Credit Crunch – What effect will it have on online business?
It would seem logical to think that as people are feeling the pressure from increased interest rates on their monthly outgoings, together with the ever soaring price of fuel, online businesses will suffer like many of the major high street retailers are in the current slow down resulting from the credit crunch.
The term credit crunch is pretty popular now with news readers and journalists referring to it daily.
What exactly does this mean?
The term actually refers to a rapid drop in the money supply effectively making it more expensive to borrow. This is the result of their being an increased risk in lending. The current credit crunch which is having a global knock on effect is the result of the collapse of the American housing market. Without wanting to go into too much detail, this housing market collapse was caused by lending mortgages to people who could only afford them whilst the interest rate was at its current low rate. As soon as the interest rate rose, people began to default on their payments.
How does this affect the average Joe?
If you have a mortgage, the increased interest rate will mean your monthly payments are greater, leaving you less of your income to spend elsewhere. For example you may opt to buy the super market’s own brand products instead of the well known brand in order to cut back.
How does this affect businesses?
Businesses often have loans, so they too will be feeling the pinch. Even more worrying for businesses is the fact we all have less income to spend on their goods and services. As a result they will be cutting down wherever possible in order to tighten up their business model and avoid narrowing their margins. One of the first budgets that is often cut is their advertising.
How does this affect online business?
It is early days but after the amazing growth of online advertising in 2007, it is expected that online ad spend will continue to grow rapidly in 2008. It is just starting to become a staple in all major companies advertising budget (as it should be!). The real attraction to online advertising will be the ability to reduce wasted ad spend by the much improved targeting available online compared to traditional channels (print/tv/radio).
With Pay Per Click (PPC) campaigns you are only paying for actual clicks who presumably are interested in what your selling. This is very attractive to anyone who is selling anything! In the case of Pay Per Action (PPA) campaigns you only pay when a pre specified action (such as a sale) occurs. This is pretty much the next best thing to not paying at all!
Consumers are not going to stop spending altogether but they are going to be a little more aware of their spending and the need to be a little more thrifty. Where will they turn to find a bargain? Online of course! Price comparison websites which take a commission have been popping up left right and centre in the last year in order to cash in on people’s desire to find a bargain. Many businesses are offering online only discounts in order to appeal to these bargain hunters.
You are still able to profit from a recession if you focus on selling the right products. People will be looking for the cheaper alternatives – if you sell these then you could profit!
With all this taken into account, it looks like online marketers are in for a bumper year again. What are your predictions for internet marketers in 2008? Will online businesses dominate the headlines by the end of the year?
I’m not sure whether the credit crunch will push more people on-line in search of a bargain.
I, personally, am under the impression that on-line prices are not that much lower than off-line prices, and then there is the delivery problem. I’m not always at home to wait for the delivery and have ended up going halfway across town to some out of the way dhl/tnt depot somewhere, and this does put me off buying on line. I don’t know if I’m the only one with this problem though, and I imagine that Italy, where I live is not as well organised as the States.
Will ‘08 be a good year for on-line marketers? Well, I think it will be better than last year, but I still feel that many businesses have yet to wake up to and fully exploit all that the web has to offer, and I don’t foresee as huge change just yet. I think internet marketers are going to have to wait another two or three years yet, but I predict that digital tv may allow more integration between tv and web, to the extent that we’ll all switch to surfing the www while the tv ads are on, although, paradoxically those who surf the web will end up seeing more, and much better targeted, ads than those who stick with the tv.
This will happen, but ‘08 won’t be any milestone, I feel.
I could, however, be very wrong!
Regards,
Alex
Good points there Alex. The web has traditionally had lower prices but offline retailers have lowered theirs to match. The delivery problem is also very valid. I am in the UK, not the states so I cant comment in that respect.
Maybe you are right saying 08 wont be a milestone – but I think the sector will see very strong performance, and its profile will rise significantly!
Thanks for coming back and sharing your thoughts Alex!
Tom,
I think what you say about offline retailers is true – online competition has caused them to find ways of matching or beating online prices – and this is not good for the online businesses. The online v offline war is well and truly on, but there are no winners just yet.
Not sure why I got the impression you are from the states – must have been the kitesurfing!
I believe that we need easier ways to receive our online purchases. For example, instead of paying for delivery to the purchaser, partnerships with strategically placed local retailers need to be formed. This would mean delivering to one place, and delivering in bulk, thus cutting costs.
Hopefully some of this reduction in costs could be passed onto the customers, after the shops running these pickup points have taken a cut. Lots of figures need to be played with, as well as giving some serious thought to finding the right distribution system model. Not easy, but definitely possible – especially for those retailers who have a on and offline presence.
Regards,
Alex
So you are thinking of some sort of post box system in each town. Where you sign up for a box and everything gets delivered there. This place is then open till late allowing you to pick up your deliveries?
A lot of people send their deliveries to work in order to solve this problem!
Well, I wasn’t thinking of a post box system exactly, but now you come to mention it, that would be a pretty good solution. It would cut down queuing while waiting for someone to dig your parcel out, for example.
The infrastructure already exists too – well, it does here in Italy where there is the ‘Mailbox’ chain. All they would have to do is add a few slightly bigger boxes, then when you make your purchase you decide to have it delivered to a post box near you, you are assigned a number and a PIN code. You then get a mail when the item is ready to be picked up and off you trot! The late opening is not a bad idea either. You just go in, find the box with a your number on it and enter the PIN code to open it. The only problem, and it is a big one, is that such a system would make fraudulent credit card purchases very easy. A solution to this problem would need to be found.
It may be quite an efficient solution for those of us who do not have a fixed place of work, so to speak, or for situations in which bosses are not too happy about having personal post delivered to work. TNT do offer a similar service here in Italy, in conjunction with local stationers etc – you just have your stuff sent to one of these places near your house and pick it up.