Advertising strategy in a recession

As I point out in the presentation, advertising follows the business cycle, but contractions tend to be more severe and pronounced than changes in real GDP because advertising spend can be adjusted quickly. For that reason, advertising is one of the first expense line items to be adjusted in the face of an economic downturn. That reactivity can help a company to preserve precious cash in a deteriorating economy, but it can also steal revenue from the future: more productive is adapting to new consumer spending habits and eliminating unproductive advertising expenditure. The goal of this presentation is to outline some tactics for achieving that.

Transcript

1. Advertising Strategy During a Recession March 2020 (Updated May 2022) Eric Benjamin Seufert Heracles LLC PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
2. WHO I AM QuantMar Mobile Dev Memo Theseus
3. PREVIOUSLY
4. AGENDA PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
5. AGENDA 1) WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? 2) WHAT HAPPENS TO MY METRICS DURING A RECESSION? 3) DEFENSIVE MEASURES a) MEASUREMENT b) COST CONTROL PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
6. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
7. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
8. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
9. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
10. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
11. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
12. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
13. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
14. WHAT HAPPENS TO MY METRICS DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
15. WHAT HAPPENS TO MY METRICS DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Given some pre-recession observed Product LTV curve...
16. WHAT HAPPENS TO MY METRICS DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co New cohorts might be observed to monetize at a lower level than the historical norm during a recession...
17. WHAT HAPPENS TO MY METRICS DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co A marketing team’s first instinct might be to simply use the general model (curve parameters) to project the new LTV values by using a general reduction rate (in this case, 0.7: the new curve is 0.7x the old curve because the initial monetization values for the new curve are 0.7 the same time-based values of the old curve)...
18. WHAT HAPPENS TO MY METRICS DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co But that assumes the curve retains the same shape -- what if it doesn’t? In this case, the new monetization curve reaches as asymptote (flattens out) much earlier than the old curve...
19. WHAT HAPPENS TO MY METRICS DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co If the team had simply reduced the value of the new curve using a ratio, they would have overvalued the traffic by 20%
20. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co The same is true for retention: Take a product with 40%-20-10-5 retention rates at days 1, 7, 30, 90...
21. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co 60 days of cohorts of 1000 DNU produces a DAU base of just over 8500 at Day 60...
22. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Reduce retention rates to 35, 15, 5, 1 for Days 1, 7, 30, 90….
23. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co The same 60 1000-DNU cohorts produce overall DAU at Day 60 to 5800...
24. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co - But these decreases aren’t likely to happen at the same point in the curve for all cohorts, they are likely to happen all at once!;
25. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co - But these decreases aren’t likely to happen at the same point in the curve for all cohorts, they are likely to happen all at once!; - This means that new cohorts may engage / monetize worse than old cohorts, but old cohorts may also stop tracking to the model;
26. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co - But these decreases aren’t likely to happen at the same point in the curve for all cohorts, they are likely to happen all at once!; - This means that new cohorts may engage / monetize worse than old cohorts, but old cohorts may also stop tracking to the model; - So not only do you need to factor in lower revenues from new cohorts, but you should factor in lower revenues from existing cohorts that may have already been projected into your cash flow model!
27. WHAT HAPPENS TO ADVERTISING SPEND DURING A RECESSION? PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Likewise: - Cancellation rates may go up; - Refund rates may go up; - Organic ratios may change. All of these assumptions need to be validated in your model!
28. DEFENSIVE MEASURES PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co
29. MEASUREMENT PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co LTV and ROAS are thought of as fundamentally different approaches to marketing measurement, but in reality they are merely different risk management techniques:
30. MEASUREMENT PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co LTV and ROAS are thought of as fundamentally different approaches to marketing measurement, but in reality they are merely different risk management techniques: - LTV: curve fit data and project absolute average user value to some endpoint;
31. MEASUREMENT PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Going back to the earlier example: the early data points are used to feed into a fitted curve, and a projected 90-day LTV is calculated
32. MEASUREMENT PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co LTV and ROAS are thought of as fundamentally different approaches to marketing measurement, but in reality they are merely different risk management techniques: - LTV: curve fit data and project absolute average user value to some endpoint; - ROAS: start from a low bid that produces 100% payback and incrementally increase that bid until the maximum payback timeline is reached that is acceptable;
33. MEASUREMENT PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co The LTV approach by definition incurs more risk of loss; the ROAS approach by definition incurs more risk of lost opportunity.
34. MEASUREMENT PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co The LTV approach by definition incurs more risk of loss; the ROAS approach by definition incurs more risk of lost opportunity. In a recession, an advertiser should prefer the latter risk.
35. MEASUREMENT PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Find a bid that produces reliable 100% payback, as the cohorts acquired at that bid continue to age, follow their monetization curve...
36. MEASUREMENT PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Update the bid to match common monetization levels and observe those cohorts...
37. MEASUREMENT PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Continue to incrementally update bids in this way as cohorts age and establish monetization levels at various cohort ages. Stop when the payback window reaches a maximum acceptable length.
38. COST CONTROL PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co In growth periods, advertisers are inclined to diversify traffic sources to ameliorate per-channel prices (via saturation). But this increases fixed costs.
39. COST CONTROL PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co In growth periods, advertisers are inclined to diversify traffic sources to ameliorate per-channel prices (via saturation). But this increases fixed costs. In a recession, advertisers should prefer to concentrate their budget in the channels that deliver the most volume.
40. COST CONTROL PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Using the “waterfall” method, the advertiser ranks channels by potential traffic volume and spends as much of its budget as possible on the highest-priority channel until reaching a maximum acceptable payback window. Once that threshold is reached, it allocates budget to the next channel, and so on.
41. COST CONTROL PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co In growth periods, and in periods with easy access to capital, advertisers are willing to spend against very long payback timelines so long as acquisition is ultimately profitable.
42. COST CONTROL PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co In growth periods, and in periods with easy access to capital, advertisers are willing to spend against very long payback timelines so long as acquisition is ultimately profitable. In a recession, when cash is more precious, an advertiser should prefer shorter payback windows to produce a higher velocity of cash.
43. COST CONTROL PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Given some observed LTV curve...
44. COST CONTROL PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Daily monetization contribution amounts can be calculated...
45. COST CONTROL PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Which can be aggregated into expected daily revenue by adding up daily contribution amounts from cohorts (in this case, a projection of 20 cohorts through 180 days)...
46. COST CONTROL PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co Those revenue contributions can be compared to cumulative costs to produce a break-even point at the aggregated user base level. The difference here is that cohort break-even is only considered once for the cohort, in isolation: in order to understand cash in versus cash out, an advertiser must build a cash flow schedule and find the break-even point for its marketing activities.
47. COST CONTROL PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co More content on this topic: https://mobiledevmemo.com/ltv-roas-marketing-p-and-l/ https://mobiledevmemo.com/optimizing-campaign-spend-with-the- blended-same-month-return-metric/
48. THANKS! eric@mobiledevmemo.com @eric_seufert PRIVILEGED AND CONFIDENTIAL This document contains sensitive client work product prepared by Heracles LLC. If you did not obtain this document from a representative of the recipient client or Heracles LLC, you are obligated to destroy it immediately. For any questions or clarifications, contact Eric Benjamin Seufert: eric@hrcls.co | Heracles LLC, https://hrcls.co