Get ready for the recovery: Part 1 - The Marketplace

The end of The Great Recession may be in sight. When it’s over, the marketplace may be fundamentally different. Here are some of the changes that may impact marketing and communications during the recovery.

Tectonic shifts in marketing were already under way when the economy went into a tailspin, and the economic meltdown has accelerated those changes and caused some long-term transformations of its own.

The four main areas which will be significantly different after the recovery are:

• The marketplace in which we operate.

• The metrics we use to measure marketing tools and success.

• The media that deliver the audiences we want to reach.

• The motivations that are effective at swaying brand selection.

This week we'll look at changes in the marketplace:

1. Everyone has been impacted. No matter who your brand's target audience is, they've felt some pain.

• This is an equal opportunity recession. Bill Gates lost $18 billion, laid-off chicken-processing plant workers are worried about exhausting their unemployment benefits and teenagers can't get McJobs.

• State and municipal workers, usually shielded from the exigencies of the marketplace by civil service regulations, have taken de facto pay cuts as governments have mandated unpaid furloughs.

• In February, Ford's sales were down. And so were Bentley's. Ford was off 48.5% versus 2008, and Bentley lost 74.7%. (Cash for Clunkers didn't stop the slide. It just reduced the 2009 full-year car sales decline to about 27.3% below 2008, from a previously projected 31.1% loss. Of course a Bentley would be over the Cash for Clunkers ceiling price by more than $100 thousand.)

• A Seventeen study found that even teens, not normally considered the most fiscally aware segment of society, are stressed out about money. 85% of teen girls and 75% of teen boys are worried about the economy. 38% have altered college plans because of economic concerns.

The effects of that universal financial hit are very likely to linger on after the recovery begins. So marketers will need to work harder to get prospects to buy.

2. A wide range of product and service categories have been hit. Very few market segments have been unscathed by the downturn.

Time's article "America Becomes Thrift Nation" highlighted the percentage of respondents who have cut expenditures in several product and service categories:

• 63% had cut entertainment expenses.

• 56% reduced restaurant expenses.

• 46% spend less on movies.

• 38% have cut back on sports tickets.

• 36% buy fewer newspapers and magazines.

• 28% spend less on alcohol.

• 25% have reduced gambling.

In fact, supermarkets and food manufacturers are about the only categories that are up, as people economize by eating more meals at home. Just about every other product or service category will have an uphill climb to get back to sales and profit levels they enjoyed before October, 2007.

3. The recovery will be slow.

• Some optimistic economists say the recession is over, and gross domestic product will be up in the last half of 2009. But even they don't predict a jobs rebound until late in 2010 or even mid-2011.

• A less optimistic economist, Harry S. Dent, believes that the slump will last until 2020, because "It will take that long for the financial wreckage of the boom-bust cycle to be cleared away." He believes that real recovery won't occur until the Millennials, the next big population bulge after the Boomers, enter adulthood and start buying homes, cars and gadgets of their own.

• Perhaps most important, most people expect a slow recovery. According to Time, only 12% of Americans expect economic recovery to begin within six months. 50% believe it will be another year or two. 14% believe we're at the start of a long-term decline. And since consumer spending is the engine of the American economy, these beliefs may be a self-fulfilling prophecy. If people believe the recovery will be slow, they'll hold onto their money. And if they hold onto their money, the recovery will be slow.

A slow recovery means that marketers will have to stay focused on more basic products and services for a while longer. The migration to the more profitable upgrades may be a lot farther in the future.

4. Consumers will have fewer resources. Easy credit and the illusory "profits" of increases in home values have disappeared for the time being. Possibly for quite a while.

• Boomers have lost $2 trillion from their investment accounts, and billions more in home equity after the real estate market tanked. The freest-spending age cohort in America has a lot less to spend. Especially since they're getting close to retirement age and need to pump a lot more money into their depleted 401k's. That money will have to come from curtailing discretionary spending.

• Paychecks are down, and they're going to take quite a while to get back up. According to, the average paycheck declined 0.5% between February and June this year. Moody's reports "Workers bargaining power for wages is evaporating," and predicts "outright declines in wages."

• Credit is being parceled out a lot more carefully. Financial institutions sent out 8.4 billion fewer credit card and loan offers last year. According to the Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices in January, 2009, banks had tightened lending standards sharply over the previous 18 months.

• Home equity loans won't be possible for 48% of American owner-occupied households by the beginning of 2011 because they will owe more on their mortgages than their homes' total values. So the split-level (or Cape Cod or center-hall colonial) piggybank will be closed.

So discretionary-purchase products and services will be a lot harder sell than they were before October, 2007. At least in the near-term future.

5. Conspicuous consumption may be conspicuously absent. As we noted above, Bentley sales are way down. Prices of the first-growth Bordeaux have tumbled. And bottled water sales are off 6% even after pieces plummeted from $5.99 to $2.99 for a 24-bottle case. July sales were down 27.3% at Neiman Marcus and up 1.8% at BJ’s Wholesale Club.

American consumers may be wearing their labels on the inside of their clothes for some time to come. Paying extra to sport a designer logo is seen as stupid rather than stylish by an increasing segment of American consumers.

For most marketers this will mean more emphasis on quality and less on flash. For products for which ostentatiously-flaunted brand identification was the main selling point, it may mean trouble. And for Wal-Mart and other value-based marketers, it will be a bonanza.

The flight from conspicuous consumption may be short-lived. But at least at the beginning of the recovery it may remain an important dynamic in the marketplace.

Have other thoughts about what the American marketplace will be like in the post-recession era? Please share them in our comments section. We welcome disagreement, amplification and corrections.

To find out more about marketing in the present economic environment – or in the very different environment that's about to begin – call BrainPosse at 865-330-0055 or click here.

Next week:
Part 2 – Metrics

Part 3 – Media
Part 4 – Motivation