Digital marketing, and in particular, digital advertising is holding up surprisingly well in the coronavirus induced recession. In this article we take a deep dive into why that is the case and the sectors to which it applies. We finish by forecasting the end of shops and the emergence of a new business segment.
If you take one thing from this piece, it is this — eCommerce is the future and shops are the past.
Direct Response is not traditional advertising
Why is google and facebook advertising staying strong in this recession?
The FT (source) wrote that Facebook reported a ‘drop off in brand based advertising and a real focus on driving direct results’.
Why is that?
Firstly, people, working from home, are spending more time online — especially on platforms like Facebook. YouTube, for instance, is currently delivering 250m hours per days or 7.5 billion hours per month (up from 3.25 billion hours in 2017 — source — a growth of 130%).
That means there is a much bigger inventory — or page / video / social media views, on which a platform can sell advertising.
Secondly, big spending advertising was, in previous recessions, focused on brand advertising, whereas now, big brands and major companies are selling direct. Hence, the shift from brand spend to direct response is noticeable but overall spend remains strong.
Digital media is cheap
With such a massive expansion in the digital page view / views inventory, coupled with a number of traditional big spending advertising cancelling or reducing their spend, digital media has become really cheap.
As digital advertising is auctioned to the highest bidder, the massive increase in inventory plus lower competition has meant that prices per click or view have fallen. Of course, the low income earned by Facebook and Google etc per click is offset by the fact that they are twice the number of views to sell.
Curiously, therefore, there is a significant marketing opportunity at the moment.
Engage to build awareness
Many people are not buying. Data shows that saving is at exceptionally high rates, which means that people will have some capacity to buy once the lockdown is over — of course, subject to what happens to jobs and the wider economy.
So what are people looking for? At this stage, there is an increase in curiosity- after all, most people have more time on their hands and they are not exactly going anywhere. This view fits well with the increase in YouTube views- which is largely a ‘how to’ channel.
People are looking for more online content — but their searches are changing too as they increasingly prioritise chilled music over dance numbers — reflecting the nature of the time.
In addition, people are looking for new ways to engage with others — hence, the increase in social gathering and social sharing and related searches .
At this time, in many sectors, people do not have purchase intent , but they nevertheless want something to look forward to, and that is driving their curiosity based searches.
The opportunities for startups and businesses are to look at how you can reassure people. How you can help. How you can stimulate and satisfy their curiosity.
This means that your digital marketing strategy, unless you are in eCommerce, may be ‘upper funnel ‘ focused. So, building customer awareness, looking to foster community and build empathy with current, past and future customers and prospects.
Who is winning who is expanding and who is shrinking their digital marketing?
Different sectors are spending very differently and with sectors the spend is evolving and changing in real time too as the crisis progresses.
Obvious losers are travel and tourism as well as live music events. For instance, data from a Google Consumer Trends report indicate that ticket sales are down 75%, yet music streaming is up 60% (source).
So, can a music band or label re-purpose their content to take advantage of the growth of streaming? Perhaps sell free access to ‘online’ gigs and recoup an income through advertising on YouTube, whilst not incurring venue and ticket sale costs?
Travel customers — a traditional big spending on online advertising, saw their traffic go through the roof in the 1st and 2nd week of the crisis. However, because they track a ‘conversion’ as someone who makes an enquiry, they ended up paying to invite flight refund requests and they treated those enquiries as successful conversions!
Hence in week three, big UK travel firms slashed their monthly £5m digital ad budgets to £10k or less!
Their continuing ad spend is not because they are selling flights, but rather because they want to keep flight claim companies from top spot and hence, the likes of easyjet are spending to bid on their own name but not a lot more.
In Italian business to business markets, we are seeing (1st May) a steady return to business after B2B digital marketing effectively went into hibernation at the outset of the Italian lockdown. So about 6 or 7 weeks out from lockdown, B2B digital advertising is showing signs of life again. We can expect similar moderate recoveries as other countries ease lockdowns.
Equally, some B2B startup companies are having great results with the use of Facebook. This is unusual. Facebook is traditionally a business to consumer platform and businesses have never been able to make it work. However, with good targeting on topic of interest, startups are reporting fantastic results — probably because people are working from home, they are more likely to be engaged in Facebook during the work day. By comparison with LinkedIn, Facebook is delivering conversions at a quarter of the price.
Financial services is another big advertising sector and is showing both increases and reductions in spend in response to recent events. For instance, when the Bank of England cut mortgage rates, searches for ‘remortgaging’ rocketed whilst searches for new mortgages collapsed.
Most e-retailers are now busier than Christmas due to the explosion in home shopping. However, for a Christmas campaign, they would start planning the December spend 6 months ahead to ensure they don’t waste their advertising money. With coronavirus they had a matter of days or at best weeks, to work out how to respond. Therefore, it is likely that there is a lot of waste in the advertising spend and this will get squeezed out over the coming weeks and we will see changes in how and how much they spend.
Food delivery of online orders is crazy at the moment and none of the data fits . We’re seeing a record number of online sales, well above Christmas numbers, but the big UK supermarkets — such as Morrison’s and Tesco, turned off ad spend. This is probably because their infrastructure can’t keep up with demand and there is no value in selling a delivery option that can’t be served for three weeks!
The key lesson here is to always audit your digital marketing and always be data driven! Customer behaviour and searches are changing in real time and startups and companies need to be ready to adjust their marketing spend at speed.
However, all the figures point to the rise and rise of eCommerce:
The rise of eCommerce
Amazon, the giant in eCommerce company, actually cut their digital ad spend because they already rank so well on Google and like the supermarkets, are struggling to deliver non-essential items in a timely manner.
This is creating an opportunity for local retailers and small eCommerce companies to take market share and build brands whilst Amazon are unable to respond.
There is a rapid investment in online stores for small local retailers and producers and this is creating a lot more smaller advertisers focused on local markets.
One thing is clear — digital marketing agencies focused on eCommerce agencies — are seeing record growth in clients and exceptional profits.
We should anticipate some return to normality later this year, yet, also, the New Normal will not be return to the past.
So, what will the future look like?
The threat of Amazon
To answer any question on what the future of eCommerce will look like we have to ask what will Amazon do?
When the future is clear, we can expect Amazon will come back as a big advert spender and attack niche markets to put competition out of business.
Amazon has a history of being willing and able to sustain big losses in order to control a market — such as book sales.
One possibility is that regulatory power, especially that in the EU, will step in to prevent price gouging and unprofitable business. However, commercial history suggests that the likes of Amazon will accept a fine in later years so long as they achieve their market domination objective first.
The New Normal — two predictions:
The assumption was, prior to coronavirus, that buying physical products where customers need to touch and feel it, would always happen in bricks and mortar shops. Perhaps this is what restricted eCommerce to 15% of our overall shopping (source).
However, it turns out , that ‘needing to touch and feel’ is a cultural or social norm (see UAE’s willingness to buy without touch) and that this common Western habit has been fundamentally challenged by coronavirus in two ways.
Firstly, we are now used to buying fruit, meat and food without touch!
Secondly, as masks and protective gloves become common place, we increasingly feel that the less our product is touched, the better! So, low touch purchases are better or safer.
This leads us to make two predictions about the New Normal for eCommerce beyond the obvious forecast that eCommerce is growing rapidly:
There is a new business sector emerging — where consumers buy direct from producers or Producer to Consumer or P2C.
Even after lockdown, we will remain infection aware — if I pick up and apple and put it down in a supermarket — how do you feel about that? And how will that affect people’s willingness to shop either at supermarkets or other ‘touch before you buy’ shopping environments?
Riverford — a direct from farm to your front door, fruit and vegetable box — know what the box contains and where it came from and when it was picked. Therefore, they are able to advise on a suitable level of hygiene on each item, Hence, they can tell customers — this fruit or veg needs cleaning, this one doesn’t.
The internet allows us to connect producers direct to consumers and maintain this hygiene information through a very short, but reliable, supply chain. In typical supermarket supply chains, the sourcing of goods is driven by price not knowledge or hygiene confidence and therefore, this information doesn’t get through and nor will it be easy to establish when you bulk buy meat from Latin America 6 months ahead.
This emerging local producer sector creates a real challenge for the likes of Amazon — albeit, Amazon could respond with mass investment in robots to ensure their warehouses remain entirely germ free.
Equally, Amazon could roll out contactless drone delivery — but drones in current trials have a small payload — about 1.5kg and therefore are not suited to heavy grocery deliveries (source).
Nevertheless, either or both of these models points to the end of shops:
The end of shops
Shops began to form on our high streets in order to gather items together — so that we could shop from a wide variety at an affordable price.
However, the internet effectively replaces the shop’s traditional role of unifying product choice.
It is also true that shops allow interaction and community too — but that isn’t built into their DNA and it is quite possible for high streets to be repurposed for community and as gathering spaces, but they are unlikely to be where we go to shop.
In 30 years time, there will be very few shops left on the high street. Coronavirus might simply speed up that trend.
This article was written following conversations with Neil Andrew founder of PPC Protect — a fraud busting service for your digital adverts; and, with Chi-chi Ekweozor founder of Assenty — audience insights for your events. With additional contributions from Stuart Smith, Geoff Wilton and Chris Garland.
This article is the sixth in a series of articles on how to respond to the coronavirus crisis. Previous articles covered surviving and thriving in a time of coronavirus, selling and marketing in a time of coronavirus and building home based teams and fundraising and cashflow plus The New Normal.