Don’t panic, the dust will settle

Now that the full impact of last week’s apocalyptic events has begun to sink in, marketers will be urgently seeking a compass to guide their decision making. Are these events and their ramifications simply a blip on the economic chart – albeit a grimly-etched one – or do they signal a profound change in consumer behaviour?

The short-term fallout is evident. In the immediate aftermath of the terrorist assault, advertisers scaled back their commitments in a determination not to offend or seem frivolous. Once the smoke has cleared, most will return – but not all. Airlines and travel, the car industry, financial services (in particular, insurance) the hotel and leisure business, the luxury goods and media industry itself are all likely to shrink their budgets. The effects will, of course, be felt most in the US; but as the cuts at Virgin Atlantic demonstrate, they will not take long to find their way across the Atlantic. No international business can remain unaffected.

Whether, as some commentators would have it, this is the straw that breaks the camel’s back – the pivotal event that plunges us all into recession – is another matter. There are reasons for suspecting that it is not. Or, to put it another way, if there is to be another recession, it is already with us. A circular published by securities house Merrill Lynch this week points out, unexceptionably enough, that there are two significant influences on advertising (or marketing) spend: corporate profitability and consumer spending. The first of these has been deteriorating for some time and the bad news, in the form of profits warnings and underachieved financial targets, was always likely to trickle on into the third and fourth quarters of the year, without a catastrophe intervening. Much more imponderable is consumer confidence.

Stock market investors seem to have made up their minds on this matter already. Rather than getting out of the market entirely, they are diverting funds from fair-weather, cyclical industries – some of them mentioned above – to ‘defensive’ categories such as packaged goods manufacturers and food retailers. If their hunch is right, that will be bad news for some advertiser categories, but not necessarily for the marketing services industry as a whole. Money will simply be skewed in a different way. But it is a hunch, and it may not be right. Consumers may not react as pessimistically as the pundits believe. While no one believes the consequences of last week could be anything but dire in the short term, there is one school of thought which sees a medium to long-term lining in the cloud. If only because the crisis has caused the US government to come out of denial about recession and commit itself wholeheartedly to action. Interest rates have been slashed once again and, just as importantly, a further $40bn is about to be pumped into the economy. With what results we’ll have to see. And the message? Don’t panic, yet.

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