Thoughts about Analytics in the recession of 2009

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.

Weak operations

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?

Steve is a well known analytics specialist, author and speaker. A pioneer since 2002, he established one of the first European web analytics consultancies (Aboavista), later acquired by Satama (now Trainers’ House) in 2006. In 2008 he wrote his first book Cult Of Analytics published on May 14th 2009. He currently serves as CEO at Quru and has presented and keynoted web analytics topics across Europe. These include The Internet Marketing Conference (Stockholm), The Search Engine strategies (Stockholm), IIH (Copenhagen), the IAB Finland (Helsinki), Media Plaza (Amsterdam), Design For Conversion (Amsterdam) The eMetrics Summit (London, Munich, Stockholm), Divia (Helsinki) in addition to sitting on dozens of panels.

Posted in General, Web Analytics
12 comments on “Thoughts about Analytics in the recession of 2009
  1. GoSolarNow says:

    Excellent summary of the present situation. We have been there before – too aggressive and reckless lending by banks etc. which backfires.
    Also it is the lack of visions. Business as usual means you don’t develop. You stagnate. And if you stagnate, you are practically dead. Hopefully Mr. Obama will be a more competent leader, with some visions, than you-know-who.

  2. Elliot says:

    Cannot agree more on your points of becoming a strong operation, especially the last two: focus on more profit, spend better not less. It is really surprising to see that many companies do not acknowledge and act on them.
    At the same time there is a wide recognition that there is going to be a shift in ways to do marketing. I would say, you are as much a realist as an optimist.

  3. @Elliot;
    I read your linked post above and this is the response to it. It’s a good point you make.

    I used to own a small company in this field and now am delighted that I sold it in 2006. If I had to fight a ‘mediacom’ or ‘saatchi & saatchi’ for an account when I had a 5 man business I would lose every time. I had to partner with bigger agencies to get any foothold into the businesses that were our target market. One of the agencies eventually realized that we were a threat to what they wanted to do in Finland and even small as we were and bought our talents.

    I personally doubt whether it’s traditional or bureaucratic reasoning that actually stops companies switching agencies though. There are always politics to overcome in the bigger companies and we all know nepotism and friendship gets a lot of business where it shouldn’t be happening if you based it purely on results.

    My take is that people in marketing, in companies which are your target market are not educated well enough in the new media, the analytics, the processes and the pull versus push trend we’ve seen develop over the last 5 years. They look at people in our field like we’re all the same. I commented on Eric Peterson’s blog (linked to in my last post) that I believe in what I’m saying, but the skeptics you have to convince will not listen, rather they will say “It’s in your interest to say that”.

    My feeling is though that the market is finally starting to grow up and because we can now prove what we’re saying they will only listen to the ‘traditional’ agencies for so long, if they continue to spout the same story that is.

    @GoSolar;
    Here’s hoping! :)

  4. chazz bazz says:

    Wow so many good points there, if failing companies could just read this, well then they probably wouldn’t be failing companies anymore.

  5. Steve has more analytical approach than me, but message is the same. Still, I have to argue one point: 5 or 10 people agency can beat bigger players and grow fast if it’s delivering right kind of value and positive ROI to customers as you said. : ) I think competition in general is more complex nowadays and that’s why customers need good competitive analysis too. ; )

  6. @Petri;

    A 5-10 man agency can win over the bigger companies by proving value and ROI but my point is they’re never going to be able to compete on the same terms just because a large investment is too risky to do with a small business.

    The smaller 5-10 man agency is never going to get into that playing field. It’s possible to grow to that point for sure but until the agency is a couple of hundred people strong with offices in multiple countries, publicly listed (and therefore accountable) the best you can expect is 5-6 figure deals.

    The average deal for a smaller agency is 4 figures. The good deals are 5 figures. The superb ones are 6 figures.

    In bigger agencies the average deal is 5 figures the good deals are 6 figures and the superb ones are 7+ figure numbers.

    My experience (coming from an SME) is that only by partnering with larger agencies and filling competence holes they have can you get into bigger accounts.

    I think Elliot is seeing the problem where a bigger agency is winning work (he called it bureaucracy and tradition). I think it’s less likely to be that an more likely to be that a large company can only give smaller deals to smaller businesses. They simply can’t take the risk that a small operation will go out of business while working on very important campaigns.

    I understand the argument but larger accounts tend to be spread over a retainer or over a long term. So while on a deal by deal basis a smaller agency would be able to compete, as a whole (long term and safe) package they’re often seen as not being able to produce. Rightly or wrongly.

    With one client I have worked with for a long time now, I started with them in the Aboavista days with a one day €2K deal. I never managed to get a deal with them again above €10K until we were acquired (and were publicly listed).

  7. As a business owner with a smaller cres (8 people) we have seen our profits rise. Due to the fact that we have less overhead than the large companies, we are able to offer the same services at a much greater discount than the larger companies.

    While most larger companies scale down there efforts due to increasing loses, we have upped our advertisement’s by 100%. The lower overhead has allowed for this with a greater increase in profits. So right now I believe the smaller, even if not so well established companies have the advantage. As long as they offer quality work.

  8. Keith says:

    I agree, a business must position itself to take advantage of the recovery that should begin by years end. Be coming lean by cutting costs and spending smarter is a winning plan to survive the recession and position yourself for growth.

  9. George Barr says:

    Hi,

    Look on the bright side; even some good can come out of a recession. If some companies grow stronger it may help place us better enabled in the world market. The last 20 years has seen so much emphasis on the service industries there was/is always a dependency on external industry. It may be time to take a step back and review the economic strategies that are in place.

    regards
    George
    (service industry worker)

  10. Elliot says:

    As to the points Blackbeak stated, I do agree. For a relatively small agency like us to fight for cases with the big boys, it has been a lot of frustration.

    However, in such an economic downturn, when digital marketing is apparently gaining trust and significance, there is our chance to grow with advantages. There is surely the advantage of having a lower overhead. Companies are finally taking digital marketing seriously. And our knowledge and skills in using web analytics grow by experience.

    It is still amazing to see how much companies used to spend (almost without thinking) in offline marketing compared to digital marketing. Maybe it is just a human nature that when you live in good time, you tend to live extravagantly. And when bad time hits you, you get your feet back down to earth. It is time to change.

  11. Good things and bad thing will happen. I am optimist. In bad times people get very creative and reinvent themselves. I look forward to that, specially in new way to apply web analytics information.

  12. Thanks for the comments.

    I’ve added a bit more thinking about how you can start thinking about your advertising budgets in 2009.

    What The Smart Advertisers Will Do

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