Inflation has dominated this year’s economic news, a trend that may not ebb anytime soon; in fact, some economists have warned that a recession is all but inevitable. This reality obviously touches all of us in some form or fashion, but for advertisers in particular, there are some pressing concerns about marketing budgets. For this post we are going to focus on the impact it could have on Search Engine Marketing (SEM) in particular, and ways to address it.
How exactly will inflation and recession impact the SEM landscape? And how can advertisers afford to stay competitive?
Two Scenarios
To begin with, let’s outline what inflation means in SEM terms…and, what a potential recession could mean.
Inflation and SEM
Simply put, inflation affects SEM advertising by leading to a notable uptick in costs (CPCs), outpacing the growth of traffic. During a season of inflation, advertisers may notice:
- A decline in competition (or no change at all)
- A decline in search engine share
- A decline in impressions and clicks as the cost for each rises
Recession and SEM
In the event of a recession, advertisers will likely see a direct impact on demand. Consumers will need to rethink some of their own fiscal priorities, which can lead to a lower volume of online searches for non-essential goods and services. Because of the slowed demand, some advertisers may bow out of the marketplace altogether. However, history has shown that the companies who are more aggressive with their advertising through a recession have come out stronger on the other side. (See enCOMPASS Agency’s owner, Jerry Schroeder, discuss marketing through a crisis for more details.)
Addressing Cost Per Click (CPC) Inflation
On a practical level, what can advertisers do? First and foremost, develop a strategy to address inflated costs, and anticipate them. Don’t be intimidated by them. There are a couple of strategies to consider for battling CPC inflation.
The first option is to play it cool. Keep your SEM budgets and strategy status quo and slowly adjust as you see the need. If you have a strong grasp on the ROI your SEM campaign is delivering, and are managing it closely, you may feel comfortable that you can recognize the exact point when you need to make a change and strike when you see the CPC’s start to climb.
The second option is to increase your SEM budget now in anticipation of CPC increases. Sure, you can plow ahead as normal, banking on competitors dropping out of the marketplace, but that will not ensure CPCs falling. The remaining competition is just as serious as you are and is likely going to be willing to spend more for the searches who are going to end up being more serious buyers. If anything, you might even reallocate some funds reserved for other brand awareness initiatives, like social media advertising or offline/print advertising, to ramp up your SEM budget further.
Of course, some advertisers will consider the third option of cutting back SEM spending. Advertisers who take this approach will abstain from bidding in the most competitive auctions. Instead, they’ll wait things out as CPC costs rise, hoping that costs will come down again before too long. The idea here is to let other advertisers fight it out until returning to normalcy after two or three quarters come and go. The risk here is that if you take yourself out of the game, you might just put yourself out of business. Consider the wisdom of renowned CEO and marketing guru Marcus Lemonis who once said, “If you want to cut yourself…cut your advertising.”
Basically, the important thing to realize is that SEM is THE bottom-of-the-funnel tactic and is widely considered to provide one of the highest ROI’s of all marketing efforts. While CPC’s may certainly rise, and your ROI may drop slightly, SEM will still be front-and-center to the customer’s journey and allow you to collect the impressions, clicks and revenue that comes with it. An aggressive SEM strategy through a recession could be the very thing that carries you through and keeps your business successful while others faulter or fail completely.
Remember, Inflation Affects All Advertisers…But Not in the Same Way
Something to keep at the forefront of your mind is that, while an inflationary environment (or a recession) is bound to impact all advertisers, it won’t impact all advertisers in the same way. Inflation is obviously unwelcome news for most advertisers working in a majority of industries, but in some verticals, it may actually be a boon.
The simple reason for this is that, during a time of economic hardship, people’s needs and financial priorities are going to shift. At the same time, many consumers will seek products or services that can help them alleviate stress or simply feel good about themselves.
So, while some industries will see a marked slowdown, there are others that may actually see rising demand. Some examples include medical and pharmaceutical companies, alcohol manufacturers and distributors, and gambling websites.
You can decide for yourself how an inflationary economic environment will impact your consumers, and ultimately your SEM strategy. Indeed, you should already have some data points to look at from the past few months. Based on this information, you can decide on the SEM strategy that’s best suited to your business. And if you need guidance, you can always reach out to a digital marketing consultancy, like enCOMPASS Agency.
Navigating SEM During a Season of Inflation
At enCOMPASS, we’re proud of our track record guiding our clients to smart, effective advertising strategies, specifically helping them navigate a range of economic environments. We’ve been keeping an eye on big-picture economic indicators, and we’ve already helped many clients pivot to strategies that are appropriate to the current environment.
We’re here to answer any questions you may have about advertising during an inflation or a recession, and to help you develop a robust SEM strategy that’s suited to market realities. Contact our team whenever you’d like to chat.
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