• by Lynn Russo Whylly , February 22, 2008

Online growth is a bright spot during a downturn

The brokers and analysts aren’t tying their belts over the shower curtain rods just yet, but this past year was a challenging one for the markets. The unemployment rate was up 0.3 percent in December according to the U.S. Department of Labor. Home foreclosures surged in the third quarter of 2007, rising 30 percent over the previous quarter, based on reports by RealtyTrac. And housing starts came in at a 16-year low in December, according to a Department of Housing and Urban Development report.

Meanwhile, credit card use shot up 7.4 percent in November based on Federal Reserve reports — the largest increase in six months, according to cnnmoney.com. In addition, the delinquency rate for credit cards 30 days past due was up 5.8 percent during the fourth quarter of 2007, compared to the same quarter a year ago, according to creditandcollectionsworld.com and SourceMedia, Inc.

All these factors are having a trickle-down effect on consumers’ wallets, and holiday spending certainly suffered as a result. The New York Times reported the 2007 holiday season as the weakest in five years. Target, Kohl’s, Nordstrom and Tiffany all suffered a decline in sales, while Wal-Mart squeaked out a 2.7 percent increase. Overall, retail holiday sales rose approximately 3.6 percent, according to the SpendingPulse division of MasterCard Advisors, which they said was on the low end of expectations.

What did not appear to suffer, however, was online spending. Amazon reported having its best holiday season ever, and according to Hitwise and shop.org, Cyber Monday online traffic overall was up 26 percent. 

Even better news for online — that joyride is expected to continue. Merrill Lynch believes Web ad spending will grow 18 percent in 2008, while JPMorgan predicts that online CPM-based display ad revenue will rise 20 percent and reach $10 billion by 2009.

ZenithOptimedia is even more bullish. The Publicis-owned research group predicts that Internet ad spend will grow 69 percent between 2007 and 2010, and raise its market share from 6.1 percent to 11.5 percent. In 2010, they predict that Internet spending will overtake magazine spending to become the third largest sector.

As the economic challenges trickle down and reach into consumers’ wallets, expanding customer share can be difficult. But the online medium can help.

“In a difficult economy, you have to look inward,” says Tom Osenton, a partner of Customer Share Group and author of two books, including The Death of Demand: Finding Growth in a Saturated Global Economy. “Even in a healthy economy, today we have many matured industries, which makes it very difficult to acquire new customers,” Osenton says. “And there are lots of signs that say this is going to get worse before it gets better.”

Osenton is a firm believer that industries known for acquisition rather than retention, such as automotive and packaged goods, need to accept that times have changed and get on board with it. “The old axiom, which nobody really practices, is that for 20 percent of the cost of acquisition, you can retain a customer. I would yell that loudly to any company that has existing customers going into a difficult economy and start doing inexpensive ways of reaching them such as e-mail, permission marketing and electronic media.

“You can’t sit back and wait for the population to increase so you can increase your sales 1 percent a year,” he continues. “A significant paradigm has been reached and it’s time for acquisition-driven companies to start looking at means of marketing that are one to one.”