The global spread of coronavirus has caused marketers to rethink how they are allocating their budgets. In the latest edition of our Confessions series, in which we trade anonymity for candor, we speak to a buyer for a direct to consumer brand (who asked for the type of brand to remain anonymous too) about how the virus is changing the company’s marketing plans. So far, the company is seeing a drop in conversions so it is pulling back on Facebook ads but waiting to see if they need to do more before making solid plans to change other channels, suspend marketing or reallocate the budget to later in the year.
This conversation has been edited and shortened for clarity.
Is the coronavirus changing how consumers interact with the brand?
Definitely. We’ve seen a big, drop in demand, really in the last week. As the news has picked up, it’s gotten a little bit worse. It’s more on the conversion side. People still engage with the ads, those rates have held up pretty well, but they’re less ready to get things delivered to their homes and to take action [to buy our product]. It’s been like a 15% drop and there’s no other real explanation other than coronavirus wariness. Maybe the elections didn’t help but there’s definitely some hesitancy from consumers to go buy something new right now.
Explain the 15% drop.
That’s of the people we get to our site, [there’s now a 15% drop in] how many of them convert. It’s been about a week or so.
So now that you’ve seen the drop, are you reevaluating how you are spending media dollars right now? What does it look like? Fewer digital ads?
We’re cutting back a bit. We had really aggressive goals for March so I think it’ll definitely put a kink in those plans. We’re pulling back on our top spending campaigns by about 10% right now to ease the pain. If it were to get much more severe we would consider pausing out some of our lower intent, top-of-funnel brand awareness and prospecting campaigns first and focus on retargeting campaigns for efficiency for the time being. We’re not quite there but that would be the order of operations. The awareness campaigns get cut first because it’s obviously not going to have the same kind of return in the short-term and I don’t know that you want to be exposing people to a new brand right now if they’re not in a buying mindset.
Are you planning to put that money on hold entirely? Are you going to reallocate it to spend it later in the year?
We’re not there yet — nobody really knows where the virus is going or how much it’s actually going to affect people’s day-to-day lives — but if we were to stretch this out another week or two weeks we would likely reallocate towards the fourth quarter, which is really strong for us. We would not give up but there’s sometimes there’s nothing you can do, there are things that happen like a recession or a viral outbreak, that you have to just reposition and it’s better to reserve the dollars for a time you hope the conditions will be better.
Do you feel like they’re not in a buying mindset right now?
To us, that’s what the drop in purchases indicates. They have other concerns. Maybe they’ve spent money stocking up on supplies. Or they’re just generally wary. The uncertainty in the short-term makes people more likely to conserve cash. That’s our assumption. You can never know for sure. But [out drop] does seem to coincide pretty tightly with when the American media and American public took notice of this virus and started to make early preparations with the stories of lines in Costco and CVS.
Are you talking to other buyers about contingency plans?
There are different Slack and Facebook groups where everybody is talking at different levels about it. The truth is, there’s not a lot anybody can do. You can try to pull back and reposition money but everyone is of the mindset that it’s too early to say. You kind of just have to survive it and preserve the media dollars for when they could be used more efficiently later. There’s always a threshold. Presumably, if you pull back 20% to 30% you had some fat on the bone that you could cut off and not lose a ton of volume and pick up some efficiencies. That said, nobody knows how bad this could get if we reach true pandemic status. I don’t think anyone is ready for this to go full outbreak-style panic in America.
Where are you actually pulling back? I know you said brand awareness but does that include pulling back on TV?
We haven’t changed our TV schedule. TV and other offline channels are booked so far out in advance that they don’t lend themselves to quick cuts. We feel better about pausing down certain Facebook stuff more than anything else. A 15% jump in cost is not good but it’s not going to cripple us either so we can afford to weather the storm better than less well-funded brands can. That’s a huge benefit to having raised a lot of money. If you get into a situation where we’re seeing 30% drops then we would change our planning side on the longer-tail channels.
Are there other ways that this has impacted the marketing other than this drop and slowing down a bit?
Not yet. Everything we do is pretty evergreen. It’s not like there’s some major campaign that we’ve cut or anything like that.
You’re a venture-backed DTC company. Are you planning ways to talk to backers at all about if you’re not able to meet short-term goals due to this situation?
There’s clearly just some level of discomfort among the American public in terms of buying things right now. That’s fine for one month. All of our backers would be fine to say, “What a weird month with coronavirus.”
Once you stretch that into a bad quarter or a bad five or six months, then it becomes a much bigger problem. But for the time being, no one is really panicking because there’s nothing you can do. If it goes on long enough it will be the exact same strategy as weathering a recession: You start reserving capital, you bring down acquisition targets and you make sure the business can stay afloat even if it can’t grow as quickly and then you live to fight another day.
Does it make you nervous at all?
Sure, it makes us nervous. If a recession were to come on this fast it would be not a 2008-style shock but a real shock to the whole system from top to bottom. It’s buyers, consumers, everyone in between. But everyone should’ve been planning for this for the last 18 months. Everyone has been saying a recession is coming and to be ready for it. You should have enough cash in the bank and a plan to deal with if demand drops 50%. We’re ready with those contingencies. It would be drastic. It would slow growth and be bad for the company in the short-term but we would survive. Markets always rebound. If the coronavirus shock is just getting people to think about what they would do during a recession, it’s probably already too late.
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