Are we in a Depression or a Recession... and what are the Implications for Marketing Strategy?

There are a lot of articles on the value of marketing in a recession. Most of these were written around three recessions: 1982; 1991; and 2001. These recessions ranged from severe (1982) to mild (1991 and 2001). The current "downturn" is definitely a "severe recession"--the question is, is it a depression? I'll set the following rules, somewhat arbitrarily, about separating a recession from a depression. A depression must satisfy 4 of the following 5 conditions:

• Negative GDP growth for at least eight consecutive quarters
• Unemployment > 10%
• Stock market down > 50% from peak
• Real Estate values down > 40% from peak
• Deflation in corp CPI for at least two consecutive quarters

So, using my definition above, which probably passes a sniff test and little else, are we in a depression? We'll have to use probabilities, because these data aren't complete yet.

Negative GDP growth for at least eight consecutive quarters. We're at three now. It'll definitely be five (no one sees growth in the 2nd quarter.) Bernanke says we "might" see growth this year... I'd put the chances at 33%. So let's call this 66%.

Unemployment > 10%. Most are calling 9% this year. I'd argue we could easily see 10% late this year or early next year. I'd put the chances at 50%.

Stock Market Down 50% from Peak. Dow peaked at 14,164 and hit 7,114 yesterday. Good enough for government work. Bingo.

Real Estate Value Down 40% from Peak. Home prices are down 27% since the 2006 peak. Most see 30% as inevitable. I'd put 40% at a 25% chance.

Deflation in Core CPI for at least 2 Quarters. Core CPI slowed to 0.8% in 4th quarter. It'll probably be slow in the current quarter too, but I doubt it'll go negative. So let's call this one 5%.

So I'd put our chances of being in Depression at about 10%. (.66 * .5 * .25). So, one in ten. Unsurprisingly, that's better than Joe Biden's 30% comment, into which probably no thought went. The hair spray probably just got into his brain for a few seconds and he was overwhelmed.

Why all this analysis? It's because if we're in a recession, there's a lot of past data to rely on, but if we're in a depression, we don't have much to go on. So, I'd argue we have to follow recession marketing rules. Here are some snippets gleaned from the press with the help of our friend Dr. Spekman at UVA / Darden about recession marketing rules of thumb / observations:

• An American Business Press / Meldrum and Fewsmith study showed that companies that increase / establish an aggressive market stance coming out of recessions (the 1970 one, in this case) do much better coming out of the slowdown.
• A similar study showed the same thing for the 1974-75 recession.
• A McGraw-Hill study found that 600 B2B companies that increased their spending in 1981-82 grew significantly more than competitors that did not.
• A Cahners and Strategic Planning Institute study of the 1981-82 recession showed that larger companies who spend more on marketing do better in downturns than their smaller competitors. Not surprisingly, this is already being borne out in 2008-09, with Ford and Sears taking share from sick competitors (Ford from GM and Chrysler; Sears from Circuit (bankrupt) and local appliance shops).
• AMA found a similar trend in 1990-1991, with larger / healthier companies spending more and taking share.
• BMW grabbed share after 9/11 in 2001 and credited its success to taking an aggressive market stance with advertising and event marketing. Good quote from BMW: "We change before the market forces us to change."
• After the 2001 recession, B2B Magazine found B2B ad spending recovering and focused on three areas: Supporting established brands, focusing on integrated marketing campaigns (multi-tactic, same creative and targeting) and measuring ROI.
• In 2005, Arvind Rangaswamy and Gary Lilien at Penn State did an analysis of the 2001 recession and found that well positioned companies benefit from increasing spend in downturns. A good analogy was "Athletes often choose times of stress to mount attacks; strong runners and bicycle racers may increase their pace on hills or under other challenging conditions."

The message is both (1) don't cut back on advertising, because that's silly. But it's also that larger, healthier companies with cash get a triple effect in recessions:

1. There is less ad spending out there so your ads / DM get more attention.
2. Ads are cheaper because media companies are struggling for business.
3. You force weaker competitors into an arms race they can't win, forcing them to choose between bankrupting themselves or losing share.

This sounds an awful lot like the arms race in the 1980s. Ronald Reagan's 600 ship navy, high-tech fighters and bombers, and stealthy submarines never fought the Soviets, but because we had more cash, we basically forced them to either (1) lose the arms race or (2) bankrupt themselves. So, if you're strong, now's the time to beat your competitors to a pulp. Not sure I have much insight for the weak in this post. I'll try to think on that problem though.

Looking Forward to the Snarky Ad Backlash

I have had it with snarky ads.



Snarky: Rudely sarcastic or disrespectful; snide (Dictionary.com)



I'd add this definition: The sarcastic, know-it-all, snotty sense of humor that has become the lingua franca of the late 00's among a certain class of too-cool young adults.



The front-line of the snarky cultural revolution seems to be advertising. It's driving me nuts, and I'm hoping I'm a leading indicator for the rest of the world. The sooner we're rid of the snarky ad revolution, the better. Here are some of my absolute most hated snarky ads. If, after watching these, you can't see this trend, then I must be crazy.



T-Mobile Butt Dialing. Can these two people hate each other any more? The absolute awfulness exhibited by these two idiots turns my stomach. I hope each of them butt-dials 911 and a SWAT team traces the call and accidentally blows them away. This makes me despise T-Mobile and Blackberry.

E-Trade Baby. Hey, it's not cute, it's creepy. However, beyond that, the baby is a snarky jerk. Would anyone want to hang out with this creep, as an adult or a baby? Once again, E-Trade is literally out of my consideration set on the basis of these obnoxious ads alone.


Bud Lite Drawing Guy. The UPS drawing guy isn't snarky, he's just a walking cliche. But the Bud Lite drawing guy is snarky and enjoys making meaningless, ironic comments. I don't like any of the "drawing" ads, but the skier one is particularly bad.

Old Spice Neil Patrick Harris. The snarkiness emanating from Doogie Houser in this one far exceeds any nasty body odor one might have. I guess this has just become the only way to talk to the 20-30 generation (at least that advertisers understand.) Troy McClure was funny--in 1994. It's not funny anymore.

I'd love to come up with more, but to do that I'd have to watch more TV. Any comments suggesting other examples of this awful ad genre will be posted. And yes, I'm grumpy.

Measuring the Value of Relationship Marketing

Relationship marketing, unlike direct marketing, is about cultivating a customer (in the case of B2B, this could mean many different audiences inside one company) over the long-term, and ultimately driving loyalty. Customers’ attitudes change in a positive direction; they become satisfied with the brand; they ultimately perceive the brand to be high-quality, caring, etc. and will stay a customer for life. At least, that’s the idea. The problem with relationship marketing is that you can’t try too hard. The dangers of spamming, coming across false or fake, engaging in only one-way communication, or being too pushy have sunk many well intentioned relationship marketers.

Measuring relationship marketing can be a good way to get a handle on how to do relationship marketing right. I’ve seen a lot of companies troll around for best practices and never truly understand what impact they’re making on customers until they start truly tracking spend, engagement and resultant attitudes.

There are three important components of measuring relationship marketing:

1. Develop an RM taxonomy and track spend. This is basically carving out your vehicles into meaningful categories. It is not tracking campaigns. In fact, a relationship marketing “campaign” is a bit of a misnomer. The goal of RM is to keep consistent engagement going, with no gaps longer than six months. So you want to divide your vehicles up into things that are really different in the mind of customers. I’d also recommend using a hierarchical approach. A simple example is shown below. Once the taxonomy is established, start tracking spend, by audience, at a granular time scale. Weekly is good, but monthly is probably fine too.



2. Track engagement. Engagement is different than spend. Spend will be really useful to track ROI, but engagement tracks two-way interactions. Use the same taxonomy you use for spend, but this should be the actual interactions with the customers. Engagement is an “in process indicator” for the success of relationship marketing. It is a good leading indicator for success, and can be tracked frequently, giving marketers frequent updates on their efforts. Important: Don’t just track outbound activity—track both inbound and outbound. People in relationships talk to each other, at least those whose relationships last. It’s also a good idea to track reach over a total audience.



3. Track core attitudes and the ultimate attitude. Core attitudes and perceptions need to be determined by market research. I talk about SEM and how to do this here. But once these attitudes are defined, these should be considered as the ultimate goal of RM. Advertising has an effect too, so these metrics will be shared, but people in good relationships feel good about their partners. It’s important to track both the “ultimate attitude”—something like net promoter—and predictor / component attitudes that marketers can message too. Once again, the goal is to provide guidance back to marketers on where they should be re-mixing their efforts.
   

With the three above metric families in place, relationship marketing can become much less of a mystery. Tactics can be chosen on the basis of empiricism vs. gut feel, and companies can truly improve their relationships with customers. After a time, you’ll realize that your taxonomy for parsing out vehicles can be improved. Core attitudes measured will also change with changing business objectives and customer landscape.