A Marketer’s Guide to the Impact of Interest Rates on Business
As the anticipation builds and the US Federal Reserve prepares to announce the revised interest rates, Chris Emme takes you though how external factors impact consumers and why that must be factored into marketing decisions.
Most people are aware of the effect weather has on our lives – how we feel, our energy levels, how we dress, what we buy for lunch and where we vacation. Simply put, weather affects everything.
Marketers have begun to take notice and are adapting their efforts around these learnings to target, message and execute their marketing campaigns with more effectiveness. So I began to wonder:
What external factors have a significant influence on us as consumers that can be understood by marketers?
There are several, but one that comes to mind, as is very topical now, is interest rates. Outside of car and home buyers, most marketers don’t really understand the impact of fluctuating interest rates on consumer behavior, which is why we began looking at this in detail.
Given the possible news today, an increase in interest rates will broadly change how people borrow and save money and it will change foreign exchange rates.
We have already seen consumer buying patterns adjust based on the news of a potential rate increase, but as we move into 2016, how will this continue to impact consumers, and to what degree, given speculation that this might not be an isolated rate hike?
We have seen the impact of interest rates on a handful of businesses and through a thorough analysis, determined the best course of action to adjust to these changes and put in place an action plan to take advantage of the new landscape.
For example, a major credit card issuer that saw a dip in “approved application” volumes at various times throughout the year wanted to know why. Historically, it was the marketing department that felt the heat for this and, in due course, turned to their media agency to “fix it,” who in turn reached out to their media partners to press them to find more efficiency and volume.
After an analysis, it seems that even small fluctuations in interest rates adjust the approval standards that are used by the risk department when assessing the credit worthiness of an applicant. These small adjustments influence the number of applicants approved – people on the margin were being declined whereas they have previously been approved before the increase in rates.
Senior marketing leadership used this insight to educate the organization as to why acceptance volumes change and altered their agencies’ application goals to yearly, rather than quarterly. This allowed the marketing department and their agency to adjust media spends and audience targeting tactics to take into consideration fluctuations in interest rates.
Additionally, a major global airline saw a significant trend in travel originating in the U.S. Travel from U.S. to Europe and Latin America was on an upward curve while travel from Europe and Latin America to the U.S. was declining heavily. They were concerned and wanted to know why.
As the speculation around a possible interest rate increase grew, its impact on the dollar was significant. The Euro fell 20 percent against the Dollar and other currencies followed suit with The Mexican Peso down 25 percent and Brazilian Real down 40 percent from a year ago.
While the yield management team at the airline was very aware of this, it never made its way to the marketing department, who had been pressuring their agencies in Europe and Latin America to change creatives, strategies and channels to combat this phenomenon.
Once this insight was highlighted, the team at the airline changed their outlook from regional to national and adjusted messaging and spends in each region to take advantage of a ripe marketing in the U.S. for international travel and only target a business and high end leisure audience who tend not to be as price conscience in their travel.
While these examples might seem obvious, we have come to see that there are chain reactions and hidden factors in all of these events. For example, when interest rates increase, it strengthens the U.S. Dollar and when the U.S. Dollar is strong, it lowers the price of oil, which then changes the price of gas.
Data is like coal, when you put it under enough pressure, diamonds can be produced.
Do you know what diamonds exist in your data?
Chris Emme is Executive Vice President of Sales and Business Development for Media iQ, and lives in New York.