Case studies for marketing in a down market. Proven strategies for growth.

1. Marketing in a Down Market
Jonathan Fisher
December 26, 2008
Prepared by:
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2. Marketing in a down market.
Smart companies grow in down economies.
We found opinions from various experts regarding strategies for effective
marketing during an economic downturn, evidence of strong performance following
increased marketing investments during a downturn, and case examples of such
performance.
Increased Advertising Yields Positive Results during a Downturn
In general, it has been demonstrated that companies that maintain or increase their
advertising spending during an economic downturn tend to perform better in the
long run, despite the immediate financial hit. Results of various studies show that
companies who spend more have been able to increase their dollar sales and/or
market share:
• In 2002 McKinsey released the results of a survey of 1,000 mainly industrial
US companies over 18 years (1982‐99); the study found that those that
pursued a contrarian strategy during the recessions in this period often
became industry leaders (those that stayed in the top quartile of
performance in those industries). For example, successful leaders spent 9
percent more (as a percentage of sales) on advertising than unsuccessful
leaders in the recession (“Moving Up in a Downturn,” McKinsey, 2002,
http://corporatefinance.mckinsey.com/_downloads/knowledge/mof/2002_no3/3mov
ing_up.pdf; “It pays to go against the flow in recessions,” Business Times
Singapore, July 8, 2002).
• In a study of U.S. recessions, McGraw‐Hill Research analyzed 600 companies
from 1980‐1985. The results showed that business‐to‐business firms that
maintained or increased their advertising expenditures during the 1981‐
1982 recession averaged significantly higher sales growth, both during the
recession and for the following three years, than those that eliminated or
decreased advertising. By 1985, sales of companies that were aggressive
recession advertisers had risen 256% over those that didn’t keep up their
advertising.
• During the last recession (early 2000s), 25% of businesses aggressively
increased media advertising expenditures; these companies increased their
market share 2.5 times the average for all businesses in the post‐recession
period.
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3. • Another study documented a 1.5 point increase in market share among
businesses increasing ad spending during recessionary periods. By contrast,
during expansion periods, 80 percent of businesses increased advertising
budgets with no improvement in market share, since most competitors did
the same thing.
USA Today reported in August 2001 that several major marketers had boosted sales
and share by increasing spending despite the recessionary environment. Coca-
Cola’s net income was up 22% after boosting marketing. Gillette increased second
quarter advertising spending by 20% resulting in the Venus capturing 45% of the
women's razor market.
So you’re not Coke or Proctor & Gamble, but the principles are true for any size
business. Marketing in a down market yields increased opportunities not found
in a bull market. Marketing is not the only elixir to cure a slow economy.
Other Effective Marketing Strategies during a Downturn
While advertising often plays a key role in driving a company’s success during bad
economic times, a recent white paper by Cliff Freeman Partners says that “minus a
sound business model, relevant and unique products/services and a core marketing
platform (placement, pricing and basic promotion), advertising is a waste of
money”. The paper identifies four additional strategies that enterprises have
historically used to succeed during tough economic times:
• By delivering product/service innovation
• By tapping new markets
• By acquiring undervalued assets that align with your enterprise
• By increasing advertising with a message that communicates value
Dell, Johnson & Johnson, PepsiCo and Staples are four examples of companies that
did some or all of these things during tough economic times and advanced as their
competitors faded. The following is a profile of Dell from their white paper:
In the early 1990’s, while many businesses were responding to declining sales and
shrinking revenues by slashing spending and cutting payrolls, Dell did just the
opposite. Rather than trim R&D, they stuck to their plan of developing proprietary
technology. They committed to a new generation of products and opened a new
plant in Ireland to deliver on it. They also stretched their distribution approach by
adding new channels including a deal with Staples (a risky move given their direct
to consumer formula). Even more aggressive, they focused on expansion into new
markets. Their focus and tenacity lead to the introduction of 22 new desktop and
laptop PCs that year.
©2008 BrandExtract, proprietary and confidential. 12/26/08 3

4. Dell supported the new product lines and fueled their market expansion programs
with a heavy investment in marketing and promotion. In 1991 advertising spending
in the computer hardware category was down by 17.5% year-on-year. The
category’s leaders including IBM, Apple, Digital and Tandy cut advertising
expenditure by 25 to 40%. Dell’s increased from half a million dollars in 1989 to
$1.4 million in 1990 to $6 million in 1991—an increase of 346%.
In it’s messaging, Dell stuck to a clear value proposition “by eliminating the
middleman and offering superior customer service, you the customer are the
winner.” The value message resonated with consumers and the reduced spending by
their competitors gave Dell’s marketing program even more impact. Dell got a big
share of mind among mainstream American consumers and sales more than
doubled.
“It’s as important to figure out what you’re not going to do as it is to know what
you are going to do,” said Michael Dell in his book Direct from Dell. As
competitors implemented restructuring plans and slashed spending, Dell broke out
of the pack by delivering innovation and value to customers around the globe. In
1992, Fortune magazine included Dell Computer Corporation in its list of the
world's 500 largest companies. The following year, the company was among the top
five computer system makers worldwide. In 2000 Dell became number one in
global market share.
So what other “Tips for surviving in tough times” can we offer?
• Beware, discounting can be addictive: Unless the price reduction is truly
strategic ‐‐ e.g., a discount retailer or brokerage or a one‐time event to drive
traffic ‐‐ you could live to regret it.
• Watch the market for opportunity: Some of the most successful recession‐era
launches were natural offshoots of the conditions created by or causing the
crisis, i.e. high gas prices spawning fuel‐efficient cars, interest‐bearing
checking accounts that sprang from high interest rates in the 1970s and '80s,
or declining gas prices and gas‐guzzling SUVs. Be creative and look for what
the market needs.
• Get closer to your existing customers. During normal times 80 percent of the
profits come from 20 percent of your customers. According to a recent article
by Bill Lowell of Business development Directives (CEO of a leading research
company and professor at University of Wisconsin’s communications
department) in a recession 95 percent of the profits come from 5 percent.
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5. • Concentrate media buys for increased negotiating power and even deeper
reduced rates. Chances are if you are hurting so is the magazine or radio
station. In a buyers market you’ll save 50 to 70 percent for that placement.
• Lock in long‐term contracts in down markets to increase buying power. Most
recessions don’t last more than 18 months and if you negotiate your buys
near the bottom you enjoy those deep discounts long after the market has
driven pricing back up.
• Communicate your vision. The vast majority of companies do not adequately
communicate with their employees. And now more than ever you need your
people rowing in the same direction. Host a town hall meeting, send a letter
from the president, post flyers in the break rooms, send group voicemails
and more. Don’t assume your employees are on the page. Nine out of ten
times they are not.
• Less is more. Reevaluate your marketing for increased efficiencies. Maybe
your customers don’t need an eight‐page brochure when a two page cut
sheet will do. Reserve those expensive capabilities packages for following up
after the tradeshow. In stead create simple low cost literature (targeted to
the show audiences) to hand out at your booth.
(“Recession Can Be a Marketer’s Friend: From Soap Operas to iPods: History
Suggests Slumps Spawn Innovation,” Advertising Age, March 24, 2008).
Tips for advertising in a recession:
• Don’t hawk patriotism.
• Focus on value and rational benefits, not price.
• Look for ways to put the consumer in control.
• Evaluate existing brand messengers for appropriateness.
• Employ humor and escapism.
(“How to Market Through Recession Jitters: Experts: Focus on Value, Enable
Consumers to Be Informed, in Control,” Advertising Age, March 24, 2008).
We hope this research is beneficial to you and we look forward to addressing any
questions you may have.
Jonathan Fisher
CEO
BrandExtract
www.brandextract.com
713-942-7959
©2008 BrandExtract, proprietary and confidential. 12/26/08 5

6. Supporting Materials upon request
As articles referenced above:
The McKinsey study - Moving Up in a Downturn
Cliff Freeman - Recession White Paper
Marketing Science Institute, Kristina Frankenberger and Roger Graham, 2003 - Should Firms Increase
Advertising Expenditures during Recessions?
Advertising Age, Jack Neff, March 24, 2008 - Recession Can Be a Marketer's Friend: From Soap Operas to
iPods: History Suggests Slumps Spawn Innovation
Advertising Age, March 24, 2008 - How to Market Through Recession Jitters: Experts: Focus on Value, Enable
Consumers to Be Informed, in Control
USA Today, Theresa Howard, August 7, 2001 - Increasing ad budgets pays off for marketers
Advertising Age, February 4, 2008 - Recession, eh? P&G, Colgate boost ad bucks
©2008 BrandExtract, proprietary and confidential. 12/26/08 6