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Saturday, December 27, 2014

What Is Going On?

Last week, I put up a post entitled “It’s All So Fragile”, a decidedly downbeat commentary from two struggling ad agency principals. I did not expect much in the way of immediate readership or response as several holidays were upon us that are celebrated all over the world. When I went to check my e-mail, I was very surprised to see all kinds of comments from readers in several countries. A few scolded me for a less than optimistic report posted in the heart of their Christmas season. Some said it was true and a few said they knew who my anonymous agency people were (they were wrong). More telling were the comments of a number of readers who essentially said and I paraphrase--Okay, I see the same thing. What is going on?

I am often criticized for many things but one is that I often take a long view on many issues. So, when I look at the changes taking place in both advertising and conventional media, I do not get too upset. To me, what is going on is NORMAL.

Go back to the founding of our republic. When we broke from Britain and adopted our Constitution in 1789, George Washington became our first president. He presided over a nation that was preindustrial in nature--human muscle ably assisted by some animals was about as techie as we got. Some 90% of the people were involved in agriculture.

A few decades later, the Industrial Revolution began to raise its head. Steam engines started to pop up and then came the telegraph and railroads. Electricity and oil motors came on the scene and people had more mobility, warmth, and light. Finally, we emerged in to the third industrial era which I will call the computer age.

Every time the technological innovation came along in a big way, existing economic and social life became quite destabilized. That is simply what we are going through now. The pattern keeps repeating itself. Historically, each took 30-50 years to effect sweeping change. Remember that electricity was available in many American and European homes in the late 19th century but until the Tennessee Valley Authority (TVA) changed things, much of rural southern America did not have power at the flip of a switch.

So, is it different this time as many say? I would only say that it is different in the sense that the RATE OF CHANGE is much faster. Some 15 years ago, much of the world did not have access to a telephone. Today, mobile phones are found even in remote and primitive areas and not only provide calling but also access to video and the world wide web.

Sweeping changes in technology are disruptive. They do cause pain for people of a certain age who want to coast to retirement and to those whose jobs will become obsolete or marginalized in importance. Try to accentuate the positive. Think about the gains in communication and medicine and travel. Branding will not get easier given the enormous fragmentation of media but we will be able to see what works and what does not much more clearly than ever.
Today remains the most exciting time ever to work in advertising, marketing, or the media. You cannot turn back the clock. To a friend who recently described the digital world as the enemy, I can only conjure up the philosophy of the great Don Michael Corleone-- “Keep you friends close, but your enemies closer.”

To all who read the blog (123 countries represented this year) may I wish you all a happy, healthy and prosperous 2015!

If you would like to contact Don Cole directly you may reach him at doncolemedia@gmail.com or add a comment on the blog.

Saturday, December 20, 2014

It's All So Fragile

In recent weeks, I have had conversations and exchanged a ton of e-mails with two agency owners. One runs a small shop while the other’s agency straddles the space between small and mid-sized. Both gentlemen have been around for a long time and have thrived through several economic downturns. All I will say to identify them is that they operate businesses far from New York City.

The fellow with the smaller shop is gregarious and openly describes himself as a “shameless self promoter.” He loves to sell and has a wonderful enthusiasm for all that he does. So, I was surprised, when hearing from him after Thanksgiving, how discouraged that he seemed to be. Here are some verbatim comments or quotes from e-mails over the last few weeks:

--When I met you at a 4A’s Media Conference a dozen years ago, you really annoyed me. I told you that my two anchor accounts were local banks that covered all of our rent, utilities and even employee health insurance. You looked at me with an almost Mona Lisa smile and suggested that I diversify more. Then you muttered something about a bank getting swallowed up every day in the United States due to mergers or buyouts. I was annoyed but when I got home I checked it out and you were right. And, of course, we lost both banks to buyouts within a few years. It took me five years of great effort to crawl out of that hole.

--I had a few car dealers that have been great for years. We had a rough time in 2009 as they did but we all survived. Lately, even that is slipping away. The son of our biggest dealer decided to join the family business after a few years in the financial world. I warned our staff to be polite as he would eventually take over the dealership. Each month we placed a fairly strong radio schedule locally for them. One day, our account executive came back and reported that “Junior” had told him they were trying something new and their would be no paid media next month. I got Dad on the line but he backed his son up 100%.  What Junior did was simple--he sent an e-mail or direct mail piece if he had no e-mail to every customer who had bought a car from the dealership in the last  three to six years. The offer was very,very good--no dealer hype. My account guy told Junior that it could not work without the lift that it would get from conventional media.

It worked great! According to the old man, SUV’s just flew off the lot. Two of my team bought cars from him! Dad was excited and wanted to do it again. Junior said no and suggested doing it two to three times per year at most with a fresh offer each time. Sales were not great when our radio buy went on the next month. They are now doing all kinds of e-mail blasts and even using Twitter successfully. We look like cave men compared to this kid who is simply doing basic 21st century blocking and tackling. Also, Junior has a buddy who designed the mailer for a few hundred bucks. So, we will not get any work there anymore. Even the crumbs are disappearing.

--We are at a point where we cannot pitch business where the key client decision-makers are young. I know that I have to turn over my team over the next 18 months. We are dinosaurs and if we do not reinvent ourselves, we will become extinct!

The second player has a bigger team and is in a larger metro area and has a staff that has embraced digital options fairly well. He was a copywriter in his early days and still sees himself as a creative type rather than an executive. Some of this comments were:

--We work our team hard but we just cannot keep up with the industry changes. Last week, we were at a pitch and asked about mobile advertising. We said we did quite a bit of it and had more on board for 2015. A young prospect started firing questions at our media and creative guys. He used terms that none of us had heard of before. We looked like country bumpkins. I really embarrassed a friend at the prospect company who fought to get us into the consideration list for the business.

--The opposite happened at a session the month before the mobile debacle. Our creative head began to present a storyboard to the prospects. Three of the people around the table started laughing. He stopped dead in his tracks and one of the guys said, “You really think TV makes sense for us. Really?”  We crawled out of the meeting.

--The media talks about the mega-shops and how well they are doing with their online trading desks. I just do not see how we fit in to the new world much longer. Radio just does not work anymore and TV pays out very poorly if at all. The only people who say they see our TV work are over 60. We do some local cable and they provide some attractive promotions but that is not enough to carry the day for us. We do not have a clue about the needed media mix between conventional and digital.

--I just do not know how I can keep the game going. Everything is so fragile.

These are good people who have given their lives to the advertising industry. They cannot be alone in their struggles.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Friday, December 12, 2014

Consumer Update

In the wildly exciting life that I live, I do my level best to keep track of demographic and consumer trends. Not quite two weeks ago, the Federal Reserve released new figures on consumer debt levels in the U.S. and I have decided to share them with you plus add a few comments.

Top line results were as follows:

Average Household Credit Card Debt--$15,608
Average Mortgage Debt--$154,847
Average Student Loan Debt--$32,397

Let us take a quick look at each category:

Credit Card Debt--Actually, if you include ALL households in the credit card debt universe, the average balance is about $7,200. Many, such as you and I, pay off their credit card balances each month. So, the $15.6k is for those who are carrying installment debt with credit cards. Some 47% use credit cards almost daily but have no balance and pay zero interest on them. Minimum payments, then, for those who have credit card debt, are over $300 per month.

There is a statistic that is even scarier than those above. When the Great Recession hit in 2008-2009, people saw that average credit card balances were declining. My knee jerk reaction was that scared citizens were cleaning up their personal balance sheets and paying down debt. Undoubtedly, many were. The real truth as we look at it several years later is that the decline in indebtedness was due more to defaults rather than restraints on spending.

Average Mortgage Debt--not a great deal to say here except that those who were underwater (mortgage balance higher than their home’s value) have often worked their way in to the black. The government agencies Fannie Mae and Freddie Mac announced this past week that they are now writing 3% downpayment mortgages again. This time, they say that documentation must be much tighter than in 2006-2008. A shift in policy such as this makes me nervous. Why not stick to the Canadian ironclad rule of 20% down or the mortgage will not be written?

Student Loan Debt--this is the fastest growing area of US debt. The average graduate starting out in the world has $32,400 in debt. Alarmingly, despite repeated media warnings, this total is up 9.6% from the prior year. And, approximately 32% of those who have student loans are late or have defaulted on them. Bankruptcy? Forget about it! If you declare bankruptcy congress has passed laws insuring that you must pay back the loans. Some will be 50 before they pay their loans off. I do not feel that it is the role of government to protect people from themselves yet given the age of people signing long term agreements more explanation and discussion is needed in my opinion.

Also, many of the loans are taken out by youngsters who take out loans to go to a community college. They borrow $16,000 and then fail out or drop out. Next stop is a minimum wage job at a 7-Eleven or fellow traveler. The debt will likely never be paid off and a 20 year old will have a financial millstone around his or her neck for life. Total student debt now stands at over $1.1 trillion.

So, where does this leave us? Some 70% of the US economy is (sadly) consumer driven.  Were everyone to pull in their horns all at once, the economy would be headed toward another Great Recession. There is a big buzz lately as the cost of a barrel of oil has dropped from $107 to around $60, as I write. The average American has approximately $100 per month extra to spend as long as oil stays low. Yet, if you look at Detroit sales in the last few months, SUV sales are up smartly. When oil inevitably goes up, they will be in a tighter spot than now. So, will people use this oil windfall to pay down some debt and re-liquify? Too good to be true. Also, historically, a big drop in the price of oil usually indicates a weakening economy. So, is the low cost at the pump merely a prelude of a weakening global economy?

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com