The antidote to recession

We live in strange economic times. Although there is gloom, the fundamentals of the economy remain relatively solid. But consumer confidence is wobbling and Governor of the Bank of England Mervyn King has warned that “the nice years are over”.

If we are heading for recession, however, it’s not like any that we have seen before. Back in the early Nineties, interest rates and unemployment rocketed. Today we have record numbers of people working and the unemployment rate remains static at 5.2%.

So perhaps we’re merely experiencing a loss of confidence created largely by the ineptitude and irresponsibility of global financial institutions? Overall inflation is low with the Consumer Price Index at 3%, just above the Government’s target of a 2.5% increase.

However, this analysis is as flawed as the “gloom and doom” version. Critical sectors of the economy seem to be out of control; food inflation is up 6.6%, fuel and energy are up 8.3% and set to increase further. And house prices are falling, which strikes at the heart of many individuals’ personal wealth creation.

Consumer confidence has evidently been shaken and low-income groups are under intense pressure – but consumers remain active. Apart from London, high street sales fell 1.5% in April, yet the number of shoppers on the high street was up: consumers are still packing the aisles even if they are spending less.

In most recessions, advertising is one of the first major budgets to be cut, largely because companies are under intense pressure to reduce expensive debt and it makes little sense when consumers have retreated from the high street. That’s clearly not the case now.

Historically, evidence suggests that brands that continue to communicate through recessionary periods do well, but it’s an argument that is probably cynically regarded by budget setters at major clients. However, this time round it’s right to stimFor one, they are still active: numbers of shoppers have increased and will spend but they need convincing. Discounting is prevalent, so brands need to differentiate to stand out.

Second, in previous recessions, when every pound counted, advertising was difficult to measure and justify, with any benefit likely to be long term. Digital media has changed this: brands can control how they engage with consumers, they can accurately predict the result and regulate the effect. We have a very advanced and mature digital media environment in the UK and it’s going to continue to grow.

The Internet Advertising Bureau estimates that spend could increase by nearly 50% this year, making online bigger than TV by 2009.

Why? Because advertisers are seeing such a demonstrable return. Digital could be the goose that lays the golden egg for many in this economic downturn, delivering targeted messages and sales as and when companies need them.

And we also know how traditional media can drive consumers to online action. Recent Thinkbox and IAB research shows that using TV and online combined delivers up to a 50% increase in positive brand perception, as well as a significant increase in likelihood of purchase.

In addition 50% of the “tech-savvy” population regularly go online while they are watching TV, enabling instant online response to TV ads and that could drive sales among the group least affected by the recession. Meanwhile, TV costs are declining. Revenues are likely to be down by around 5% yet audiences are booming.

The advertising industry has always made a valiant effort to justify itself in recessions, albeit vainly. Digital changes this because it can revolutionise a business model.

For the first time the industry has a viable and powerful solution for clients in a period of consumer uncertainty. Companies that ignore the power of digital in an integrated model and under-invest in communication will lose sales to competitors, yet there is an accountable and robust business model that demonstrates how to do this.

Charlie Makin is chief strategic officer at Arena BLM