The upheaval on Wall Street and the ensuing fall-out on Main Street has been as swift as it has been devastating and the scary thing is the full impact won’t really be felt by the ordinary folks across the big cities and small towns of America until after the all-important holiday season (Thanksgivings Day through to Christmas).
But if you look closely enough the signs are already evident that marketers are beginning to buckle up and tighten cost spending for a difficult 2009 and possibly beyond.
The most obvious marketers to check in with are those at the big US financial names. In the space of less than a few weeks, some of the biggest Wall Street names disappeared and along with them millions of marketing dollars – Lehman Brothers and Merrill Lynch (now part of Bank of America), Washington Mutual, the nation’s largest savings bank (now part of JP Morgan Chase) and Wachovia (Wells Fargo seems to have won the battle to take that over after Citi’s earlier bid).
Make no mistake, WaMu, Wachovia and Merrill Lynch were all big American brands and major advertisers – and they still might be. It will surprise no one that as a result of this upheaval jobs are likely to be lost, not just at the troubled financial institutions themselves, but also at their respective marketing suppliers, particularly the big advertising and marketing agencies.
There could be an unexpected silver lining in this cloud of financial despair. The devastation of the banks, which was undoubtedly exacerbated by a loss of customer confidence, could force the new larger banks to come out and spend some money on a kind of brand “re-awareness”.
But there’s already evidence of this as the “winner” banks send out messages to customers through email and newspaper ads claiming they are now “bigger and better” since taking over one-time rivals for a price equal to a tiny fraction of what those acquisitions might have been worth just three months earlier.
But US banks are caught between a rock and a hard place as they try to inject confidence back into the financial system and help resolve the global credit crunch which started on their doorsteps. On the one hand, they need to reassure customers that they are safe and steady and can offer decent savings rates, yet on the other they’ve realised there is an urgent need to clamp down on runaway easy credit.
I got that message loud and clear last week when my bank sent me an exciting looking piece of direct mail offering me “Good News!” – an opportunity to get lower interest rates on my credit purchases.
The new “good” offer was for a lower variable purchase APR of 22.99%, an interest loan rate not seen perhaps since Tony Soprano made some poor schmuck an offer he couldn’t refuse. Even then that was probably the first series.
Put another way, the days when Americans were offered 0% interest, no fees, no penalty credit cards are well and truly behind them, consigned to the annals of financial history perhaps under a chapter titled “When American consumers thought they were really getting something for nothing”.
Of course, the easy credit and direct marketing boom that accompanied it was not unique to the US, it was also rampant in the UK – but experts say the US credit card industry is on the verge of a very nasty crunch of its own making.
While the focus of the financial crisis has been on housing and mortgages, many are now saying a torrent of unpaid credit card bills could be the next stage of the wider problem.
Ratings agency Moody’s said uncollectable credit card loans rose by 48% in August and expects them to continue to rise throughout 2009, eventually shooting past peak rates seen during previous US recessions. Another agency, Friedman, Billings, Ramsey & Co, expects uncollectable credit card loans at American Express to jump 30% by the end of 2009 and by 25% at Capital One in the same period.
Moody’s said uncollectable loans as a percentage of total outstanding loans was 6.82%, close to a 20-year high of just over 7%. It stood at just 4.6% a year ago. Capital One has forecast uncollectable loans at its US card division to increase to the mid-7% range by the first quarter of 2009.
The impact of the financial crisis does not start and end with financial institutions. A few months ago when local advertising budgets at regional TV stations and newspapers started to slow down, many simply expected it to be a “media recession”. But now that it’s clear the impact is right across the board, marketers have been considering their options.
The last time there was financial upheaval in the US (though nothing on this scale) was post-9/11. At the time it was the bursting of the dotcom bubble, which saw marketers with large budgets ballooned by venture capital money come back down to earth with a bump.
This time it could be internet companies that benefit from the challenges of these difficult times as advertisers small and large try even harder to target their campaigns but most importantly improve how they measure their return on marketing spend.
Google chief executive Eric Schmidt certainly thinks there’s an opportunity for the web search giant and said as much when highlighting his company’s strong third-quarter profits last week. “We believe these results reflect the fact that as marketing budgets are squeezed, targeted, measurable ads are becoming more valuable to advertisers. And as consumer budgets are squeezed, people use the web for comparison shopping to hunt for bargains online and in stores.”
Or as one Wall Street analyst put it, Google is benefiting from the “Wal-Mart effect” of people searching for bargains during tough economic times.
Talking of Wal-Mart, even the world’s largest retailer felt a slight squeeze in the US as its September same-store sales numbers slightly underperformed Wall Street forecasts. Like some other big name retailers, Wal-Mart had stronger sales at its warehouse stores like Sam’s Club – where customers try to make savings by buying in bulk.
While Google and Wal-Mart might arguably be in a strong position in a slow economy because of the perceived cost savings and efficiencies they provide consumers, some brands might not be so well placed. You might think Apple would be one such brand but it’s a more complex picture than some expect, say experts.
There have been two issues that have caused Apple investors and industry watchers to question Apple’s robustness in recent weeks. The first is Steve Jobs’ health. Rumours got so bad a few weeks ago that they culminated in untrue blogosphere speculation that the Apple founder had been rushed to hospital with a heart attack – Apple’s shares were hit before Apple could kill the rumour. Jobs made light of this at his last presentation of new laptops this month.
The other issue with Apple is more directly related to the failing US economy. Two key Wall Street analysts expressed doubt, separately, that sales of Apple’s nice-to-have products such as the iPod, iPhone and high-end laptops could avoid slowing down sharply during an economic downturn.
After the initial panic investors came back – and that has a lot to do with the current strength of the Apple brand even in tough times.
But, overall, marketers remain cautiously optimistic despite the uncertainty that lies ahead. Reports from last weekend’s Association of National Advertisers’ conference in Orlando, Florida, suggest that chief marketing officers are not yet committing group hari kari. Most CMOs are still holding their cards close to their chest according to a New York Times story which said the 1930s’ Great Depression theme song “Happy Days Are Here Again” was referenced a couple of times.
“The consumer is sitting at the bottom of a bunker with his head in his hands, wondering if it’s safe to come out,” said Jez Frampton, global chief executive at Interbrand, during a session at the conference. “It’s up to us to stimulate demand in the market again.”