Marketing is often the first thing to go when tough economic times put the squeeze on cash flow, but experts say those who maintain spending often emerge the strongest when things pick up. BY MIKE PRESTON
The latest SmartCompany Poll found many business owners are finding the temptation difficult to resist, with 44% saying they plan to cut their marketing budget in response to tighter business conditions.
While some businesses clearly see little choice but to slash marketing spending, it is a step that puts the risks a decline in current market share and the loss of future growth opportunities.
But that doesn’t mean marketing strategies don’t need to be changed to suit the tougher market conditions. Here are ten tips for avoiding the pitfalls and getting the biggest bang for your marketing buck in an economic downturn.
When the customers stop coming and all the signs point to doom and gloom, the first instinct of many business owners is to batten down the hatches, cut budgets to the bone and wait until the economic sun comes out.
But according to Graeme Chipp, managing director of marketing firm Growth Solutions Group, there is plenty of evidence to suggest that it is during tight times that marketing can be used to get a jump on the competition.
“Marketing should be seen as an investment, not a cost. Time and again I’ve seen companies cut marketing and they get into a spiral of cutting costs and that leads to a lower presence in the market, revenue and profit margins decline, that puts more pressure on costs and the spiral continues,” Chipp says.
Chipp says there are many examples of businesses achieving big gains in market share once in good times after investing in marketing during down times.
“Hershey in the US concentrated their marketing spending on core flagship brands during a period of weakness and saw a real uplift when things improved. In 2001 during Heinz foods increased their marketing spend by 16% and saw market share go from 56% to 59%, so keeping faith in marketing spending can yield results,” Chipp says.
A change in marketing strategy to focus on drawing greater value from existing customers rather than finding new ones can be a cost effective strategy.
Luke Baylis, the founder of health-focused fast food chain SumoSalad, says that is something he is already considering in light of predictions that Australia is heading for an economic slowdown.
“We’re not cutting back our marketing spending, in fact we’re increasing it, but there is definitely a bit of change towards incentivising repeat business and a bigger spend from our existing customers,” Baylis says.
Baylis says his business takes concrete steps to increasing the value obtained from existing customers such as:
Other tips include:
The most expensive component of many marketing budgets is advertising and the first to go when cuts are needed, especially given that return on investment for advertising can be hard to measure.
But tight times can mean cheaper advertising, if you know where to look. Distressed advertising – ad space that is unused or abandoned by an advertiser at the last minute – can be used to deliver a message at cut-price rates.
Ad it Last is a business based on finding and selling distressed advertising to small and medium businesses that operates in Australia and the US. Chief executive Christina Tutone says distressed ads sell for an average discount of 40% on normal rates, but that could increase as if the economy stalls.
“It requires thinking outside the square a little bit, but distressed advertising is often available up to a week in advance and there are substantial savings to be made,” Tutone says.
When times are tight, people get scared – terrified in fact – so businesses need to make an extra effort to show how their product or service will help them.
Colin Benjamin, the founder of strategy firm Marshall Place Associates, says in a downturn marketing strategies should be fined tuned to focus on the priorities of hard-hit customers.
“In tough times you need to make it clear that you understand the priorities of your target customers and that your product or service will help them do it. If you don’t give people a lead to your product they don’t have time to worry about you.”
Using a special offer tied to a tight timeline, perhaps a 24 hour period, can be effective in giving people who already feel like they’ve got plenty on their plate a reason to respond to your message, Benjamin says.
Good businesses will always ensure they are getting a decent return on investment from each dollar spent on marketing, but the principle applies double when the bottom line is under pressure.
SumoSalad’s Luke Baylis says he prioritises achieving a solid return on investment over more general branding activities during tough times.
“Brand focused marketing isn’t very measurable, so in tougher times our marketing becomes very ROI focused,” Baylis says. “That means measuring numbers of people coming into stores, redemption rates on vouchers or loyalty programs, and doing that at a store level.”
When looking at measuring return on marketing investment, it is important to make the criteria against which performance is evaluated as basic and low level as possible – focus on things like lead conversion rates or average per customer spend rates on a store or section level rather than company wide sales.
In tough times your marketing and sales channel partners are likely to be under just as much pressure as you are.
That can put commercial relationships under pressure, but it also means a little extra time spent helping them help you can go a long way.
Daniel Rechnitzer, the founder and chief executive of Shoestring Marketing, says locking in referral, sales and marketing partners when economic storm clouds loom makes sense.
“Referral partners – for example, if you’re a beautician you might have a hairdressing salon sending you references and vice versa – can work powerfully to drive customers to your business and you get great bang for your buck, in fact usually it doesn’t require spending any money at all,” Rechnitzer says.
He also advises offering extra training in your products and services to your sales channel partners – their training budgets and staffing levels could be under pressure as well.
When things are tight, consumers will tend to maintain spending on the basics at the expense of those closer to the luxury end.
For some businesses, a good strategy can be to focus marketing efforts on those products or services that suit limited budgets, according to The Growth Solutions Group’s Graeme Chipp.
“It won’t work for everyone, but say if you’re a clothing brand you might focus more on socks and underwear instead of leisure wear, or if you are travel agent customers could be more responsive to domestic travel than overseas,” he says.
Alternatively, a branding strategy that focuses on more financially secure customers can also provide a business with some insurance against tough times.
Wild Cards and Gifts co-founder Lawrence Boyle says a focus on the top end of the market has protected his business from the current slowing in market conditions.
“We avoid going down market and perceiving customers want to spend less – not everyone has a mortgage or is as concerned as the papers say, we focus on premium customers and they will support you no matter what the environment,” Boyle says.
When budgets are tight, customers want to know that a product or service they buy will meet their expectations – and they may not be prepared to take your word for it.
Marketing experts emphasize that when consumers are watching their money, they will tend to place greater weight on the views of other customers than they will on an advertising message.
According to Marshall Place Associate’s Benjamin, customer testimonials are worth their weight in gold during tough times.
“Testimonials or anything that says ‘these people bought this and it worked for them’ should have a prominent place in your marketing message in downturns,” Benjamin says
Shoestring Marketing’s Daniel Rechnitzer says programs that gives customers a reward for referring a friend to your business are a good low cost marketing strategy. Online forums can also provide valuable word of mouth marketing, he says.
One point marketing experts are almost unanimous on is that businesses should be very cautious in adopting aggressive discounting strategies to boost revenue in tough times.
Years of painstaking brand building can be destroyed very quickly by inappropriate discounting, according to Sean Adams, managing director of strategy firm The Seed.
“It can take long time to build perceptions of a confident, quality brand. If all of sudden you think consumers aren’t spending so you start panicking and drop prices, when the economy comes back you will find people are less inclined to associate the brand with quality, with all the consequences for sales and margins that brings,” Adams says.
That doesn’t mean keeping your product or service offering fixed in stone, Adams says, just that businesses need to think creatively about how to adapt their offering to tighter times.
To make products or services more appealing to cash-strapped consumers without resorting to discounting, Adams suggests:
A solid brand pitched at the quality end of the market can help shield a business from feeling the affect of a downturn, but it’s not something that can be achieved overnight.
The Seeds’ Sean Adams, argues businesses need to do smart marketing in good times creates the opportunity for gains to be made in down times.
“Business in the value part of market will do relatively better in a downturn because they’ve educated customer that their brand stands for value and I think there is a strong case that those brands perform relatively better in good times and bad,” Adams says.
Adams points to Apple as the classic recession proof brand. “Apple does so well because while they still develop inexpensive products and address the market in that way, they have a brand that has stood for strong design and innovation basically from day one and they’ve been consistent with that.”
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