Written By: Dylan Ander
COVID-19 has caused a market crash, with many portfolio and 401k owners losing significant value in their holdings, starting when the DOW lost 2,000+ points in a single day. Many small-medium sized businesses, which account for a majority of American jobs, have massive strain on short-term revenues. With no exaggeration, millions of Americans have filed for unemployment because this extensive list of corporations, airports, sports leagues and more, that have executed mass layoffs in March and April.
Despite this short-term crash, we are not in a recession (yet). A recession is defined as two consecutive quarters of negative GDP and economic growth. In this survey, 74% of economists see a US recession by 2021, so let’s accept this as an assumption for the rest of this article.
“When times are good, you should advertise. When times are bad, you must advertise”McGraw–Hill Research Team
Many airlines, travel companies, hotel chains, resorts, national sports teams, and other organizations are currently non-operational. All of these companies have drastically reduced, if not completely terminated, all advertising. This is important for currently operational brands and companies to understand, as there’s many implications this has on all advertising channels.
I’ll kick this off with a famous example from the 1990-91 recession:
In 1990, Pizza Hut and Taco Bell took advantage of McDonald’s decision to drop its advertising and promotion budget. As a result, Pizza Hut increased sales by 61%, Taco Bell’s sales grew by 40% and McDonald’s sales declined by 28%. Of course there’s nuance to this story, but during this time there were no major pivots or changes in business planning outside of advertising.
There are four major reasons why every company must continue to advertise during this COVID-19 pandemic (and any recession):
- Digital attention is at an all time high. 42 states have enacted a mandatory shelter-in-place, so there’s never been a higher daily usage of the internet and digital platforms.
- Most of your competitors paused their advertisements. As they are paused, your ads will continue to be seen by the most ideal target market on every digital platform.
- Recessions create a “Buyers Market” for advertisers. It’s important to understand the structure of advertising; you are not “buying” advertising space, but bidding on how much you’re willing to spend on an advertising position. While there are less companies bidding on those slots, demand goes down and so does price.
- Serve people now, win their business later. Consumers are judging every company’s response to COVID-19. Serve your audience and target market with content to get them through this hard time. If you do, you will soon have a loyal audience to retarget once this short-term bind is over.
Digital Attention Is at an All Time High
Regardless of your employment status, you are either working and/or living exclusively from home. This creates more computer and mobile device screen-time, for either work or pleasure. Americans do not want to leave their house, but still have a demand for buying necessities and accessories. News sites and online retailers are seeing all-time high daily traffic.
Most of Your Competitors Paused Their Advertisements
Travel companies and sports leagues have either completely halted, or drastically decreased their advertising spends for both direct response and brand awareness. The NBA, NFL, ATP, and other national sports leagues have also paused their advertising, unaware of when they will be able to resume their events. The entertainment industry has also taken a hit, as large gatherings are illegal in 42 states.
Because of this, many media outlets are quite literally going extinct, especially the outlets that have not adapted to the online content news model. 19 print newspapers have been suspended in Michigan. Time Out and Stylist magazines have halted production. Alternative weeklies have made mass layoffs in the US and Canada. On Monday, Digiday reported that 88% of legacy and digital publishers surveyed expect to miss their business targets this year.
This also carves out massive opportunity for large advertisers during recessions, as advertising space is cheaper. The famous rise in marketshare of Taco Bell and Pizza Hut over McDonalds in 1990-1991 is a perfect example of this.
In a study of U.S. recessions, McGraw-Hill Research analyzed 600 companies covering 16 different SIC industries from 1980 through 1985. The results showed that business-to-business firms that maintained or increased their advertising expenditures during the 1981-1982 recession averaged significantly higher sales growth, both during the recession and for the following three years, than those that eliminated or decreased advertising. By 1985, sales of companies that were aggressive recession advertisers had risen 256% over those that didn’t keep up their advertising.
Recessions Create a “Buyers Market” For Advertisers
On digital platforms like Facebook, Twitter, and Instagram, there is a finite number of impressions that they can sell as advertising space. This is simply their number of users multiplied by the duration they’re on the platform. The long-term trend is that this advertising inventory will only increase in price over time as more and more companies switch their print, radio, and television advertising to digital ads. In both recessions and Black Swans such as COVID-19, this long-term trend is swayed in favor of the advertisers.
During COVID-19, the cost per click on Facebook Ads platform is down 20% from January 2020. This is not a one-time event, as we anticipate this will continue to decrease as the upcoming recession continues.
In an easy to read graph from Common Thread Collective, you can see that advertising are experiencing a higher-than-average Return on Ad Spend (RoAS). With over a 35% increase in RoAS, these are stellar returns for online retailers.
Serve People Now, Win Their Business Later
During this pandemic, as well as all recessions, more citizens get laid off and discretionary income decreases. While overall spending decreases, this is the perfect time for growing a loyal audience and user base. While revenues may stay stagnant, you can serve the market in many different ways. Forbes gave the observation that advertisers may offer interest-free loans to finance their goods, which will continue purchases and increase revenue. They can create coupons or special promotions as everyone is looking for a “good deal” on products at these times.
When the economy bounces back, regular pricing can return. Once this bounceback happens, you have nurtured and grown a loyal user base and audience who you can market to, virtually for free. Gravity Group’s major recommendation is to focus on collecting emails and phone numbers at this time. This is the perfect arbitrage, because click-through rates are high, cost per click is low, but propensity to spend is also low which does not hinder this effort. This makes the COVID-19 pandemic, and all recessions, the perfect time to focus on lead generation.
If you have any questions on increasing revenues through COVID-19 and any recession, reach out to Dylan@gravity.group.