I’m not one for predictions. Normally I never write what I think will happen because I am an analyst not a clairvoyant. However this year there has been a lot of commentary on what will happen in the Analytics industry with inevitable cuts in marketing spend. Instead of guessing ‘clairvoyant style’ I spent some time analyzing the situation in the last recession (late 80’s and early 90’s) and tried to pick up some trends that may be repeated.
The main question is (as it was then) what a decrease in consumer spending and the knock on effects of that mean in reality.
First I looked at what happened the last time the recession came around and what caused it.
The main reason was (as now) the savings and loans in the US began to collapse, meaning that the institutions providing finance for mortgages were too generous to the public resulting in over borrowing. Over borrowing led to late and non-payment of debts, resulting in property repossessions. Repossessions meant a decline in housing demand. A decline in housing demand meant the value of property dropped drastically meaning that the loans secured against mortgages meant that many house owners went into a negative equity situation, IE; the mortgage costs more than the value of the property.
Because of negative equity institutions didn’t allow any further borrowing against mortgages. This means that typically high ticket items like cars, boats & property improvements were the first kinds of business to suffer from the situation. It also means the suppliers of these industries suffer.
As the knock on effect got worse businesses start to lose jobs and suddenly instead of employment improving and companies growing we see a recession. Add the gulf war of the early 90’s and increasing fuel prices and it all sounds a bit gloomy.
When the US had problems then the rest of the world followed suit due to a weak dollar (that we’re all tied too), poor international trade and therefore similar credit problems appearing all over the world.
The similarities with the 1990’s and now is uncanny.
Based on what I found out my view is quite simple. The recession means that weak operations will go out of business.
Businesses that have a middle of the road brand, no effective measurement, high prices without a high value proposition or businesses with high risk purchase options – such as hire purchase or credit financing on high priced consumer goods. Luxuries will be cut back on, but they won’t suffer as much as more mid-high priced commodity items. Low priced commodity items will flourish.
A good example of this kind of consumer business is the car industry. Not luxurious models (rich folks will still buy expensive luxury cars) but the more modest car lines will suffer enormously because they often finance the deals that people can no longer afford to pay.
We see this already with GM & Chrysler bailout by the US government. if it weren’t for the massive economic threat of losing these industries to bankruptcy (and the associated job losses/knock on effects) these giants would probably go out of business. They will still suffer huge downturns in 2009 due to reduced demand.
Businesses with no differentiation and focus on cutting costs rather than increasing profits will have a tough time.
Becoming a strong operation
In order to become a strong company you need to do exactly the opposite of what I just called weak.
- Differentiate your brand (become needed)
- Measure your advertising and overall business performance and act when you need to
- Become critical about your value to the customer and get creative with how you market that value
- Focus on more profit – where your spending produces positive ROI spend more. Where it produces less ROI reduce spend.
- Spend better not less
The Analytics industry sits in the middle of all this. Einstein once said;
At the heart of every difficulty is an opportunity
As an industry my thought is that it is going to get tough, as difficult a ride as it has in previous recessions. However what is interesting is that we’ve never been this mature before, we now have the power to really help businesses become stronger operations by cutting costs, improving marketing ROI and pinpointing opportunities.
I predict that real growth systems will evolve in 2009, creative methods to help companies grow, using analytics, using better online and offline marketing by defining what the value is to the customer and speaking to them in their language. Am I an optimist or what?