Marketing through a recession

"The economy is tough. Let's cut back."

From a financial perspective that may seem to be the right answer. For a business owner it is their pocket that is at risk. But is that the right answer from a marketing perspective?

In many cases it may be a myth.

There is no doubt that there are recessionary signs currently in the U.S. economy -- from the subprime mortgage crisis to the media reporting lower consumer confidence, reduced consumer spending and less use of credit cards.

With cash flow being so critical to the survival of small/midsize businesses, it can seem to be a natural reaction to cut expenditures that may have lag effects in generating revenue.

Cutting marketing expenditures, including advertising and promotion expenditures, seems natural for a business owner to identify in this category.

The following are some myths that need to be examined before jumping onto the bandwagon of cutting marketing, advertising and promotional expenses as the economy starts getting tougher:

"Marketing is one of the largest segments of our budget and has the most room to cut."

However, marketing expenditures can be related to actual sales results as a cause and effect.

Marketing expenditures should be continued until the marginal cost is equal to the marginal revenue from that expenditure.

"Our brand is strong enough to withstand the recession against competition. We can increase the budget again when conditions get better."

There are very, very few brands that can maintain their image and positioning with their customers, and potential customers, if they do not continue to reinforce how they provide the best solutions for the customer needs.

Based on experience it is a fact in business that it takes major efforts to reintroduce spending for marketing activities when budgets have been allocated organizationally away from marketing "to other more important areas of the business during tough conditions."

"Our competitors have cut back their marketing spending so we can do the same."

Just because other companies may take this action it doesn't mean that you should just automatically follow.

If anything, this is the time to put an extra effort into fine tuning your marketing efforts to be even more effective and more noticeable to customers with less total advertising on the communication channels.

Classic case

A classic business school case history relates how Kellogg's and Post Cereals had equal market share of the breakfast cereal category through the 1920s. Post made major cuts in its marketing and advertising expenditures whereas Kellogg's maintained its expenditure rate.

At the end of the Depression, Kellogg's owned a dominant market share and this has been retained ever since.

"We should save money by using lower quality marketing, sales, promotional materials and do the creative work in-house instead of using an advertising agency."

This may generate small incremental savings in the short term but it has a high probability of being noticed by the consumers resulting in a poor long-term reflection on the company.

It will take many times the small savings to reinvest to fix and repair the negative impression created by lowering standards for marketing materials.

Marketing tips

Acknowledging the need to maintain marketing expenditures in tough times, here are some ideas to make your marketing even more effective with the goals to increase your market share.

Outsmart competitors by playing close attention to what is happening with your target audience(s) and how these customers are specifically reacting and changing their habits during an economic downturn. Invest in conducting customer research and look for lower cost ways to do this, such as, use internal resources to talk with customers, do research at trade shows, do focus groups to probe emotional responses from customers. Reconfirm the customer perceptions and needs.

Analyze your current customers into A, B, C and D customers and then focus on generating more business from your A and B target market customers rather than spending on the C and D customers or trying to find new customers. … it costs six times as much to sell to a new customer than to sell more to an existing A and B customer.

When customers make decisions during economic downturns, they are more likely to buy from a known and trusted source.

Identify, prioritize and invest in marketing into growing market segments that are related to your overall category of business.

In downturns, some market segments will continue to grow even if the majority of segments contract.

Develop products and services that meet consumer needs in these growing segments.

n Place more emphasis on financial returns from all marketing activities. Provide training and enhance the skills of marketing and sales personnel. … they are the top line drivers of your business.

This will also place higher expectations on these members of your team to maximize their measurable performance during tough times. And emphasize how you can help your customers survive and succeed in these economic conditions.

n Examine your media strategies, consider rebalancing between TV and radio, negotiate better rates and better placements (media need your business more than ever in tough economic conditions), use 15-second commercials rather than 30-second commercials, use more direct marketing for more immediate sales responses, make your Web site more sales oriented with harder hitting messages.

And perhaps the most impactful marketing tool is to maximize the leverage of your database e-mail marketing.

Accept the fact that we are entering a recessionary business environment and proactively plan marketing tactics to maximize your marketing return on investment in 2008 and 2009.

Successful companies for the long term do not abandon their marketing strategies and cut marketing budgets in tough economic conditions. …they adapt their tactics with the specific goal to increase their market share.

Iain Macfarlane is the president and founder of BizCOACHING & Associates in Madison, a franchise of ActionCOACH Business Coaching. He was named "Coach of the Year 2005."