Strategy
Economic Downturns and Efficient Marketing

The party’s over, or so we’re told, with every other headline about layoffs or earnings revisions or rising interest rates. Amidst the mess, one particular bit of news stood out to us recently: 

 

Snap Inc. issued a profit warning Monday and said it planned to slow hiring and spending, adding to adjustments social-media companies are making to adapt to disruptions in the digital ad market. The company said it is grappling with a range of issues, from rising inflation to Apple Inc.’s privacy policy changes to the impacts from the war in Ukraine and other factors. “There is a lot to deal with in the macro environment today,” Chief Executive Evan Spiegel said Monday at a JP Morgan Chase & Co. conference. Conditions have deteriorated “further and faster” than expected since the company issued its guidance for the current quarter, he said.

 

In a non-obvious way, Snap is an Incendium competitor (along with Facebook, Google, LinkedIn… as well as billboards, TV ads, etc.), so we pay attention to news like this. Any of our clients could allocate the budget they spend on Incendium to ad spend on Snap instead. While it’s true that social media and many other channels mentioned above are typically associated with B2C marketing, more and more B2B companies are migrating to social platforms. So, the question for us is: If Snap’s growth is slowing, is it because of something that helps or hurts Incendium?

 

We do have some data to consider this question, parsed excellently in Ben Thompson’s Stratechery blog. The details come from Snap’s most recent earnings call, and part of Thompson’s explanation follows:

 

Snap, appropriately enough, differentiates between brand advertising (without any immediate call-to-action) and direct response advertising (where you do something in response to an ad). Note, though, that there should be a further sub-division of direct response ads: those that lead to revenue, and those that don’t.

 

At Incendium, we focus on efficient and direct marketing tactics, usually starting with cold outbound email. Further, the types of email outreach that we focus on are almost exclusively a version of direct response ads, specifically the type of direct response ads that lead to revenue (our emails almost always have a call-to-action which is meant to drive revenue for clients). Referring to the impact of changing economic conditions, Thompson continues:

 

It’s notable in retrospect that [direct response ads that lead to revenue] were still impaired, while [direct response ads that do not lead to revenue] came back.

 

More difficult macroeconomic conditions and a host of other extraneous factors are hurting Snap and other online advertisers. This much we knew. Thompson goes on to offer a technical explanation of the relationship between these different types of advertising, but for our purposes, the point is that the headwinds mentioned above are having more of an impact on advertising that is meant to get a prospect to take action and drive revenue (compared to general brand/awareness marketing).

 

Does this help or hurt Incendium? There is clearly an argument that this news is bad for us: If the portion of Snap’s advertising stack that is impaired is the portion that looks most like Incendium, it would seem like a bad sign. We might agree, except for the fact that over the last several weeks, the number of positive responses we have driven for clients has been consistent and even somewhat higher despite macro headwinds. 

 

How is this the case?

 

One part of the answer was covered above and is easily explained by the difference between B2C brand marketing and B2B direct response advertising. This is true, but we think there’s more to the story.

 

Our sense is that the data suggest that the types of advertising that we focus on is simply more durable. After all, regardless of the macroeconomy, the hard advertising to do is always the advertising that gets a prospect to take action. Success for this type of advertising requires the prospect to do something, as opposed to brand marketing where success is in posting an ad and counting eyeballs. The very hardest subset of this advertising is advertising that ties directly to revenue: These ads require a prospect to do something that costs money. The macroeconomy makes this kind of advertising harder to do, and it also makes underperformance more obvious. Brand marketing on the hot new platform may seem like the right move when everyone is growing, but when the music stops, it pays to keep it simple and send good cold emails with direct calls to action.

 

There is plenty of reason to worry as economic growth downshifts (or worse). But the last several weeks are proving that the most important skill remains an ability to identify and execute the most efficient marketing channel for a particular company at a particular point in time, especially in a challenging environment.

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