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=7hbRZ3ZCyI8

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.

0,00%0,50%1,00%1,50%2,00%2,50%3,00%3,50%4,00%4,50%

Percent Change

Post Recession

Profits Share

Post Recession Results

Cut Spend inRecession+ or = Spend inRecession

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

0.6%

4.3%

-0.8%

-2%

0%

2%

4%

6%

8%

10%

cut marketing maintainedmarketing

increased marketing

Increase in ROCE during recovery

Source; Hilier analysis of PIMS data 2001

Firms maintaining ad budgets during recession significantly outperform their rivals in the following years

27%

30%

131%

256%

0% 50% 100% 150% 200% 250% 300%

1974/75 USrecession

1981/82 USrecession

Sales advantage over 4 years

Sales advantage over 2 years

Source; McGraw Hill Study

Companies who increased advertising budgets during recession

Actions That Have Been Taken In Response To The Recession

Action alreadytaken (%)

Action currentlybeing 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

54% are finding new markets,

such as new industries ornew geographical areas,for their current product

offering

39% are adding new products

or services to current offering and selling these

to new marketssuch new industries or

new geographical areas

76% are focusing on current product

offering in order toextract more businessfrom current markets

59% are adding new products

or services to the existingproduct offering and

selling these to market(s)currently served

Existing products New products

New

m

arke

tsExistin

g

marke

ts

“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.

*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

DO NOT CUT

Marketing

Quality

Product Development

/R&D

IT DEPENDS

Retain spare capacity

Price aggression

Out-sourcing

CAN CUT

Fixed capital

Working capital

General and admin

How marketing specialists agree with the given statements

1

6

0

12

25

25

14

6

10

6

20

17

0 0 0 1 1 1

Completely disagree

Disagree

Not opinions

Agree

Completely agree

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

The effectiveness of marketing meansduring recession becomes particularly relevant

Lowering prices during economic recession is the right strategy

How marketing specialists agree with the given statements

3

2

2

9

9

7

6

8

3

15

14

23

4

4

2

0 0 0 1 1 1

Completely disagree

Disagree

Not opinions

Agree

Comletely agree

Increasing marketing costsduring recession slightly reducescompanies‘ profitability

Big companies reduce marketing budget on a larger scale than small companies

During economic recession demand for business consulting services deceases

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).

1

1

2

1

0

4

1

9

8

1

3

4

8

10

6

12

14

12

9

16

17

17

6

9

14

0 0 0 1 1 1

Marketing strategy

Operational marketing

Market segmentation

Target market

Prising strategy

1

2

3

4

5

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)

2

0

1

0

3

1

2

3

12

4

11

3

8

13

9

17

12

19

14

14

0 0 0 1 1 1

Product line

Marketing budzet

Communicationmessage

Promotion

1

2

3

4

5

How should the use of integrated marketing communication channels change during economic

recession?

4

25

3

4

22

7

22

8

11

5

12

15

0 0 0 1 1 1

TV, Radio

Direct Mailing

Print Media

Out Door Advertising

IncreaseThe sameDecrease

How should the use of small budget communication channels change because of economic crisis in

organizations?

19

26

30

27

4

0

0

1

14

11

7

9

0 0 0 1 1 1

PR

Web site

Blogs

Social networks

IncreaseThe sameDecrease

Will seek lower-costproduct and brandsubstitutes such as

private labels

Will deeply reduce oreliminate treats

or seeklower-cost substitutes

Will put off all durable

purchases unless forced to make

emergencyreplacements;

will delay repairs and personal services

Will eliminatepurchases in this

category

Will seek out favorite

brands at lower pricesbut settle for cheaper,

less-preferred alternatives;

will stock up ongood deals

Will continue to buyfavorite brands

at prerecession levels

Will continue to buyfavorite brands

at prerecession levels

Will cut back somewhat

on frequency and

quantity and emphasize

value

Will delay majorpurchases, repair

rather than replace,seek value and lowownership costs

Rather than extra features, and negotiate at point

of sale

Will deeply curtailexpendables

Will be more selective

in purchasing luxuries

Will seek better quality

for the price; will negotiate

harder at pointof sale

Rarely regards anypurchase as unjustifiable

but may reducethe most

conspicuousconsumption in this

category

Will continue to buyfavorite brands

at prerecession levels

May buy if there is agreat deal; otherwise

may postpone

Is reluctant to regardany customary

purchase as unjustifiable; may not want

to expand consumptionto new types of

purchases

Live-for-today

ComfortablyWell-Off

Pained-but-Patient

Slam-on the-Brakes

BEH

AV

IOR

C

HA

NG

E

Low

High

LowHighRISK OF SALES DOWNTURN

STABLE MARKETSlight or no changein opportunities forcompanies

MIXED MARKETSlight or no change forstronger competitors;a reduction for others

DECLINING MARKETSubstantial reductionin opportunities forcompanies

Understanding the Post-Recession Consumers

by Paul Flatters and Michael WillmottHarvard 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 acceleratedby 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 trendsare slowing

1) green consumption,2) a decline in respect for authority,3) ethical consumption, 4) extreme-experience seeking.

New

Mature

Slowed Trends

Arrested Trends

Dominant Trends

Advancing Trends

AcceleratedSlowed

Demandfor

simplicity

Focuson the

boardroom

Mercurialconsumption

Discretionarythrift

Extreme experience

seeking

Ethicalconsumerism

Greenconsumption

Declineof

deference

How Trends Will Drive Consumption (I)

Before

Duringrecession

Postrecession

Longterm

DEMAND FOR SIMPLICITYConsumers are seekinguncomplicated, user-friendlyproducts and services thatsimplify their lives.

FOCUS ON THE BOARDROOMOutraged bycorporate malfeasance,people are punishingcompanies for unethicalgovernance.

DISCRETIONARYTHRIFTEven those who don’t needto economize are Pursuing a morewholesome and lesswasteful life.

MERCURIAL CONSUMPTIONEasy access to informationand friction-free purchasing ismaking consumers ever more agile – and less loyal

Advancing Trends

How Trends Will Drive Consumption (II)

Before

Duringrecession

Postrecession

Longterm

GREEN CONSUMERISMConsumers are forgoing priceygreen products and insteadare cheaply and discreetlyreducing waste.

DECLINE OF DEFERENCERespect for institutions And authority, long in decline, will temporarily level off as people look to them to fix theeconomy.

ETHICAL CONSUMERISMAltruistic consumption And spending, such as eating cage free eggs and giving to charity,are falling as people focus on their own dire situations.

Slowed Trends

EXTREME-EXPERIENCESEEKINGExpensive, frivolous, or riskyrecreational experiences,popular during the boompreceding the recession,have fallen out of favor