Inflation, a Recession and a Tsunami Sized MarCom Sea Change Are in our Path- How Your Business Can Thread the Needle and Come Out Stronger
By Dan Kahn
Back in 2008, when the economy shifted from a home-equity-driven F1 car to a version of Thelma and Louise’s T-Bird sailing off a cliff, a second major shift was also in play. The death of traditional print media, and the entire ecosystem that supported it, was another casualty of the recession. Newsstands disappeared, entire publishing companies folded, and many SMBs (small and mid-size businesses) were forced to scrap their print-driven marketing programs and start over. It was a scary time, figuring out an all-new way to connect with customers while also staring down the barrel of an economic catastrophe.
I was fortunate at the time to have a business plan in hand for an agency model that offered a new way forward. As the economy fractured and the print world imploded, Kahn Media offered businesses large and small a new marketing model – lean, data-driven and direct-to-consumer. It was the right idea at the right time, and that recession was an opportunity for it to take root and flourish.
I’ve been confiding in friends and advisors for the past few months that a similar perfect storm is brewing right now as we speak. It doesn’t take a Wall Street quant to predict the economic downturn many businesses are already experiencing. Runaway inflation, skyrocketing gas prices, a tight labor market and highly challenging supply chain issues all happening in parallel mean many of the companies we work for (most of which have excellent direct-to-consumer sales data) had a record-setting year in 2021 and a strong Q1 in 2022. Then, when war broke out in Eastern Europe and gas prices spiked, sales flattened and dropped. Some consumers don’t want to wait for back-ordered products, others are cash strapped due to inflation and energy prices, and some are simply going into conservation mode, spooked by what they’re seeing and hearing.
So, if we agree that we’re in a challenging economic climate, if not a full-blown recession, things get even more complicated by seismic marketing shifts headed our way. Much like the demise of the traditional newsstand-driven print media model coincided with the last recession to brew a “perfect storm” for some companies back in 2008, we are facing a similar situation today with a complete upheaval in marketing and communications thanks to the pending demise of third-party cookies, the rise of first-party data, and the shift of media platform ownership from private businesses to private equity. What does it all mean? Let’s dive in and try to sort it out.
WHAT PARTY DATA?
Until recently, the dominant form of advertising on the internet was based on cookies and pixels. Essentially, that means a marketer (or agency) can create a composite of who they think their ideal customer is (age, gender, location, interests, hobbies, etc.) and then target people who match with ads either delivered through social media feeds or paid search results. Once a target customer clicks the link or post, a cookie or pixel is planted on their browser, and we can start showing them ads for the company’s service or product until they take action. It’s a straightforward and effective process, which is why it decimated the traditional print advertising model so quickly and thoroughly in a relatively short period. For the first time, you could not only target your ideal customer, but you could also get back-end data showing exactly what they did and how they did it once they interacted with your ads. This information, scraped from social media profiles and search history by the same websites offering advertising opportunities to marketers, is called third-party data. And it was a game changer for marketers.
However, increased concerns about consumer privacy have caused governments worldwide to step into what used to be the Wild West of internet advertising to try to regulate how these systems work. Significant pieces of legislation in Europe, like the General Data Protection Regulation (GDPR) and the EU ePrivacy Directive, as well as laws here in the U.S., like the first in the nation California Consumer Privacy Act (CCPA), were the result. The aptly-named CCPA means consumers must consent before a site can track them after a site visit, which explains why you have to accept cookies upon your first visit to most websites these days. As part of the same trend, Google has announced it will be winding down cookie-driven advertising. Apple has also made consumer-targeted advertising on apps and social media platforms much more challenging on its devices, allowing consumers to opt-out of data sharing.
As a consumer, I think all of this is great. I still get freaked out when a product shows up in my social feed a few minutes after I was talking about or researching it, even though I know how the technology works and, in fact, earn a living based on said technology. As a marketer, this disruption to the current status quo means we have some challenges and opportunities ahead—more on that in a moment.
HOW WE GOT HERE
When I started working in media in the mid-to-late 1990s, most media companies were either publicly traded or privately owned by individuals or family dynasties. That applied to everything from magazine publishing powerhouses like Petersen Publishing, Rolling Stone and Playboy to newspapers like the Los Angeles Times, Wall Street Journal and Washington Post, to major studios.
However, as print began to contract and dot-coms went from untested startups to the primary form of news and entertainment, the media inverted. Magazine publishers withered, and websites exploded onto the scene. Niche publishers that had a powerful voice in their vertical spaces, including Petersen (automotive), Weider (fitness), Rodale (outdoor and men’s lifestyle) and others, were all sold to private equity groups that bundled them and sold them again. The takeaway from all this change in the media was that competition was slowly eliminated.
All of this began in the late 1990s and peaked around 2005-08 when these now condensed and conglomerated media groups had been bought, sold, merged, cut and regrouped. They were sold off to the highest bidder with an eye on bundling audiences and maximizing EBITDA. Then they were repacked and sold again. And again. It was unsustainable, much like the housing market at the time, all driven by cheap and easy money that was being handed out with minimal underwriting (trust me, I bought my first house in 2005 with a stated income loan I definitely could not afford). Eventually, the media market collapsed like the housing market it was mirroring. Entire media and publishing companies disappeared, magazine titles evaporated and newsstands vanished.
In the automotive aftermarket, the industry where I’ve spent much of my career, the parallel threats of the Great Recession and the collapse of the traditional print media landscape that had fueled the growth and passion of automotive consumer culture for half a century posed a huge threat. Not only did sales drop dramatically at the B2B and B2C levels (as discretionary spending, the car hobby suffers during recessions just like boating, RVs and other hobbies), but companies were also trying to do more with less as marketing budgets were cut. Many of their long-tested advertising, editorial and PR options were taken off the table.
THE RISE OF THE INTERACTIVE WEB
At this moment, when the market needed something to replace traditional print media and marketers needed a more cost-effective and recession-friendly way to sell their wares and promote their brands, Web 2.0 was born. Unlike the “first” version of the web, where websites were relatively static and the communication was one-way (brand to consumer), Web 2.0 sites added comment sections so that readers could interact with authors and each other. Social media platforms like Facebook, and later Instagram, Snapchat and Twitter, let people post and share their comments, content and updates. YouTube meant anyone who wanted to be a production company and “channel” could have one with nothing more than an iPhone.
As consumers rushed to check in at local restaurants, review businesses, share pictures from family vacations and unboxing videos of new purchases, the very platforms they were using to broadcast the events of their daily lives were tracking and cataloging their behavior making this third-party data available to marketers. The internet became a marketplace of ideas, and with that change came the most robust advertising opportunity since the advent of the printing press. It was a goldmine of insight, unlike anything the industry had experienced before.
For the first time, brands could not only target their ideal customer, but they could also track their behavior, traffic patterns and shopping habits, and even follow them around until they purchased something. The back-end data was robust, detailed and available in real-time, which only accelerated the change we’ve been discussing here.
The Wild West environment allowed early adopters to double sales, vanquish competitors, gain clearer insights into customers and competitors, and even streamline their sales funnel in numerous ways. But it also had a dark side allowing Big Tech to target and track consumers – even children – and like all things, rules would eventually be written to walk the line between fostering innovation and protecting the individual’s rights.
CUSTOMERS ARE PEOPLE
As governments around the globe enact new rules to protect consumer privacy, some of the tech giants have leaned into the changes. Apple was first onboard, allowing its phone users to opt out of data sharing and alerting users when apps, sites and platforms are tracking or monitoring them. Google soon followed suit, announcing significant changes to its data dashboard (Google Analytics) and cookie-based tracking systems.
While social platforms continue to harvest consumer data like a farmer threshing wheat in the fall, their options are shrinking as they are forced into a version of compliance by government regulation and the hardware platforms that run their apps. All this translates into a common catchphrase in 2022: the rise of first-party data.
That sounds complicated, but first-party data is just a fancy way of saying “information about your customer, from your customer.” Essentially, rather than scraping data the consumer supplies to a third party (Facebook, Google, YouTube, etc.) through their search or browsing history, first-party data means collecting that information directly from them to improve their experience.
How does that work? Actually, in a variety of ways. Imagine the previous third-party data model on Facebook or Google, where you could target vast groups of people by interest or location as a firehose of potential customer data. All you have to do is open the valve, and the data comes rushing out from a single source. First-party data needs to be collected individually from many sources. So instead of a fire hose, it’s more like a dozen garden hoses filling one bucket.
One way is to simply ask for it. Post a link in your newsletter, on your website and social channels asking people to sign up for a newsletter or a special offer. If they give you their name, contact info, and a few bits of information and agree to opt in, congratulations, you’re in the first-party data business. Most D2C brands are already doing this. When an online sale is completed, you are already collecting consumer data. Depending upon your company’s and the customer’s location, you may have to ask an additional opt-in question (or offer an opt out), but that’s all you need.
As you grow your customer and potential customer information database, it can be used in various ways. Not only can you use it for straightforward direct marketing, like email drip campaigns and even text blasts, but you can also drop that data into targeted social/digital marketing platforms and deliver programmatic ads to their feeds since they are now technically opted in.
If you want to get really creative, you can also use third-party-data-based digital marketing campaigns (while they’re still kosher) to get a head start on building your first-party database. Build campaigns that target potential consumers, and make them an offer (discounts, free shipping, giveaways, freemiums, etc.) in exchange for signing up. Get as many as you can, while you can, and you’re off and running.
THIS SOUNDS COMPLICATED
Because it is, but it’s also vital. Recent research by Asurion shows that Americans now check their phones an average of 96 times daily. That number is up 20% since the pandemic. Those same consumers also expect a personalized experience when researching before a purchase. It’s up to us as business leaders to navigate the treacherous waters ahead as we transition from the first phase of targeted online advertising to the next model.
But there’s also a bright side to all this change. Painting a portrait of an ideal consumer through third-party targeting takes a long time. We typically tell digital marketing clients that it will take a whole month to turn campaigns on and not to expect maximum ROI until the end of the first quarter. That’s how long it takes to set up targeting and ads, do some A-B testing, shut off the non-performing ad sets, pump up the good ones and get a clear picture of who we are trying to sell to. This is not the case with the new model. First-party data has all the info right there. You can turn things on and start selling on the same day.
Some new options are also coming online that will make things even easier. Google is slowly phasing out the old version of Google Analytics for Google Analytics 4. While the early versions of GA simply tracked visitors to your website and their behavior on the site, GA4 offers a game-changing new feature set. It uses AI to track users across multiple devices, even if they’re not logged into their Google account, because it pulls data from the company’s servers, not the user’s web browser. That means if a consumer is researching your service or product on their phone and then on their tablet or computer, even in different browsers, the marketer will be able to see that and tag them as a high-value target. This software uses historical data to paint the picture, so I recommend making that switch as soon as possible to get a jump on the process.
There’s also such a thing as second-party data. I know this is getting crazy, but this is pretty simple. It’s targeting consumers that have opted into someone else’s platform. For example, if I join a local country club, and a few weeks later, I get an email from the club and open it to see that it’s an offer to try a sneak preview of a new restaurant as a club member, that restaurant likely paid the club a fee to tap into second-party data and have them send a marketing message on the restaurant’s behalf. This could work for everything from car clubs to museums to major membership organizations.
SO WHAT ABOUT THAT ICEBERG?
So, now that we’ve wandered all over the place, from publishing industry woes to real-estate-driven economic peril to an overload of info on internet tracking and data, what does this all mean? The effect of people being stuck at home during the pandemic with nothing to spend their money on other than hobbies and recreation, combined with a glut of short-term economic stimulus, caused a massive boom in sales for many hobby and lifestyle-based industries. For a short while, things were great, and sales were cranking.
Now we’re seeing the ugly side of all that “free” money. Inflation is making life harder for consumers and businesses alike. As the Fed tries to tame it by cranking up interest rates, it’s getting more expensive for companies to get credit as they deal with inventory and supply chain issues. And it is also making it more challenging for consumers to free up spending cash. The writing is on the wall, folks. We’re going to have a bumpy ride for the next few years.
At the same time, the economic engine that fueled massive profit for many companies during this time – direct-to-consumer sales facilitated by e-commerce and digital marketing – is also about to hit a rough patch. Those high-margin D2C sales that padded the bottom line will be tougher to secure unless you’re ready for the change. And that’s the opportunity in this scenario.
When others stuck with print, the companies that leaned into digital marketing in 2008-11 saw exponential growth. They took away competitors’ market share and never had to give it back. Those early adopters kicked ass, and the traditionalists, in many cases, never recovered. We are staring down the barrel of a similar scenario right now. Most business leaders’ instinct in an economic downturn is to tighten their belts and cut costs, particularly marketing, to preserve headcount and hoard cash. In general, that’s not a bad plan. But in this case, with the added wrinkle of the pending sea change upon us, it’s not the right one.
So here’s my advice on how to thread the needle and come out stronger: hire a “hit team” to get started on this pivot RIGHT NOW. Start cranking up as many programs as possible to collect, collate, sort and utilize first-party data. Gather data from new and potential customers, reach out to old ones and get them to opt back in and update their info. Utilize digital marketing while you can for consumer research and data acquisition, hold raffles and giveaways, partner with influencers for outreach, and start developing relationships with organizations with extensive contact lists that could be potential partners. Or find an agency partner to do it for you. Either way, you’ll need a team of specialists who can work on your CRM software, email marketing, and the back end of your site who know digital marketing. For the cost of a few well-paid full-time employees, you’ll be perfectly positioned to be first to market with these new tools while your competitors are trying to figure out how to get past the economic challenges and these rule changes at the same time. You win, they sink, iceberg ahoy.