MARKETING IN A DOWNTURN
“Consumers don’t stop spending
when economies go through down
cycles.
They look harder for value”.
Kevin Roberts, Saatchi and Saatchi
• American Marketing Association believes we have
entered a period of austerity marketing, which is
defined as a marketing to consumers who don’t
want to spend.
Austerity Marketing
•
In this period of troubled economy, a shift in consumer behaviour
has taken place. Research showed that consumers are re-evaluating
their needs and cutting out nonessentials.
•
Consumers are taking a different approach to shopping and money
management, they are being careful how much they are spending
and how they are spending it. Consumers are seeking out the best
value for their money. And they are balancing satisfactory
purchases with discount shopping.
•
Marketers have to adapt their marketing strategies to this change in
behaviour, to keep selling their products. Consumers want to know
what they are getting for their money. This value proposition is now
becoming a primary differentiator.
Ph.Kotler on Recession
• http://www.youtube.com/watch?v=7hbRZ3
ZCyI8
Consumers response to downturn
• A move toward lower-priced products and brands.
Consumers will replace buying national brands with store
brands and even generic brands. This changed behaviour will
fall hard on national and international premium brands,
especially the weaker higher priced brands.
• A reduction or postponement of discretionary purchases such
as autos, furniture, major appliances, and expensive
vacations.
• A cutback in driving and a tendency to buy more from
suppliers nearer to their work or home. They will spend more
time eating their meals at home and relying on in-home
entertainment from TV and the Internet.
Businesses response to downturn
• Reducing production and ordering fewer goods from their
suppliers. They don’t want to build inventories in the face of
falling demand. They don’t want to slash prices in order to
liquidate inventories.
• Cutting their rate of capital investment. This will hurt the
demand for steel, cement, machinery, software, and many
other inputs.
• Reducing their marketing budgets substantially.
• Postponing new product development and putting major new
projects on hold.
What to do?
•
•
•
•
•
•
Drop losing customer segments
Drop losing customers within a segment
Drop losing geographical locations
Drop losing products
Lower prices or promote lower cost brands
Reduce or discontinue ads and promotions
that aren’t working
P&G decided to cut marketing costs from 25% to 20%
of sales to
remain competitive in a down market.
• Standardised more of their product formulations,
packaging and advertising around the world.
• Reduced the number of sizes and flavours.
• Dropped or sold some weaker brands.
• Launched fewer but more promising brands.
• Reduced trade and consumer promotions.
• Reduced the rate of advertising growth.
What to Do?
Profit Impact of Marketing Strategy
(PIMS) Study
In 1999, PIMS
conducted a study
of 183 UK-based
companies that
compared
advertising spend
during recessions
to share and profit
gains during
recovery – those
that spent in
recession did better
afterward than
those that did not.
Post Recession Results
4,50%
4,00%
3,50%
Percent 3,00%
Change 2,50%
2,00%
Post
Recession 1,50%
1,00%
0,50%
0,00%
Cut Spend in
Recession
+ or = Spend i
Recession
Profits Share
Why keep advertising in tough times?
Short term profitability vs increased profitability in long run
Evidence suggests that cutting advertising in the short term won’t boost profits by much AND
will damage long term profitability.
•Companies which cut their marketing budgets saw a decline in ROCE in post recession years.
•Those which maintained budgets saw a modest increase.
•The largest increase in ROCE in recovery years were those who increased their marketing
activity during recessionary times
10%
8%
Increase in ROCE during recovery
6%
4.3%
4%
2%
-0.8%
0.6%
cut marketing
maintained
marketing
0%
-2%
Source; Hilier analysis of PIMS data 2001
increased marketing
Firms maintaining ad budgets during recession significantly
outperform their rivals in the following years
256%
1981/82 US
recession
30%
Sales advantage over 4 years
Sales advantage over 2 years
Companies who
increased
advertising budgets
during recession
131%
1974/75 US
recession
27%
0%
Source; McGraw Hill Study
50%
100%
150%
200%
250%
300%
Actions That Have Been Taken In
Response To The Recession
Action already
taken
(%)
Action currently
being considered
(%)
Cutting costs
87
58
Focus on core products/services
73
49
Delaying capital expenditure & putting
investment plans on hold
56
40
Introduction of new products
43
40
Rationalization of product lines
34
30
Development of overseas markets
31
25
Acquisition(s) of another organisation
14
18
Increasing prices
26
17
Reducing prices
18
14
Consolidation/withdrawal from overseas
markets
6
8
Merger with another organisation(s)
5
7
Changing Use Of The Marketing Tool Kit
% saying increase
% saying decrease
Internet/electronic media
48
10
PR
27
21
Direct mail
18
24
Market research
14
31
Telemarketing
14
11
Dealer/distributor
materials
10
17
Magazine advertising
9
45
Trade shows
8
52
Directories
3
24
I.Ansoff Matrix and The Recession
Existing products
New products
New markets
54% are finding new
markets,
such as new industries or
new geographical areas,
for their current product
offering
39% are adding
new products
or services to current
offering and selling these
to new markets
such new industries or
new geographical areas
Existing markets
76% are focusing on
current product
offering in order to
extract more business
from current markets
59% are adding new
products
or services to the existing
product offering and
selling these to market(s)
currently served
“Good costs, bad costs”*
Analysis shows that some costs must not be cut during times of recession,
some costs can be cut, and some depend on the strategic strength of the
company and brand.
DO NOT CUT
Marketing
Quality
Product Development
IT DEPENDS
CAN CUT
Retain spare capacity
Fixed capital
Price aggression
Working capital
Out-sourcing
General and admin
/R&D
*There is no “business panacea” which dictates that one strategy will work for all
businesses, and these strategies are generated from analysis of averages across
different sectors, brands and businesses
How marketing specialists agree with
the given statements
Lowering prices during economic recession
is the right strategy
12
6
The effectiveness of marketing means
during recession becomes particularly relevant 0
14
17
20
Completely disagree
Disagree
Not opinions
The market share of companies that do not
reduce marketing costs during recession,
after recession grows faster than the share
of those companies who reduce marketing
costs
Economic recession offers new possibilities
Agree
6
25
1
0
6
25
0
0
Completely agree
10
1
1
1
How marketing specialists agree with
the given statements
Completely disagree
During economic recession
demand for business consulting 2
services deceases
Disagree
7
3
23
Not opinions
2
Agree
Comletely agree
Big companies reduce
marketing budget on a larger
scale than small companies
2
Increasing marketing costs
during recession slightly reduces 3
companies‘ profitability
0
9
8
14
4
9
6
15
4
0
0
1
1
1
Using a 5-point scale, marketing specialists evaluated for
which of the below listed strategies (means) changes in the
business environment have the greatest effect
(from 1 – very slight effect to 5 – very strong effect).
Prising strategy
01
Target market
1
Market segmentation
Operational marketing
Marketing strategy
6
8
2
0
9
8
4
4
14
10
9
11
1
16
12
14
3
0
9
1
2
3
4
5
6
17
12
0
17
1
1
1
Using a 5-point scale, marketing specialists evaluated for which
of the below listed strategies (means) changes in the business
environment have the greatest effect
(from 1 – very slight effect to 5 – very strong effect)
Promotion
Communication
message
Marketing budzet
0 3
3
1 2
01
2
Product line
0
17
11
4
14
9
14
13
3
19
12
0
1
2
3
4
5
8
0
12
1
1
1
How should the use of integrated marketing
communication channels change during economic
recession?
Out Door Advertising
4
8
3
Print Media
15
22
Direct Mailing
12
25
4
TV, Radio
0
7
5
22
0
0
Increase
The same
Decrease
11
1
1
1
How should the use of small budget communication
channels change because of economic crisis in
organizations?
Social networks
27
1
30
Blogs
Web site
0
26
0
19
PR
0
0
9
4
0
7
Increase
The same
Decrease
11
14
1
1
1
Slam-on theBrakes
Comfortably
Well-Off
High
Will seek lower-cost
product and brand
substitutes such as
private labels
Will deeply reduce or
eliminate treats
or seek
lower-cost
substitutes
Will put off all
durable
purchases unless
forced to make
emergency
replacements;
will delay repairs
and personal services
Will seek out
favorite
brands at lower prices
but settle for cheaper,
less-preferred
alternatives;
will stock up on
good deals
Will cut back
somewhat
on frequency
and
quantity and
emphasize
value
Will delay major
purchases, repair
rather than replace,
seek value and low
ownership costs
Rather than
extra features, and
negotiate at point
of sale
Will deeply curtail
expendables
Will continue to buy
favorite brands
at prerecession
levels
Will be more
selective
in purchasing
luxuries
Will seek better
quality
for the price;
will negotiate
harder at point
of sale
Rarely regards any
purchase as
unjustifiable
but may reduce
the most
conspicuous
consumption in this
category
Will eliminate
purchases in this
category
BEHAVIOR CHANGE
Pained-butPatient
High
RISK OF SALES DOWNTURN
Low
Is reluctant to regard
Live-for-today
Will continue to buy
any customary
Will continue to buy
favorite
May buy if there is a
purchase as
favorite
brands
great deal;
unjustifiable;
brands
may not want
at prerecession
otherwise
at prerecession
to
expand
consumption
levels
may postpone
levels
to new types of
purchases
Low
STABLE MARKET
Slight or no change
in opportunities for
companies
MIXED MARKET
Slight or no change for
stronger competitors;
a reduction for others
DECLINING MARKET
Substantial reduction
in opportunities for
companies
Understanding the PostRecession Consumers
by Paul Flatters and Michael Willmott
Harvard Business Review
2009, July/August
Post recession consumers
It’s possible to predict how consumers will behave
post recession by understanding:
1) how they’ve behaved in previous recessions;
2) how this compares;
3) how their past experience will affect their
response this time
Four key trends are being accelerated
by this recession
1) consumer demand for simplicity,
2) a call for ethical business governance,
3) a desire to economize,
4) a tendency to flit from one offering to
another
Four other important trends
are slowing
1)
2)
3)
4)
green consumption,
a decline in respect for authority,
ethical consumption,
extreme-experience seeking.
Mature
Slowed Trends
Dominant Trends
Decline
of
deference
Demand
for
simplicity
Focus
on the
boardroom
Green
consumption
Slowed
Accelerated
Mercurial
consumption
Ethical
consumerism
Extreme
experience
seeking
Arrested Trends
Discretionary
thrift
New
Advancing Trends
How Trends Will Drive Consumption (I)
Advancing Trends
During
recession
Post
recession
Long
term
Before
DEMAND FOR
SIMPLICITY
Consumers are seeking
uncomplicated,
user-friendly
products and
services that
simplify their lives.
FOCUS ON
THE BOARDROOM
Outraged by
corporate malfeasance,
people are punishing
companies for unethical
governance.
DISCRETIONARY
THRIFT
Even those who
don’t need
to economize are
Pursuing a more
wholesome and less
wasteful life.
MERCURIAL
CONSUMPTION
Easy access to information
and friction-free purchasing is
making consumers
ever more agile – and less loyal
How Trends Will Drive Consumption (II)
Slowed Trends
During
recession
Post
recession
Long
term
Before
GREEN CONSUMERISM
Consumers are forgoing
pricey
green products and
instead
are cheaply and
discreetly
reducing waste.
DECLINE OF DEFERENCE
Respect for institutions
And authority, long in
decline, will temporarily
level off as people look to
them to fix the
economy.
ETHICAL
CONSUMERISM
Altruistic consumption
And spending, such as
eating cage free eggs
and giving to charity,
are falling as people focus
on their own dire situations.
EXTREME-EXPERIENCE
SEEKING
Expensive, frivolous,
or risky
recreational experiences,
popular during the boom
preceding the recession,
have fallen out of favor