UK economic situation and what it means for direct marketers

Before writing this column I looked back at an article I’d written for this magazine [Direct Marketing International] back in July of last year, some six months ago. Like this column its focus is the UK economy and what it may mean for direct marketers.

In the middle of last year inflation was rising and despite the slowing of the credit markets consumer sales were still buoyant. However as I write this in mid January 2009 most of the readers will be aware of the increasing signs of economic woe. The second half of 2008 was peppered with negative signs. Indeed the government’s own statistical department announced what many had already feared but may not acknowledged that the economy’s GDP shrank by 0.6% in Q3 and 1.5% in Q4 (source: Office for National Statistics) and that by doing so met the definition of a recession i.e. two negative quarters of growth. With the economic contraction comes rising unemployment and with that decreased spending. It is no wonder then that a poll by ICM/The Guardian newspaper of UK consumers in December found 86% of those surveyed plan to make cutbacks on their spending, with only 13% thinking that they would spend as much in 2009 as they did in 2008 (source:  ICM/The Guardian).

Decreasing levels of inflation, a small cut in VAT (sales tax) and significant drops in The Bank of England base rate, currently at 1.5% (down from 5.0% for most of 2008 and 5.75% at a high for some of the later part of 2007) all designed to ease fears have seemingly done little to curb the growing economic position to: negative.

I believe that there are two camps about how the recession may play out in the UK at least for direct marketers. There are those that are bullish about the industry and those that are slightly more bearish. The bulls tend to be those that believe that because of the measurability the direct marketing industry is well placed to ride out the economic situation in this country. The bears tend to be more cautionary (as is their nature) principally because the last time the UK economy was truly in a recession (early 1990’s) the internet, and by this I include email marketing, as an advertising channel did not exist. The truth is perhaps somewhere in between.

The IPA’s (Institute of Practitioners in Advertising) respected Bellwether Report for Q4 2008, released in mid January suggests further reduction in spending and offers some supporting arguments to both the bulls and the bears. The reports author Chris Williamson does indeed show the largest reduction for media, with direct marketing also showing a reduction, indeed even Internet search shows a reduction in spending, albeit significantly less than direct marketing and media.

For 2009 marketers, direct or interactive have a challenge on their hands as the UK consumer adjusts spending habits accordingly. The battle ever more is around increasing effectiveness, most probably with static or likely declining budgets whilst at the same time trying to recruit new customers.

For the suppliers the challenge for some will be around staying competitive and fighting to keep their products in front of potential buyers and users. For others it can be about growth. A recession, whilst painful for all concerned tends to shake out weaker companies and survival and maintenance of a strong position potentially leads to far stronger prospects once growth occurs. Whilst I had previously written in this column about evidence from Prof. Patrick Barwise around strategies based on his research from the last recession, principally that those brands that do best post-recession tend to be those that invest during the recession. Anecdotal evidence, for example the latest Bellwether Report appears to suggest that very few brands are in a position to take this advice on board.

If further evidence was needed about direct mail volumes being squeezed, research from Billets (a media monitoring agency) reported via DM Bulletin show a decrease of close to 40% (Source: DM Bulletin) from November 2007 to November 2008 in terms of total volume. That said, separating customer and prospect mailings is as always a thorny issue.

Note: a slightly shorter version of this post appears as an article in the print and digital edition of the January/February 2009 issue of Direct Marketing International magazine.

References used in this post:

Barwise, Patrick (1999) Advertising in a Recession: The Benefits of Investing for the Long Term.

DM Bulletin

ICM/The Guardian

IPA (Institute of Practioners in Advertising) Bellwether report, accessed 01/03/09.

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