Will an Economic Recession Hurt SEM?

More and more analysts are asking whether negative developments in the overall economy could dampen PPC (define) search spending. While it’s quite possible they could, the opposite could also occur. Because search is more measurable than offline media, it may actually end up with a proportionally larger share of media spend as other ad budgets are slashed.

Because of its historically strong association with ROI (define), the PPC search market’s health is tied to consumers’ willingness to transact. If a recession’s economic impact is strong enough, consumers’ willingness and ability to transact will decrease, as will conversion rates. Consumers’ price sensitivity may also increase as wallets tighten. Combine that with a decreased search volume, and there’s the possibility of a perfect storm simultaneously hitting search engines and search marketers as consumers cut back on researching products and services.

As gloomy as the above scenario seems, the counter-argument is that during a broader economic slowdown, SEM (define) will do far better than other media and perhaps even thrive.

To help you plan for either contingency, let’s evaluate the economic drivers of the search industry and search campaigns in general. The paid SEM industry is driven by a few concrete variables. By exploring each of these variables, we can develop hypotheses about the impact of an economic slowdown, a credit crunch, or a full recession.

Searchers must engage in commercial search query behavior for there to be impressions, and therefore, clicks. We already have significant data that macroeconomic variables and search query volume move in tandem. The summer months are particularly slow for most retail and service industries, and the search slowdown is simultaneous with it. Given that search drives offline purchase behavior and product curiosity drives search behavior, this isn’t surprising. Most marketers consider contextual inventory to be search. The fact it’s keyword-targeted does put it into the same category, but for many marketers it’s a poor substitute. Others will find available inventory through contextual and behavioral targeting (retargeting).

Advertisers must be willing to spend for clicks at both the research and final consideration phases. If CMOs instruct their marketing departments to cut advertising spending, all the focus may go toward the keywords and other segments that increasingly deliver clicks from purchasers, instead of those in the research phase.

This kind of budget cutting is a bad idea long term because of the information vacuum out there on the critical brand/benefit awareness phase of the purchase cycle that builds a brand. With CMO tenure averaging under two years (according to a Spencer Stuart study), we can’t expect long-term thinking. In fact, there’s so much short-term marketing mentality among large marketers that when budgets get cut, branding will likely take a backseat to promotions and direct response.

Given a possible drive to direct response and the fact search budgets are a small portion of overall marketing allocations, media and advertising budgets could increasingly be directed toward SEM. Other media’s effectiveness, particularly offline media, is notoriously difficult to measure. If a mere 10 percent were reallocated from the top three media line items to SEM, most search budgets would double.

Competitive pressures don’t disappear during economic slowdowns, and the executive suite is increasingly using its favorite search engine to make sure the brand and company are well represented in search results. CEOs and CMOs may not understand all the dynamics of targeting segmentation, pricing, and auctions, but they do understand if the company is invisible in SERPs (define), the likelihood is the competition will get the customers’ orders now and perhaps future orders for an extended period.

New behavioral keyword targeting opportunities that capture searchers within the narrow period after they expressed search intent may also dramatically increase the amount of search click inventory available. Marketers with a flexible budget strategy will surely redeploy dollars into these new inventory opportunities, which let them take second and thirds bites at consumers who rarely consummate purchases, registrations, or calls within the initial search session, either with the marketer or the competition.

If current economic woes worsen, there will be clear challenges for all marketers, not just those in the real estate and mortgage industries. But search marketing belongs at the foundation of any marketing campaign. Cutting search is like cutting your oxygen supply. Take the time now to truly understand where profit and efficiency exist within your search campaign. This way, regardless of whether your budget is raised or lowered, you’ll have a plan.

Meet Kevin at SES San Jose on August 20-23, in San Jose, California.

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