Marketing In A Down Market

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

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Marketing In A Down Market

  1. 1. Marketing in a Down Market Jonathan Fisher December 26, 2008 Prepared by: 7026 Old Katy Rd., Ste. 210 Houston, TX 77024 713.942.7959 t www.BrandExtract.com
  2. 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.
 ©2008 BrandExtract, proprietary and confidential. 12/26/08 2
  3. 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. 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.
 ©2008 BrandExtract, proprietary and confidential. 12/26/08 4
  5. 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. 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

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