THE FIRST THING BUSINESS OFTEN CUT IN A RECESSION IS THEIR MARKETING, MEDIA AND PROMOTIONAL BUDGET. BUT IS THAT WISE?
Well we would say that wouldn’t we? And it’s easily said. But historically businesses have found that their rush to cut marketing and advertising budgets has proven to be a very expensive decision in the longer term. Getting customers back is always much more expensive than retaining them. Actually, wisdom suggests increasing budgets.
Increase marketing spending? You must be joking! Well, here’s a real example.
On 9/13/01, two days after “9/11”—the worst recessionary aspect that could have happened to the airline industry—Bangor International Airport, together with BFT, decided to increase its advertising budget, unlike every other similar airport that virtually pretended not to exist in marketing terms. What was the result? In 2002 (commencing while “9/11” was very fresh in travelers’ minds), and in the following years, the Airport achieved very significant passenger increases, reversing the negative trend all other airports experienced. The advertising executions changed but the communication message remained constant. Consumers trust and remember a constant message.
It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve sales and return on investment.
At the least, spending tactics should be considered. In fact, spending smarter makes it easier to maintain financial resources. It’s always more fun to target potential new customers, but when marketing in a recession it’s much more practical to provide more value (and get more in return) from your current customers.
Support your current customers.
When customers have to make decisions in a downturn, they’re more likely to go with a more trusted source. So it must be made easier and more obvious for them to be loyal to the brand they already buy.
Aim to outsmart your competitors.
In a downturn there is a great opportunity to win market share from competitors. By paying close attention to your target markets, and how customers are reacting to the recession, you can act early and often changes in product (if you can change it quickly), price, and positioning (especially as perceived needs change) can maintain and gain sales.
Where possible, invest in growing market segments.
These may be segments you’re already selling to, or not focussed on, or they may represent new segments —and new opportunities for your company. At the same time, you will want to reduce your investments in the segments that will be hit most in the downturn.
Adjust product portfolios.
Marketers must forecast demand for each item in their product lines as consumers trade down to items that stress good value. Tough times favor multi-purpose goods over specialized products, weaker items in product lines should be pruned.
For example, with grocery products good quality own-brands gain at the expense of national brands. On the other hand, industrial customers prefer to see products and services priced separately. Gimmicks are out; reliability, durability, safety, and performance are in. New products, especially those that address the new consumer reality and thereby put pressure on competitors, should still be introduced, but advertising should stress superior price performance, not corporate image.
Adjust pricing tactics.
Customers will be shopping around for the best deals. You do not necessarily have to cut prices, but you may need to offer more temporary price promotions, reduce thresholds for quantity discounts and extend credit to long-standing customers.
Market share is key for recovery.
In all but a few categories, where growth prospects are strong, companies are in a battle for market share and, in some cases, survival. Knowing your cost structure can ensure that any cuts or consolidations will save the most with minimum customer impact.
Equally important is understanding why people make specific purchasing decisions.
When times are good we make purchases and tell ourselves that we deserve it. When times are not so good we buy out of defense, or because something will never be as cheap again or we buy smaller items. These extremes can lead to the same purchase. So the execution of the advertising message is key —not just the product, but why.
To summarize, make happy customers even happier.
Common wisdom says that in general, 80% of profits come from 20% of customers. It is said that in a recession, the 80/20 rule is replaced by the 95/5 rule. Therefore, it’s time to redouble marketing efforts with the best customers to make sure that you don’t lose share but rather, at a minimum, hold steady and perhaps even grow.
The objective should be to offer benefits and incentives that build goodwill with good customers during lean times. They will remember those efforts when times improve. The worst thing companies can do is take the short-term view—focusing marketing efforts solely on seeking out new customers or retaining opportunistic customers who threaten to bolt or demand heavy price cuts, while ignoring loyal customers.
Research shows that this is exactly what marketers tend to do in a recession. In 2001, 94% of marketers surveyed said they cut spending on customer satisfaction and loyalty programs. And that cost them dearly.
If you are lucky enough to have a stronger financial position than your competitors, then a recession is a time to invest in marketing that increases mindshare among competitors’ customers. But these campaigns should not be competitor bashing. That could alienate potential customers and make them even more loyal to their existing providers, who start to look like sympathetic underdogs.
A recession is a great time to educate competitors’ customers about products and solutions designed to reduce spending, preferably in areas that competitors cannot serve. It’s also the time to develop a clear roadmap for replacing competitors’ products and services with your own—in ways that reduce overall costs.
Local and regional advertisers have specific marketing issues in a recession.
There is a good national example. Starbucks was the indulgence of a confident person happy to spend $4 on a cup of coffee. But Starbucks can still become the small indulgence for those who have traded down in their overall purchases. The challenge is to understand how to change an ‘offer’ so it resonates with the current economic climate. Another example: Home improvements can be expensive but make much more sense when placed in the context of such improvements saving the purchaser money over the longer term. The ‘sale’ then makes sense in that new context.
We’re being very positive on this depressing subject, but there is potential bad news. While not all sectors will be hit equally, not all sectors will recover equally. Many consumers will continually fund their continued spending with unsecured debt. So when advertisers begin to come out of the recession they may find that, in their market sector, their purchasers are then having to make cuts. This means branding must remain strong throughout the recession otherwise it becomes very difficult for manufacturers and retailers to increase prices—weak brands just won’t support that.
Consumers don’t go away during a recession, they grow more conservative.
Short term promotions result in long term brand erosion.
So stealing ‘share of mind’ is a bargain during such times.
Building ‘brand equity’ is like building a retirement fund for your product or service.
Strong brands = a strategic asset = $$$.
