Marketing Through a RecessionSurvival Tips From a Grizzled Veteran
www.larsonassoc.com
American Marketing AssociationJune 9, 2009
“In an ideal world, every company would enter a recession led by a team of grizzled veterans who could draw on their experiences of past downturns to guide it through the current one.
Many companies don’t have grizzled veterans and even for those that do, it can be difficult to rise above the crisis to ponder the lessons of history.
Yet in a recession, developing accurate strategic plans is usually a high-stakes effort.”
Source: McKinsey & Company; Mapping Decline and Recovery Across Sectors, Winter, 2009
Marketing Through Recessions
• 1973 – 1975• 1981 – 1983• 1990 – 1991• 2000 - 2001
Agenda
• Budget Cuts• Perspective on recessions
– Lessons Learned– Eternal Truths
• Marketing Must Be Accountable• What Is Marketing?• Who Needs a Strategy?• What is a Brand?• Reprise from the Experts
Budget Cuts
• How many of you:– Have had your budgets cut this year?
• Lump sum dollars in budget– Had your budgets tied to specific programs?
• If the budget was cut, the program was cut– Had your budgets tied to specific revenue results?
• If the budget was cut, revenue projections would not be made.
• Make it painful for others to cut your budget.
Fact or Fiction?
We are living in the worst economic conditions since the Great Depression.
We have nothing to fear but fear itself.
Marketing doesn’t work during a recession.
“We are living in the worst economic conditions since the Great Depression.”
This is fiction.
Economic Indicators
STATS 1929-33 1973-75 1980-82 2008-09Q 1 Q 1
Real GDP -13.0% -0.5% -6.4% -5.7%
U. Michigan N/A 57.6 51.7 68.7Consumer Sentiment
Unemployment 24.9% 9.0% 10.8% 9.4%
Inflation -9.9% 11.0% 13.5% 3.8%
Data as of June 9, 2009
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Black Monday / Black Swan Event
Sure, economic conditions are tough today, but two-thirds of the US population have lived through tougher times, and we came out alright on the other end.
The biggest difference between the current recessions and prior ones is that cable TV and Internet news coverage now encourages spreading of fear farther, faster than ever before.
“We have nothing to fear but fear itself.”
Franklin Delano Roosevelt – March 4, 1933
This is fact.
“We Have Nothing to Fear but Fear Itself”
• In 2002 Daniel Kahneman, of Princeton University, was co-recipient of the Nobel Peace Prize for Economic Science:
“For having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.
“Consumers today, because of lack of confidence in the economic future, are spending less and saving more of their income. Well-planned promotion can increase sales by helping to overcome this propensity to save.”
“When consumers are reluctant to spend any money, they are unwilling to settle for products that do not precisely meet their need specifications. A firm must be more careful both in measuring the needs of the market and in designing products to serve these needs”.
“What is the role of marketing in a recession?” Journal of Marketing, April, 1975
“Marketing Doesn’t Work During a Recession”
• This is both fact and fiction:– Dumb marketing doesn’t work during a recession.– Smart marketing does work during a recession.
• Too often we get sloppy in our marketing practices during booming economic times.– Then we run into a wall and have to shed our bad
habits during recessions.
GM Survey of Prospective Car Buyers
“If a company can ascertain concretely and in detail just what its buyers would like to have, if it can build its products in conformity with those desires and design its sales and advertising messages so that they will answer the questions that are uppermost in the minds of the motorist, obviously there will be continued improvement in the merchandising processes and a broadening of the service rendered.”
GM Survey of Prospective Car Buyers
• Dependability• Operating economy• Safety• Appearance• Comfort• Ease of control (handling)• Smoothness (ride)• Low list price• Pick up and speedSource: Ad Age, January 27, 1934 – Opportunities in a Downturn, December 2008
“General Motors got into trouble when they thought they were in the business of making money, instead of the business of making cars.”
Marketing Does Work in a Recession
• McGraw Hill Studies:• During the recession of 1974 / 1975 firms who cut
marketing and advertising saw a 21% decline in sales effect over two years compared to firms that did not cut marketing investments.
• During the recession of 1981 / 1982 firms that cut their marketing investment saw a 45% decline in sales effect over two years compared to firms that did not cut their marketing investment.
Source: Capturing Opportunities in Challenging Times, DDB Yellow Paper – December, 2008
Marketing Strategies During Recession
• “Recession calls for marketing managers to use strategies to stimulate consumer demand. Such strategies often require a re-definition of target customers and the marketing mix.”
• Although the (1990-91) economic environment has been termed a “mild recession” on the national level a survey of 101 Marketing Managers showed:– 39% have seen it as a recession– 38% perceive the economy as growth– 17% say the market is stagnant
Journal of Small Business Management: “Marketing Strategies During Recession: A Comparison of Small and Large Firms”, July 1993
Turning Adversity Into Advantage: Does Proactive Marketing During Recession Pay?
• “All firms are not equally affected by recession. Some firms view recessions as opportunities to strengthen their business, invest aggressively and establish their advantage over weaker competitors.”
• “Firms that have a strategic emphasis on marketing, and entrepreneurial culture and slack resources are proactive in their marketing. Firms that have a proactive marketing response in a recession achieve superior business performance even during the recession.”
International Journal of Research in Marketing, June 2005
Recession for Some Companies = Growth Opportunities for Other Companies
• In 1929 only 34% of US Households owned a radio.• In 1933 over 60% of US Households owned a radio
– Cost of radio in 1933 = Cost of Big Screen Hi Def TV in 2009
• Time launched Fortune in 1930 and People in 1974• Fed Ex, Microsoft and Vanguard mutual funds were
all launched during the 1973 – 75 recession.• Some companies create their own recession by trying
to “save their way into growth.”
Basic Business Truth
In a declining market, a company must increase its share-of-market just to maintain the status quo.
Marketing in Troubled Waters
“Marketing efforts don’t have to be expensive – and they may be the worst things for firms of any size to cut in a downturn.”
Source: Journal of Accountancy. March 1993
“Challenge No. 1 for marketers, both in their own minds and dealing with their senior management, is to get over this culture of fear we’ve all been dealing with.”
Source: Get your head in the game. Marketing News 02.28.09 AMA
A Game Plan To Do Well This Recession
• Get a grip
– The time for panic & inaction are over
– Become proactive in showing how marketing can help your organization
• Get closer
– Find out what customers expect from your brand
– Examine your customer touch points.
– Prioritize customer retention
• Re-examine your marketing mix…
– With a closer eye on ROI
– To get a better understanding of how best to reach your audiences.
– And learn to target, target, target. Because hyper-targeting could become the major marketing legacy of this recession.
Source: Get your head in the game. Marketing News 02.28.09 AMA
Marketing Executives Networking Group
• Back-to-Basics Strategy Being Pursued:– What marketing concepts are most important?
• 79% - Customer Satisfaction• 76% - Customer Retention• 65% - Marketing ROI• 61% - Brand Loyalty
“Economy Weighs Heavily on Marketing Execs in 2009”, Ad Age, Jan 5, 2009
Marketing Must Be Accountable for Increasing Revenue Profitably
Marketing ROI
• Finance and Operations are measured on ROI.• Marketing usually not measured on ROI.• Management wants to allocate scarce resources
using a common measure.• Marketing ROI can be measured.• Marketing ROI difficult to predict because of
intervening variables:– Customer behavior– Competitive behavior
Greater Marketing Accountability
• Change in Sales and Profit Trends• Changes in Marketing Contribution• Changes in Share of Market• Changes in Marketing / Sales Ratios• Number of Leads / Orders / Deliveries• Conversion rates – Lead / Order / Delivery• Number of Customers• Lifetime Value of a Customer
Marketing P & L StatementSales (Gross Revenues)
(minus) Cost of Goods Sold (Direct labor, purchases, commissions)
= Gross Margins
(minus) Marketing Variable Expenses (e.g. Adv., promo.)
= Marketing Contribution AKA Marketing Margin
(minus) Fixed Costs & Overhead (G&A Expenses, Rent, Insurance)
= Net Income Before Interest & Taxes
One Way to Measure ROI
Marketing ROI = Marketing Contribution
Marketing Variable Expenses
Marketing Management (a pub of the AMA) has many excellent articles on Marketing ROI.
AMA has also published a book Marketing ROI by James D. Lenskold © 2003
What Is Marketing?
What Is Marketing?
AdvertisingPromotionPublic RelationsEventsWeb SiteClick Through RatesGraphic DesignGross Rating PointsSocial Media
What Is Marketing?
“Marketing is a business discipline for obtaining and maintaining profitable customers”.
Charlie Larson
Profitable Customers!
0%
10%
20%
30%
40%
50%
60%
Top Line Rev. Bottom LineProfits
Market Share Volume Total Customers Stock Price Share of Wallet
Source: Prophet’s 2005 State of Marketing Survey
CEO’sCMO’s
Marketing Is Behavioral Science
Where Can Marketing Add Value?
• Planning for Profitable Revenue Growth!• Executing the Revenue portion of the business plan.• Marketing and Sales have to compliment each other.• Relationships and Transactions.
– Marketing has to start the relationship.– Only Sales can consummate the transaction.– Both need to continue the relationship after the
transaction.
5 Very Important Questions
1. Do you know who your best, most-profitable customers are?
2. Do you know what makes them different from your other, less-profitable customers?
3. Do you know where to find more customers like your best, most-profitable customers?
4. Do you have a plan to attract more of these kinds of customers to your business?
5. Do you communicate with your Sales and Accounting Departments on these issues?
Who Needs A Strategy?
Who Needs A Strategy?
• People who want to win.• People who do not want to waste resources.• People who want a long and productive career.
Building the Business & Putting Out Fires
You are here X
You want to be:
Here ?
Here ?
Here ?
Available Tactics
Web 2.0E-Mail Blasts
Direct Mail
Print Media
Broadcast Media
Consumer Generated Content
Public Relations
Events
Thinking Tactically
You are here X
You want to be here
X
Tactic Tactic
TacticTactic
Tactic
Thinking Strategically
You are here X
You want to be here
X
Road Map Strategy
Tactic
Tactic
Tactic
Stimulus
Experience
Consider(options)
Search(information)
Choose(options)
Buy
Identify the customer behavior that needs to be modified at each stage of the Buying Process and the most appropriate contact programs to accomplish this.
The Buying Process
Universal Marketing Planning
Objectives
Past Business Results
Competitive Analysis
Positioning
Branding
Tactics
StrategyRoad Map
“Too many people concentrate on doing things right than on doing the right things.”
Peter Drucker
The Difference Between:
ObjectivesQuantifiable measurements of achievement in the future.
StrategiesDoing the “right things”. What we should do to accomplish our objectives.
TacticsDoing “things right”. How we should do things to accomplish our objectives.
Objectives
• Objectives have numbers:– Either a concrete number, such as $X revenue
and $Y profit.– Or a relative number, such an increase of Z%
over the previous year.
Strategy
• Strategies do not have numbers.• A strategy is a behavioral statement of how the
objectives will be met, such as “draw customers from competition”.– What changes in customer behavior do you
need to meet your objectives?– What changes in behavior will your
organization make to change customer behavior?
Tactics
• Tactics have specifics, usually stated as numbers:– Size and frequency of advertising messages.– Prices and costs– Timetables.
Boston Consulting Group Portfolio
High Brand Share
Low Brand Share
High
Industry
Growth
Low
Industry
Growth
Cash Cows
(Milk Profits)
Dead Dogs
(Bury Business)
Rising Stars(Invest Time& Money)
Problem Children
(Invest Time)
Source: Boston Consulting Group
Strategy Example
• There are only three real sources of business (customer behavior):– Attract entirely new customers to the market
category.– Attract customers from your competitors (build
share).– Have your current customers buy more of your
services or products.
Strategy Example
High Market Share
Low Market Share
High Market Growth
Low Market Growth
Attract entirely new customers.
Attract customers from competitors.
Have current customers buy more from you.
Exit the business, invest in CD’s.
Brand Strategy Format
Target Audience Description:
Insights that describe the motivations that bring someone into your market in the first place:
Examples:
Coffee drinkers concerned about caffeine intake.
Blue collar workers who travel the Midwest.
New mothers concerned about what to feed their baby.
Brand Strategy Format
Target Audience Description
Current Thoughts & Behavior
Desired Thoughts & Behavior
The Brand Strategy
Current Thoughts and Behavior.
What’s in It for Me?
Why Should I Believe You?
Brand Personality.
Desired Thoughts and Behavior.
Audience Description
As a real person. Their needs and motives as they enter the market for your brand of service or product.
Winning & Maximizing Resources
• To win, you need to know the answers to these questions:– What are your business objectives?– Who are your sources of business?– What changes in behavior do you need from
your sources of business?– What changes in your behavior should you
make to elicit this change in customer behavior?
Who Needs A Strategy?
• People who want to win.• People who do not want to waste resources.• People who want a long and productive career.
What Is A Brand?
“A brand is an economic relationship between a buyer and seller based on a consistent experience with the product or service which meets or exceeds the buyer expectations.
“This relationship can be functional, emotional or both.
“The relationship is strengthened or weakened by every contact between the brand and the customer.”
Charlie Larson
What Is A Brand?
“A brand is an intangible asset defined by the expectations people have about an entity. These expectations are developed over time by what the entity communicates and – more importantly – by what it does.”
Eric Hutchinson – The Brand Consultancy
What Is A Brand?
“Your brand is the relationship between you and your target audiences that secures future earnings by securing preference and loyalty.
A brand is the fusion of the emotional with the functional components of a product or service…
Strong brands address an idea beyond the attributes and functional benefits.”
Nick Russel - Interbrand
Experience = Relationship
Expectations
Common Brand Elements
If the Experience is equal to, or greater than Expectations, you have a positive relationship.
If the Experience is less than Expectations, you have a negative relationship.
Financial Reasons for Strong Brands
A strong brand =
A strong relationship with customers =
Strong positive cash flow into the future.
Financial Brand Valuation
Internal Branding
“Marketing is too important to leave to the marketing department.
“Everyone in the organization has to make decisions based on the impact on the customer.”
David Packard – Co-Founder – Hewlett-Packard
Internal Branding: Basic Premise
• Companies are missing a competitive advantage if their employees are not brand advocates.
• CRM is more than software.• Everyone in a company needs to “walk the talk”.
Internal Branding: Definition
• Delivering the brand promise to your customers through internal:– Functions– Departments– People
Who’s Delivering Your Experience?
• The Marketing Department?• Manufacturing?• Operations?• Finance?• Your Sales Department?• Brokers/Dealers?• Your employees?• Your customer’s employees?
Delivering Your Brand Experience
• If it is someone outside the Marketing Department (and it usually is)…
• Then the expectations set up by the Marketing Department has to be met (exceeded) by another Department(s).
• Is anyone facilitating this internal relationship?• Hint: This could make you a hero.
Internal Branding Initiatives
• Market research to determine unmet needs in your market.
• R&D to innovate solutions to customer needs.• Strategic marketing plans to take advantage of
competitive weaknesses.• Greater emphasis on customer service to cement the
brand relationship.• Improvements in existing products / services.• Stronger warranties to take the worry out of
purchasing by buyers.
The End of Marketing As We Know It
• “Marketers need to stop fooling around with the marketing-is-an-inscrutable-mystery hogwash and get down to business.
• When you understand that marketing is what you do to sell stuff, then the money that you lay out is an investment instead of an expense.
• You absolutely cannot spend more money every year just to keep your old volume.
• Strategy is the one thing that will keep you clean. When in doubt, just check what you want to do against the strategy”.
Why Most Marketing Sucks:
1. They really don’t know what marketing is,2. They go for generalities,3. They do not employ a swarming offense,4. They launch expensive programs that are devoid of
innovative thinking,5. They ignore readily available research that would allow them
to pinpoint ideal prospects.6. Corporate management allows the drivers of the marketing
process to be unaccountable for generating a measurable ROI.
7. Managers refuse to admit the only meaningful ROI is:a) Recruitment of new customersb) Sale of additional products to existing customers
Important Sources
• www.marketingpower.com (American Marketing Assn.)
• www.brandchannel.com (Interbrand)
• www.prophet.com (Prophet)
• www.adage.com (Advertising Age)
• www.wsj.com (Wall Street Journal)
• A Technique for Producing Ideas (James Webb Young)
• The Essential Drucker (Peter Drucker)
• Marketing Management (Bi-monthly publication of AMA)
Marketing Through Recessions
• Get to know the mind-set of your best customers.• Develop strategic marketing plans that change
behavior in order to:– Obtain and maintain a larger number of profitable
customers.• Be accountable for increasing revenue.• Use Internal Branding to deliver a superior
experience to your customers.• Smart marketing has always worked..