Finding Leverage in the Great Deleveraging

March 28, 2012 9:07 pm

The global economy has a tough road ahead. The main difference between optimists and pessimists is about how tough things will get, and for how long, before they get better.

The U.S. is a consumer-led economy: consumer spending represents two-thirds of the nation’s economic activity. Our consumers have been milked pretty dry. Broadband Internet and data plans for smart phones are monthly expenses that can’t easily be cut when looking for a job.

Finding Leverage In The DeleveragingBoomers have seen their housing and other investments tumble, and for older Boomers there’s scant time to rebuild nest eggs before retirement. If Washington’s slashes entitlements too fast, retirees will face real pain. On the plus side, if our government embraces total Tea Party austerity and squeezes people too hard, our Seniors can get their heat in winter from the riot fires set by their grandchildren.

The Outlook For Brands

The near-term outlook is mixed. Cost of goods is climbing, in part due to competition from BRIC for raw materials. The weak economy makes it very difficult to pass costs along to the consumer in the form of higher prices, and consolidation at retail means important retailers can effectively forbid a price increase. This squeezes margins, hard.

As brands struggle to drive turns at mass retail, watch for advertisers to slash slow-build media (print), bleeding-edge digital and underfunded and ineffective social media efforts in favor of TV.

Unsurprisingly, the main engine for growth will come from the BRIC countries. But many companies are in the steep part of the investment trough – good profits and real growth will come, but for the most part these are still some years off. Frankly, most companies now find themselves in the middle, an awkward place. The established profitable markets are weakening, and the emerging markets are still emerging.

The long-term looks quite good. The struggle will be worth it. But, we have to get from here to there.

The Outlook For Digital

For most brands digital, search, social media (if the strategy and payout are clear), and even mobile are here to stay. The best predictor of next year’s ad budget is last year’s, and the hardest thing is to get on the list in the first place. iTV has struggled forever to get on the list. It may never get there: the two screen solution of TV + iPad may be all that a consumer will ever want or need.

But digital suffers from rampant oversupply. The content glut is unsustainable no matter how many targeting technology rockets we strap on to it. To borrow a phrase from my friend Jaffer Ali, we are chasing our own long tail.

Some believe the situation for banner ads can’t get worse; I disagree. I predict this will get much worse and finally crash. A continued weak economy may tip over this house of cards sooner than later. While painful, it may be best in the long run to just get the shakeout over with.

On a similar subject, there are plainly too many targeting tools, too many listening tools, too many social media syndication tools, too many networks, etc. A shakeout here is both inevitable and necessary. Again, the deleveraging may speed the process.

The Outlook for Agencies

I see a lot of oversupply. Mid-sized agencies will face pressure to acquire, be acquired, or shrink. As marketing departments shed staff, managing multiple agencies will get harder. And, as marketers seek integration, keeping each specialty in a separate silo doesn’t make sense. Look for smart marketers to hire integrationists: former agency-side execs that have enough background in both traditional and digital to bridge the gaps between agencies.

The best large traditional agencies should do well in this environment. Many have closed the skills gap. There’s new opportunity for cottage industry, with virtual agency teams of 20 or so people. We’ve talked about virtual teams/offices since the early 1990s. Deleveraging may push us there faster.

Finding Leverage in the Great Deleveraging

Think global, not local: Product innovations that will work in developing markets countries will often be value-driven. They can change the game in developed markets, too: value is value everywhere.

Get focused: Digital has tended to de-focus marketing. There is too much emphasis on tactics. Smart CMOs should re-emphasize strategy. Demand to know what the overall efforts add up to and how they support each other. Senior level creative people will be needed to bring focus to your efforts. Balance youth and experience on your teams.

Keep perspective: Be open to change, but skeptical of trends. Innovations that have huge implications for one category may have none in another. Ask “what drives value in my category for my customers?” If no one on your team can explain the value in plain English without buzzwords, send them away until they can.

Stay curious: Don’t let day-to-day pressures push you into incrementalism. We can’t slash our way to greatness, nor can we get there inch-wise. Change always brings opportunity. What’s possible now that was impossible in the old status quo?

Don’t forget to dream: Goethe had it right: “Dream no small dreams, for they have no power to move the hearts of men.”

Survival isn’t enough. This will be a slog: we need a future worth slogging for.

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