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Promise Amid European Downturn

A definite slowdown has occurred in advertising and direct marketing in the United Kingdom and Europe, though not as extreme as in the United States. Or should I say, “Not yet”?

It's all a bit nervy. Nobody wants to mention the “R” word, but there is discernible client caution about the economy. Many appear to be holding back budget so they can react to changes in the economy, and we may be entering a period of last-minute activity. As usual, advertising has been hit more than direct marketing, but quite a few major DM agencies have laid off staff.

Given this, should U.S. marketers avoid the United Kingdom and Europe? Well, though it's often said that advertising and marketing are a barometer of what's likely to happen in the economy per se, the signs are not yet depressing.

The UK's Institute of Practitioners in Advertising, the trade body representing agencies, published research based on feedback from nearly 300 UK companies. It showed that total marketing budgets for 2001 have been revised downward. But both direct marketing and Internet marketing budgets have been revised upward, underlining that the less-accountable forms of marketing communications will be hardest hit.

As for the economy, with the rest of the world in a slowdown, it is unreasonable to expect the UK and Europe to escape. Germany, the largest economy in the 12 nation Euro-Zone, has seen business confidence sink to a five-year low, and the manufacturing sector in the zone as a whole is suffering, with output falling monthly.

In the UK, signs remain reasonably positive. There is difficulty in manufacturing and services, but the public services — health, education, local and national government — have added payroll and kept unemployment rates down. Government spending in the fall is forecast to rise, so these trends should continue.

Relatively low unemployment boosts consumer confidence. Indeed, consumers are continuing to spend, and house prices continue to increase — a sure economic barometer. Spending on credit remains high and mortgage lending strong.

But slow world growth inevitably will have an effect. Most observers expect slowing growth in the fall and perhaps a poor first half of 2002.

Translating this into direct marketing, our company, as one of the largest players in the market, probably serves as an accurate indicator. We still forecast growth for 2001, but times look tougher after a strong first quarter.

What does all this mean? You can bet that more than ever, the emphasis will be on maximizing return on investment. Just as importantly, however, clients will look to their direct marketing partners to add extra value. We know from our research that clients are demanding their agencies be smarter, quicker and more insightful.

And they are demanding a thorough understanding of two key skill sets — digital communications and customer relationship management. And you can be sure that the tougher the economy, the more clients will demand that we deliver against these requirements. It is a challenge, but one not to be shirked.

As always, a downturn will have interesting side effects. Some clients who are less than committed to direct marketing will turn more to its lures. Already we see TV airtime costs falling about 15 percent, which may create opportunities for those of us strongly involved in direct response television.

Nothing concentrates the mind more than a downturn. Those who remember the last serious recession will be better placed to deal with a slowdown.

Those who weren't subjected to recession trauma last time will learn from this experience. As always, those who adapt best will survive and prosper.

If the early '90s are anything to go by, one legacy of the downturn will be an increased, long-term focus on accountable forms of communication. Though we may suffer some short-term pain, the importance of direct marketing is sure to be underlined long-term.

Until then, as we British say, let's keep a stiff upper lip.

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