away’ that our hard won ad spend dollars are likely to perform for us regardless of a downturn – not as well as if there were no recession – but better than other media.

What to be aware of

  • The data is generic. If you are a purely online business the chances are that if you stick to online advertising you will:
    •  weather the storm better than if you do not advertise
    • do better by advertising online than via other channels.
  • You know your target market better than those who provide the generic predictions. If you have not tried online, it’s worth a shot with a reputable firm who knows what they are doing. If you have tried it and yet TV or radio works best for you, don’t be swayed by the promises of higher ROI, unless your online campaign was poorly conceived and managed.

What to consider

  • The US government has been cutting the interest rates in an attempt to alleviate and /or minimize the effects of a recession. While they are always worried about consumer confidence, they are also very aware of the fact that businesses bear the brunt of the debt issue. If businesses feel that consumers will not be buying, they will cut their stock orders. The impact of businesses hanging onto their cash cannot be overestimated regarding the countries level of aggregate demand and thus the GDP (gross domestic product/output), and if businesses are short on the shelves, this will impact the consumer confidence index further.
  • Economics is not all black and white. It’s also not that convoluted.
  • The US has a very mixed economy. 71% of the US has internet access according to InternetWorldStats.
  • The Dow Jones is also only down (roughly) 500 points on January this year (4%), but is actually up just over a hundred points or so on figures for early March 2007.

What to do

My recommendation is to take the advertising dollars you have, and invest at least one quarter of them in targeted search marketing campaigns.

Who to contact
I’m only including three, and in alphabetical order.

Feel free to add your company in the comments with blurb if you like!

Contact the author on [ laura at semcanada . org ]

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