Market corrections happen more frequently than most people realise, in fact, between every two years. Large market corrections, or ‘bear markets’ have happened almost consistently every decade.
Going by these trends, we’ve been overdue for a recession for a little while now and there have been some signs that a global recession is around the corner.
The last bear market, 2008’s credit crunch, was caused mainly through cheap credit - a frivolous availability and lending of money to those who could not (by current regulation standards) afford it. This created a supply/demand imbalance that trapped the borrowers with depreciating assets and rising interest rates - subsequently they could not repay their creditors and this sent the world into meltdown.
If coronavirus induces a global recession, then it’s difficult to say what the indirect implications will be. What we’re seeing now, is the direct effects on the economy. Sectors such as travel and the events industry are being hit hard by the containment phase of the outbreak and it’s inevitable this will get worse as the world seeks to delay the spread. Already this has embattled a Saudi-Russia oil stand-off, again causing a supply and demand issue which sent the markets into a frenzy this week.
With UK experts predicting the peak of the virus to hit in early Summer, it may be the case that the direct effects we can see in the economy bounce back relatively quickly. The wider-reaching, or butterfly effects, are however, extremely difficult to predict.
The almost consistent recession patterns we have seen over the previous decades are perhaps changing. A new era of globalisation and more complex manipulation by central banks and other powerful private banking institutions place us in increasingly unchartered territory. There are of course micro and macro factors at play in causing any recession, but when it comes down to it, a recession happens when people stop spending as much money.
History tells us that there are winners and losers in any recession, but also how to weather a recession out if it does happen.
When people stop spending money, businesses often scramble to start cost-cutting exercises.
This makes sense, as unnecessary expenses and unprofitable areas can go unnoticed through a boom period. In the past, marketing budgets are often the first to disappear, because there isn’t enough scrutiny around the direct impact marketing can have on sales.
Consider these points in an economic downturn:
You need to consider how proportionate your marketing efforts are to your sales. If your customers stop spending with you in a recession, it’s probably because of the wider economic environment. Will reducing marketing only harm sales further?
There will undoubtedly be competitors that do make knee-jerk cost-cutting exercises. If they do, then they haven’t considered whether it will harm their sales. It also creates a less competitive marketplace for you to reach your audience, and actually makes your own marketing cheaper and more efficient. Most digital platforms work as a live auction, with the higher demand meaning a higher the price you pay for your placements. If your competitors are no longer spending your costs will fall and you’ll get more traffic for the same budget, which could more than compensate for any marginal declines in conversion rate.
How does a recession affect your audience? Do you offer a luxury product or service, or something which is a necessity? Can your audience live with or without what you sell? How can you become more competitive if you sell something necessary? How can you find those unaffected by the recession if you’re tapping into disposable incomes? Through digital marketing, and the extremely granular level of targeting options available to tap into those unaffected by a recession. If one sub-section of your target market may be affected, shift your budget to another segment who are unlikely to feel the impact. This can all be easily done in 2020.
It’s 2020, there’s no excuse not to understand what your ROI is from your marketing channels. Business intelligence is more critical than ever to analyse what is and isn’t working, and where to move your budget into. Digital marketing delivers immediate results with transparent figures, so unless your ROI has drifted into a negative then why pull back?
Recessions are for most businesses, a period of survival than growth. But rather than running scared from the situation, take a pragmatic approach.
If you're concerned about a possible recession and are reviewing your budgets at the moment, we're more than happy to provide you with a free paid media audit of your current activity and some advice on how best to move your business forward.
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