If you’re in the U.S. and haven’t been living under a rock, then you’re probably aware that the economy isn’t in the best shape (Some people blame it on abandoning the Gold Standard in 1971, but I have my doubts).
So between increasing inflation and a looming recession, advertisers are saying to themselves: “How do I afford to stay online with search?”
Two scenarios with two impacts
While there is a district correlation between inflation and a recession, you can only do so much, and the solutions aren’t the same.
First, let’s break it out, and how it relates to search marketing:
Inflation
In PPC, most commonly, this is referring to a noticeable uptick in costs (CPCs), whose growth, grossly outpaces that of traffic demand.
The impact will be directly on front-end metrics, but can directly lead to declines in back-end efficiency (An informal analysis of my current client’s data, showed 75% saw YoY CPC increases, and 50% saw CPC increases of 20% or more.)
In conjunction with this, you may also see:
- No change, or even a decline in competition.
- A flat or decline in search impression share.
- A decline in impressions while clicks remain constant or go down, does not have a positive impact on your Quality Score.
- Unless return/ROI downturns substantially (~25%), this is unlikely to impact an enterprise-level advertiser search budget.
Recession
For PPC, this typically impacts demand.
As searchers stop to review their own personal finances, leading to a decline in search volume for “non necessities” (think: luxury goods, new cars, international vacations, etc.).
A decline in search volume often leads to declining search volume, which means proactively or reactively, PPC budgets will decline.
When this is observed, expect the following:
- As much as 50% of advertisers (typically non-enterprise brands) will bow out of the marketplace.
- CPCs will not decline substantially; at best they will remain flat to -5%. However, those remaining live will become more ruthless in their bidding, and there is a chance CPCs may increase out of annual cycle growth.
Historically during financial crisis in the past, we’ve seen demand increase and decrease, with a direct correlation to unemployment rates. The higher the unemployment, the higher likelihood ad budget is pulled back and/or decline in demand for your keywords.
What should you do
Concerned? Good – this impacts almost every advertiser under the sun in a negative way.
But being concerned doesn’t mean you need to panic. There are many other things you need to get worked up over, such as but not limited to:
- Facebook changing its name to Meta.
- Declining demand in Pinterest despite a great ROI.
- How disappointing my Carolina Panthers will be this year.
- Spending 30 minutes trying to understand GA4.
- Attempting to understand any degree of insights on Pmax and then feeling confident in it.
The cost of saving on advertising
‘The recession won’t last forever so brands need to be in a strong place to then gather momentum again.’ – Dean Hawes, Head of Account Management at Optimizon
A study by Millward Brown following the 2008 recession showed that 60% of brands that went ‘dark’ (ie. stopped all advertising activities) saw ‘brand use’ and ‘brand image’ decrease by 24% and 28% respectively. Brands risked greater share loss by making increasing cuts to their advertising budget. This is because marketing plays a pivotal role in fostering customer loyalty.
It can cost 5 times more to acquire a new customer than to keep an old one. Meanwhile, research shows that increasing customer retention rates by 5% increases profit by 25% to 95%. Therefore, it’s vital you maintain strong consumer-brand relationships even during times of economic turmoil.
‘If you continue investing in advertising your brand you can build up trust and a reputation with your customers.’ Robert McGovern, Head of Paid Advertising at Optimizon
Brands with loyal customer bases are far more resilient during economic downturns. You can gain this loyalty by having a strong and recognisable brand identity. Brand marketing is just as important as product marketing in securing customers.
Commit to your brand image and maintain consistency across all campaigns. This consistency helps customers trust your products, and this trust can lead to brand loyalty and advocacy. A cohesive marketing strategy will also help customers remember your brand when making future purchases.
Reducing your advertising costs
‘As nervous businesses scale back their marketing spend in a recession, Pay-Per-Click ads become cheaper, so your brand can make ad budgets go much further.’ Ollie McAninch, Head of SEO at Optimizon
The good news is that maintaining your current advertising presence could cost your business less. A recession on Amazon could result in more traffic to your products, if you hold your nerve on ad spend. The volume of other brands scaling back their advertising spend can bring down the floor price of Pay-Per-Click ads, particularly on Amazon and Google.
Fewer competitors will mean you get more bang for your buck. Similarly, if there is budget available, an increase in ad spend can have a far greater impact within your market. To make the most of drops in demand, ensure that your business regularly reviews bidding costs and strategies in order to drive value wherever it can be found.
How you can effectively adapt your marketing strategy during a recession will depend on your customers. Let us take a closer look at how your customers’ behaviour may change and how you can shape your products to their needs.
Understand your customers
We all know ‘the customer is king’ and understanding your customer is key to business success. We can gain great insights into your future customers’ potential mindsets by studying previous recessions.
Different personalities prioritise different areas of spending
Where your products fall may vary from customer to customer. Customer priorities also change as new problem-solving products emerge and become integral parts of daily life. For example, whilst past customers believed high-priced electronic items were expendable purchases, many modern customers believe these are now necessities.
Studies have shown particular personalities have a tendency to prioritise different areas of spending. Research found extraverts tended to spend more on food, drink and going out, whilst neurotic personalities spent more on personal care and beauty products. Different personalities also react in varying ways to changes to the economy.
It is important to consider your audience’s personalities, how they currently perceive your brand and how this may change, particularly as budgets tighten. This will determine your course of action in ensuring your products maintain their appeal
Slam-on-the-Brakes Consumers
Not surprisingly if you have little money in your pocket, you will be wary of spending when things get tight. Slam-on-the-Brakes consumers are low-paid or unemployed people with little disposable income. These consumers meet their financial obligations by cutting spending in all areas where possible.
Consumers with higher incomes can also fall into this category if they are anxious about their future finances. This can be due to changes in health, income or personal circumstances. Studies have shown those who score highly on the neuroticism scale are also inclined conserve money for fear of overstretching themselves financially.
Focus on long term savings
You can appeal to these consumers by focusing your brand messaging on the long-term savings your products will create. Reassure customers they are receiving excellent value for money they cannot find elsewhere for products that are essential to daily living.
It’s also worth noting that these customers respond well to smaller pack sizes with lower price points and low-cost value ranges. You will have greater success selling your products by offering easily obtainable discounts for single purchases over creating multi-purchase special offers. Demonstrate the immediate value and benefits of making a purchase over delayed or long-term benefits.
These customers may also buy occasional, inexpensive treats. Brands can successfully appeal to customers emotionally with ‘you deserve it’ messaging and by showing their products are easily accessible and affordable ‘little’ luxuries.
Pained-but-patient consumers
These consumers are optimistic about the future of the economy and their personal finances but concerned about maintaining their standards of living in the short term. They cut back on spending in all areas, albeit far less aggressively compared to their slam-on-the-brakes counterparts.
The majority of consumers usually fall into this category, which covers a wide range of incomes. The cost-of-living crisis, however, is likely to see more of these consumers migrate into the former segment.
Comfortably well-off consumers
These consumers are financially-stable and feel confident about their ability to ride out current and future economic difficulties. They have enough savings or income to comfortably maintain their current standard of living. Their spending is unlikely to change much, although they may be less conspicuous in making expensive purchases.
Live-for-today consumers
This segment consists of consumers who carry on as usual regardless of income or savings. They are generally younger and from urban backgrounds, and often score highly on excitement-seeking sub-trait for extraversion. They are unlikely to make many changes to their spending habits unless affected by major change, such as redundancy.
These consumers typically prefer buying experiences over products, with the exception of electronic items. They may delay some larger purchases, but will otherwise continue purchasing their usual products.
Approach to the impact of recessive behavior
For brands that plan on “staying in the game,” there are typically two approaches you can take. First though, you need to have a direct and honest conversation with the leaders with the brand on what could happen and decide if you want to stay in or not.
There are no trademarked names for these approaches, so I am literally going to call them “Cash in the Bank” or “Profit”. Interestingly, the two approaches go in opposite directions, but do make a horseshoe and will intercede down the road.
Cash in the bank
Fairly straightforward method, ignore declining demand, and press on. If anything you take on more funds that are being reallocated (if not from offline, then from the display, or social).
With searches slowing, your new focus is to be front and center for all possible searches and get that revenue.
Yes, the CPCs will go through the roof, and ROI will likely turn negative. That is fine, get that money to pay the bills first.
Plan to do this for at least two fiscal quarters, but potentially three. Then, slow everything down, and focus less on the revenue (by now the bills are paid).
Become less aggressive on the bidding, CPC’s to come down and then focus on your ROI. Expect to reduce, if not cut outright non-brand and/or high funnel keywords, to help make up the ROI.
Profit
Fairly straightforward, make yourself as profitable as possible. This does not necessarily mean more revenue, but just higher ROI. Here is where you expect to cut everything but the bottom of the funnel non-brand (even that should be reviewed) and brand keywords.
Stop spending in auctions that are competitive, and costs are rising. Just wait it out, and be quiet.
Capture the bottom of the funnel/brand-aware audience, and make a little money as well. But essentially, hold out until everyone else in the category has spent it out trying to get a tiny bit of traffic.
Then, in two quarters, open up and return to normalcy. By then, you have a high enough ROI (hopefully), that you can focus on maximizing revenue at think profitability (or even break even), to get you back to what you consider solid footing. Only do this, if you have enough revenue on hand for normal business operations for two to three quarters.
There are some that will have a good time
Based on history and common sense, that this is always true. Financial issues cause stress. Consumers turn to what will make them feel better/less stressed. This is why I say it impacts almost every advertiser.
A small number of verticals will avoid suffering in this scenario and actually thrive.
We put this into an umbrella category of “vices”. Not to sound morbid or predatory, but if you run pharmaceuticals, QSR/fast food, alcohol and/or gambling brands, you might see an uptick in CPCs, but for the most part, you will be fine.
In the end
You know your business the best. You need to decide with your operation the best approaches to dealing with all this.
Yes, rising costs and dwindling demand are scary, but they aren’t insurmountable.
You just need to make sure you plan out in advance, which issue you want to tackle, do you have a contingency plan in place, and what you can truly afford to pull off.
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