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Michael Sprouse joined Epic Advertising as Chief Marketing Officer on June 1, 2007. His current responsibilities include overseeing all marketing strategy for the company, media buying, direct marketing programs, public relations strategy and outreach, internal communications, corporate development and cross-platform initiatives.

Prior to Epic Advertising, Sprouse served as Senior Vice President of Marketing for Playboy Enterprises, Inc. In his time at Playboy, Sprouse helped to oversee a business transformation as the youngest senior executive in the company's 54 year history. His marketing leadership opened up many public speaking and PR opportunities including the Keynote presentation at ETail (twice) as well as numerous press mentions.

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When a Recession Gives You Lemons, Make Lemonade

Written on
April 17th 2008
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by Mike Sprouse  |
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ADOTAS EXCLUSIVE – You simply can’t turn on a television or radio, or surf the net without hearing or seeing the dreaded “R word.” The topic of a recession is everywhere; from being a headline story in the presidential election, to being a major driver of new economic stimulus packages, to the housing crisis, to how it impacts our daily lives as consumers. Whether or not you believe the recession is looming or is already here, the topic is on the minds of everyone. But how does a recession affect online businesses, and more narrowly, the business of online marketing and ad networks?

Broadly, for purposes of this article, let’s define marketing as something fundamental to businesses for their growth, whether that means the growth and awareness of a brand, or growth of revenues and profits. Some people say marketing is a cost center, which in some cases can be true. Some more accurately say that marketing is on the pulse of consumer’s wants and needs and is inherent in driving sales to valuable products and services. Whichever classification one uses, there are clear ramifications for all online marketers in times of recession – which is a stance that is counter to what some experts have published.

In my post as CMO at a performance-based marketing company and ad network, I’m often asked in interviews what a recession means for our business given the uniqueness of it, since our clients are clearly advertisers and publishers (i.e. other business entities) and also the end consumer who uses or buys an advertiser’s products or services. It’s truly an interesting dynamic because it illustrates that even a business that looks B2B on the surface (as ad networks are often viewed) must take into consideration the effects of a recession and how they impact consumer behavior and direct response (since many ad networks are deep in direct marketing expertise and have that discipline as fundamental to their business).

Let’s focus first on the business side. Intuitively in a recession, you would think that marketing budgets would dwindle. If you’re an advertiser that views marketing as a cost-center, or uses its marketing budget to brand-build without any ROI or direct response element to it, then you risk having your budget clipped in a time of potentially sinking revenues in order to keep the company bottom line in check. In the online world, this might happen with advertisers running solely CPM-based (and to some extent CPC-based) advertising because if there is revenue pressure, then those brand dollars going out the door are exposed with no measurable dollars coming in. Advertisers with a direct-response focus who spend their marketing budgets on a CPA basis, for instance, are more likely to at least maintain their spending levels, since dollars flowing out result in something measurable (like a sale or other desired action) that should presumably be accretive to revenue or the bottom line.

In our particular case, we are seeing a shift in advertising dollars but not necessarily a decrease in overall marketing budgets currently. In other words, if Advertiser X has $100 in their marketing budget in a given month, and in past months had divided that into spending $75 on CPM advertising, and $25 on performance-based campaigns, we would see that shift to more of a 50/50 split. Many advertisers aren’t decreasing that initial $100 budget (yet), but there is simply more pressure to at least prove they can get that $100 back, hence the change in spending type.

A quick sidebar: this exact dynamic explained above actually mirrors what is happening for online advertisers overall according to a study done by the IAB, which shows that as of 2007 performance marketing has overtaken CPM in terms of U.S. Online Ad Revenues. The trend has actually been happening since 1998 when you consider that CPM advertising revenues accounted for 49% of all ad revenues, while purely performance marketing revenues only accounted for 4%. Nine years later, this dynamic has been flipped on its ear. Add a recession to the mix, and you should expect that performance-based methods will continue to grow.

The big caveat here is something that I’ve read a lot lately in blogs and editorials. That is the notion that ad networks, and performance-based models, are “recession proof”. A few bloggers have shouted this from the mountaintops as if it were gospel. This thinking is, at best, myopic and at worst extremely flawed. While it’s true that performance-based models lend themselves better to businesses working together with other businesses to deliver valuable products or services to the marketplace, it is not true that any such model is totally recession-proof. Performance-based models are under more pressure to focus on direct marketing fundamentals and to generate sales for advertisers from consumers, and if consumers are less willing to pay for products and services, then everyone in the online marketing ecosystem will feel some pain. It all starts with the consumer. And in the example above, if advertisers shift their spending more towards a performance-based model and still don’t see strong return, then the advertiser and the ad network will both feel it.

I believe that the performance-based model and performance advertising networks should have cautious optimism and that advertisers should in fact rely on trusted ad networks more and more, as is happening. There should be optimism because we’ve seen the growth in performance-based advertising ourselves and in the overall marketplace and we believe the model is superior in recessionary times as well as lucrative ones, and doesn’t have to eschew brand-building in the process. There should be caution, though, because a recession has the potential to impact the advertising ecosystem to some extent, all starting with the consumer. As long as we, online marketers, focus our efforts even more on exhibiting our value as a major part of this ecosystem, then performance-based models will continue to shine.



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Reader Comments.

Mike,

One thing that I have learned since recently heading up online marketing for a company focused on increasing value and ROI for consumers (by helping them recognize maximum value for their unwanted vehicle), is that one very good way to fight recession factors is to focus on providing or promoting a service that helps people in a time of financial distress. Obviously, we all know that debt consolidation and other financial services will be of great interest. However, there are a lot of other services that help consumers save money and leverage their assets in a down market. As an ad network, focusing on promoting those companies may prove very profitable in the new economy.

Joey Flores
Director of Online Marketing
Mota Motors
www.Mota.net

Posted by Joey Flores | 4:38 pm on April 17, 2008.

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