In a recession, consumers become value-driven, distributors are cash-conscious, and workers worry about their jobs. But an economic downturn is no time to stop marketing. And according to professor John Quelch, it’s important to understand how the needs of your customers and partners have changed, and how your strategies can adapt to this new reality.
Key concepts include:
- Brands that increase advertising during economic downturns can improve market share and return on investment.
- Early bird discounts, extended financing and attractive investment policies motivate distributors to want to participate in your entire production chain.
- On-time delivery and low prices attract more consumer support than advertising programs.
- CEOs must spend more time with customers as well as employees.
The signs of an impending economic downturn are all around us. The subprime mortgage crisis is eroding consumer confidence and spending—and, in large part, credit—on which the U.S. economy depends.
So companies should think carefully about the following eight factors when developing their marketing plans for 2009:
1. Customer research
Instead of cutting your research budget, you need to understand how consumers are redefining value and responding to the recession. Price dynamics are changing. Consumers are spending more time on durable goods, and sales are harder to negotiate because customers are willing to delay purchases, pay more, or buy less. Yesterday’s must-haves are today’s must-haves. Prestige brands are highly valued and can still successfully introduce new products, but interest in new brands and new categories is waning. Conspicuous consumption is becoming less prevalent.
2. Focus on family values
When times are tough, we tend to retreat back to our villages. So look for scenes of love and family life in advertising rather than images of exotic sports, adventure or high-profile personalities. The fun and humor of clowns based on fear is no longer fashionable. Selling greeting cards, using phones or using home appliances and home entertainment will resonate better, as will the ambiguity that suggests not just staying home but staying home to connect with family and friends.
Now may be the time to ditch the underperforming distributors and increase your sales resources.
3. Maintain marketing budget
This is not the time to cut advertising. It has been well-documented that brands that increase advertising during economic downturns can improve market share and return on investment at a lower cost than they can in times of economic stability, when competitors are looking to cut back. Skeptical consumers need reassurance from well-known brands, and consumers who stay home and watch more TV may have higher purchasing power, while audiences who watch cost-per-thousand impressions are expected to have lower purchasing power. Brands with large budgets can afford to negotiate a favorable advertising ranking and use it for several years. So if you have to cut your marketing budget, try to maintain ad frequency by moving from 30 seconds to 15 seconds, replacing TV ads with radio ads, or increasing your use of direct marketing, which always has a more immediate sales impact.
4. Adjust product catalog
Marketers must re-forecast demand for each item in their product lines, as consumers pay more for models that are really good values, such as cars with fewer options. Tough times favor multipurpose items over specialized products, and the inferior items in product lines should be dropped. In grocery categories, good quality brands often win over national brands, so industrial customers are always interested in branded products and services and competitive prices. Advertising fails, and reliability, durability, safety, and performance win. New products, especially those that have genuinely identified new consumers and thus put pressure on competitors, should still be introduced, but advertising should emphasize better pricing rather than heavy image promotion.
When times are tough, we tend to return to our villages.
5. Support distributors
In uncertain times, no one wants to commit all their capital to a large volume of products. Early bird discounts, extended financing, and attractive investment policies encourage distributors to want to be part of your entire product line. This is especially true for new, unproven products. So be careful about expanding distribution into lower-priced channels, as this can jeopardize existing relationships and your brand image. However, this may be the time to let go of weaker distributors and increase your sales force by hiring salespeople who have been laid off by other companies.
6. Adjust your pricing strategies
Customers will buy for the best deal. So you don’t have to cut your entire price list, but you may need to offer more temporary price promotions, quantity discounts, extend credit to long-term customers, and offer flexible volume discounts. In tough times, price cuts often attract more consumer support than promotions such as mail-order offers or sweepstakes.
7. Emphasize market sharing
In all but a few technology categories where growth prospects are strong, companies are in a battle for market share, or in some cases, survival. So knowing your cost structure can ensure that any cuts or consolidation initiatives will save the most money with the least impact on customers. Companies like Wal-Mart and Southwest Airlines, with strong positions and the most efficient cost structures in their industries, can expect to gain market share. Other companies with strong balance sheets can do the same by acquiring weaker competitors.
8. Highlight core values
Although most companies are laying off workers, executives can strengthen the loyalty of those who remain by reassuring employees that the company has survived tough times before, maintaining product lines rather than cutting back on speculation, and serving existing customers rather than trying to be all things to all people. Executives must spend more time with customers as well as employees. An economic downturn can elevate the CFO's balance sheet to the marketing manager's income statement. Working capital management can easily override customer relationship management. Executives must guard against this, because successful companies do not let their marketing strategies go unchallenged in a recession; they adapt.
Minh Ha translated from HSB
