The Impact of the Economic Crisis on Your Marketing Strategy
To adjust your marketing in the current economic crisis, we need to start with some economic history. Only by understanding how we created this mess can we reasonably forecast the future, and how you should adjust your marketing strategies accordingly.
Many business owners have found it increasingly difficult to stay in business when sales are down due to the current economic crisis. Cutting back on operating expenses can help boost profits in the short-term, but it is not a long-term solution because there is only so much you can cut back on before employee morale begins to drop dramatically. In order to survive in these hard times and thrive in the future, we need to step back and see the big picture. We need to understand how we have gotten into this mess, where we are today, where we are headed, so we can prepare for the future.
A hundred years ago, most Americans were small business owners. People knew their baker, their butcher, their farmer, and their neighbors. People shopped locally and there was a strong sense of local community. Following industrialization, companies grew larger and larger and that was when most Americans became corporate employees. Big box retailers put small local stores out of business. Giant factory farms replaced small family farms. We became more interested in quantity over quality. Our foods are now shipped from thousands of miles away and the sense of connection has been lost. We no longer know who raised the chickens we eat, who made the clothes we wear, or even who lives next door.
Our insatiable desire to get more stuff for less money has increased the revenues of Wal-Mart and encouraged companies to ship jobs overseas so they can satisfy the consumer demand for lower prices. Many of the cheap products we get come with enormous costs that are not reflected on the price tags including costs to the environment, damages to the community, loss of U.S. jobs, and even decline in one’s health. It is unfortunate that many of the cheapest foods are also the unhealthiest, making child obesity rates especially high among low-income families.
On the financial side, the picture is not pretty. Big companies are becoming too big to fail and receiving billions in bailout money while small businesses are seeing tax increases in a myriad of ways. It was Benito Mussolini who defined fascism as the “merger of State and corporate powers”, which sounds surprisingly similar to what the U.S. is doing. G.M. can literally stand for Government Motors, and there are now discussions that an entire country such as Greece may need to be bailed out.
Meanwhile, the Federal Reserve has been printing trillions of dollars. When Nixon took the U.S. Dollar off the gold standard in 1971, the decision effectively granted the Federal Reserve the permission to print as much money as it wanted without worrying about the ratio of how much paper dollars were printed to how much gold the U.S. owned. It also ended the Bretton Woods Agreement of 1944 and made all the major currencies in the world fiat currencies. When the U.S. prints money, the entire world is forced to print money because if a country doesn’t, its exports to the U.S. would become too expensive.
The dot com bubble popped in 1999 and millions of investors lost money in speculative tech stocks. Greenspan lowered interest rates to 46-year lows, and this lax monetary policy fueled a new bubble in the housing sector. Instead of holding onto the mortgages long-term, banks were incentivized to close as many loans as possible because they could sell the mortgages to agencies such as Fannie Mae and Freddie Mac. Investors that used to purchase U.S. Treasuries began to purchase bonds issued by Fannie and Freddie. As a comparison, the United States sold $5 trillion worth of Treasuries in the last 60 years while Fannie and Freddie had already sold $3 trillion worth of their bonds in the last 6 years.
The subprime mortgage crisis made investors realized that the trillions of derivatives such as mortgage backed securities and collateralized debt obligations were essentially worthless. By bailing out Fannie and Freddie, the Federal Reserve had purchased trillions of mortgage backed securities, which were basically junk bonds that no one would want to purchase. This means the money created is permanent, and the Fed is losing control. The Fed has control over the base money, which only makes up roughly 15% of the money supply. On a global scale, every central bank is printing massive amounts of money as the total foreign exchange reserves doubled in the last 4 years to $7 trillion.
What this means is that the “recovery” politicians are calling on TV is artificially created. Stock market prices may have risen due to massive government spending, but the unemployment rates on Main Street continue to rise. While it is impossible to predict whether deflation or inflation will follow, we do know that the Fed is in a bind. The only way to reign in all the money that has been printed is to raise interest rates dramatically, but the Fed cannot do so without bankrupting the U.S. government because it would be unable to pay the high interest on its massive debts.
Demographically, the baby boomers are reaching retirement age and panicking as they see the drop in their retirement portfolios. The Employee Retirement Income Security Act of 1974 required those with 401(k)’s to begin selling their stocks when they reach age 70.5, and the first wave of baby boomers would reach age 70.5 in 2016. Demographically, there will be way more sellers required by law to sell than buyers, which would cause the stock market to drop. If a panic ensues, the market can crash quickly.
We are currently sitting in the eye of the storm with the U.S. economy in a very fragile state. Getting in wars is one of the most expensive endeavors a government can do, and we have been involved in 2 wars for nearly a decade. Aside from the anti-Americanism we fuel in the Middle East, the U.S. government is practically bankrupt. The subprime crisis may be largely over, but there are two other exotic mortgages due to reset between 2010 and 2012. The size of the Alt-A and option arm mortgages are approximately 170% that of the subprimes, which means another wave of foreclosures is coming. Along with the continual drop in housing values, the next big drop will occur in commercial real estate. Many more banks will close, credit will continue to be difficult to obtain, and the average American will continue to cut back on their spending.
I believe we will see increases in market volatility as politicians come up with new government intervention schemes. Consumers will scrutinize their spending, do more research before they purchase, and demand quality products that will last a long time. More Americans are becoming skeptical of big businesses and big governments, and people are choosing to support local businesses so we can stop losing jobs to China.
What these trends mean for the smart business owners is to realize that people are spending their budget cautiously, just as you are spending your business budget carefully. In a down economy, you want to cut back on everything else before cutting back on your marketing because reduced marketing can lead to reduced sales, which can get your business into a vicious cycle. This is not to say you should waste money on marketing. If nothing else, you should scrutinize your marketing budget.
People are overwhelmed by the hundreds of ads they get exposed to everyday, and they demand quality information on their terms. Instead of sitting through TV commercials, people are recording the shows and skipping the ads. Instead of listening to the songs selected by radio stations, people are customizing the channels through services such as AccuRadio and Pandora. On Google and other major search engines, only 25% of people click on the pay-per-click results as opposed to 75% click on the organic (natural) search results, because people perceive the organic search results to be of higher quality since you cannot “pay” your way there.
This presents a unique opportunity for business owners to promote their business in a down economy. It is not enough to solely rely on your existing customer base because your existing customers are spending less, which means you need to acquire new customers. In today’s information age, 97% of the consumers with Internet access research products and services online before they purchase. Newspapers across the nation are going out of business, and more people are searching for businesses on Google instead of browsing through the Yellow Pages. Search engine optimization (SEO) helps your business get to the top of the Google organic search results, and offers one of the highest returns on investment of your marketing dollars.
In today’s economy, you cannot afford to cut back on marketing. Of all the places you can spend your marketing dollars, SEO is one of the best investments you can make.
Learn more about the author, Aaron Muller.
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