“Surviving in an economic downturn”

We know the anxiety is rising for many of you as the economy falters. We know it's tempting to begin slashing your marketing budget.

Sure, you should always be doing everything you can to maximize your marketing resources. That's true, even in a good economy. But history shows us that now is just not the time to curb your marketing efforts.

Here are some of the facts from past recessions:

1970 recession -- American Business Press (ABP) and Meldrum & Fewsmith study showed that "sales and profits can be maintained and increased in recession years and [in the years] immediately following by those who are willing to maintain an aggressive marketing posture, while others adopt the philosophy of cutting back on promotional efforts when sales appear to be harder to get."

1974-1975 recession -- ABP/Meldurm & Fewsmith 1979 study covering 1974/1975 and its post-recession years found that "Companies which did not cut marketing expenditures experienced higher sales and net income during those two years and the two years following than those companies which cut in either or both recession years."

1981-1982 recession -- McGraw-Hill Research's Laboratory of Advertising Performance studied recessions in the United States. Following the 1981-1982 recessions, it analyzed the performance of some 600 industrial companies during that economic downturn. It found that "business-to-business firms that maintained or increased their marketing expenditures during the 1981-1982 recession averaged significantly higher sales growth both during the recession and for the following three years than those which eliminated or decreased marketing."

Cahners and Strategic Planning Institute (SPI) produced their report, "Media Advertising When Your Market Is In a Recession." It disclosed, "During a recessionary period, average businesses do experience a slightly lower rate of return relative to normal times. However, expansion times do not generate a higher level of profits than normal periods as might be expected." This phenomenon was explained by an analysis of changes in market share.

"During recessionary periods," said the Cahners/SPI report, "these businesses tended to gain a greater share of market. The underlying reason is that competitors, especially smaller marginal ones, are less willing or able to defend against the aggressive firms." The study then pointed out that businesses that increased media advertising expenditures during the recessionary period "gained an average of 1.5 points of market share."

1990-1991 recession -- "Management Review asked AMA member firms about spending during the 1990-1991 recession. "Fortune follows the brave," it announced, noting that the data showed that most firms that raised their marketing budgets enjoyed gains in market share. Among the magazine's sample, 15 percent reported "greatly decreased" ad budgets. Advertising was "somewhat cut" by 29 percent. "The keys to gaining market share in a recession," concluded Management Review "seem to be spending money and adding to staff. Firms that increased their budgets and took on new people were twice as likely to pick up market share."

Beyond the statistics, why might it be more important than ever to market despite economic downturn? Strong consideration should be given to the idea that marketing plays a more critical role now than it did during previous recessions. While marketing's role was once more informational than brand identity building, and considering that never more than today has the clutter factor been so great, relationships between customers and brands are critical. Relationship marketing has surged to the top of effective marketing campaigns as a means to keep an appropriate level of share of mind for purchase loyalty. Marketing serves to foster and maintain consumer-brand relationships.

The effect on profits. From the Harvard Business Review, "Advertising as an anti recession tool" The company courageous enough to stay in the fight when everyone else is playing safe can bring about a dramatic change in market position." In addition, the article points out "Advertising should be regarded not as a drain on profits but as a contributor to profits, not as an unavoidable expense but as a means of achieving objectives. Ad budgets should be related to the company's goals instead of to last year's sales or to next year's promises."

What are you waiting for? Get marketing!

Whether we actually enter a recession or not is still up for debate. However, it does bring up a prickly subject for many businesses. Should you continue investing in marketing or defer those expenditures until the economy picks up?

Let Your Brand Do Your Selling

When the stability of the economy is in question, the knee-jerk reaction for many businesses is to pull back on their marketing efforts until a bull market returns. In reality, there isn't a better time to market than during a recession - whether real or imagined. As John Vanderzee, former advertising manager for the Ford division of the Ford Motor Company, said during the 1990-91 economic slump, "Anybody who retrenches because of the recession has really got his head in the sand." Vanderzee then added that spending money on marketing during a recession is a must.

An economic downturn can be an opportunity rather than a death sentence. If your product or service is synonymous with value, then you're already ahead of the curve. With closer attention to spending, customers are carefully evaluating their options and will continue to look for high-quality, affordable products and services.

What's more, it's likely that your competition will be less visible, since many companies fail to recognize the opportunity and instead reign in their marketing expenses. As a result, they leave potential market share on the table. Consequently, your continued marketing efforts stand out and are more likely to be heard with less chatter in the marketplace.

A strong brand can pay big dividends during a recession, enhancing the success of your marketing efforts tremendously. If your brand clearly demonstrates value to your audience, is managed well, connects with your target on an emotional level and instills loyalty, you are likely to fair well during any perceived recession. Prudential's Retirement Red Zone campaign is one example. It taps into the retirement concerns of consumers and reassures the audience that, despite the current economy, they can achieve their retirement goals. The campaign uses television, radio and print ads, to drive consumers to the Prudential website. Once there, they can engage with personal advisors and access various educational tools, resources and information on their website.

If your brand doesn't meet the criteria above, do not panic. Now is a great time to heighten your visibility (often amid less competition). Take the time to perfect your brand and then reach out to your audience to underscore your brand's value.

Conversely, you may have a well-known brand but a premium product or service. You may wonder if your audience will continue to "indulge" when times are tight. If you've done a good job of defining and strengthening your brand, your core loyalists will continue to buy. Take Tiffany's, for example. Regardless of economic downturns, Tiffany's continues to thrive. People continue to buy, despite the cost because the brand has reinforced its quality and timeless appeal. The robin's-egg blue packaging is easily recognizable - even without the name people know it's Tiffany's. It conveys the brand without saying a word. See the Tiffany's envelope or box and you think: Hope. Promise. Something of value and elegance. Tiffany's products may be premium but they convey quality and elicit strong, positive emotions within its audience.

There are also opportunities to re-invigorate your brand. Use this occasion to re-educate your employees on the value of brand loyalty and how it helps to sustain sales during slower economic times. Tylenol did just this, and then translated its internal commitment into its external marketing. The company developed a campaign that highlighted its employees touting the brand and their loyalty to the company.

You can also re-focus your brand to appeal to a broader or new audience. Dove's Campaign for Real Beauty took the unattainable, unrealistic expectations of beauty that society places on women and said "You are beautiful just as you are." To support this campaign, Dove encouraged all women to recognize their own real beauty - just as they are. The campaign engaged the audience by allowing them to share their story, create their own campaigns for real beauty, participate in contests, and participate on blogs among other things. As a result, the audience helped to sell the Dove brand.

Remember, eventually the economy will rebound. Consistent marketing during a recession not only helps maintain momentum, but also is likely to leave an indelible imprint on your target audience's memory, making them more likely to return in a more stable economy. Those that forgo or reduce their marketing efforts in a downturn have a much harder time recovering once the economy turns around.

Make Lemonade Out of Lemons

Your current marketing plan should account for economic downturns. And, there's not a one-size-fits-all answer. You must evaluate your company's brand equity in the market and the value of your products/services to determine the approach that is best for you. But here are a few strategies to consider:

Echo the concerns of your audience. Then show them how your product/service can alleviate those fears. Your audience will want assurances that your product/service will provide strong benefits and good value before they buy. Plagued with lackluster sales, Quaker Oats repositioned its product to speak to the early 90's recession. First, they hired grandfatherly, trustworthy actor Wilford Brimley as their spokesperson. Then they stressed that oats were an inexpensive form of protein, with a bowl costing as little as nine cents. Sales grew as a result.

Focus on a niche audience. Figure out which segment of your target market needs you the most. These buyers will be more receptive to your message. Find ways to offer additional value, whether through add-on or expanded services. This not only can help you win their business, but it instills a sense of trust and loyalty because you are exhibiting flexibility in a tough business environment.

Tap an untapped market. We continue to operate on a more global scale every day. Seek out previously untapped markets, particularly those overseas. As countries like China continue to gain a foothold in the economy, two things will happen: Spending will increase and they will purchase more western products and services. Use this opportunity to get a head start on your competition.

Prove your indispensability to customers. Just because you've built it doesn't mean they'll come. Nowadays, businesses must prove their value to customers, particularly during a recession. Back up your value with strong case studies, examples of how your target's clients will benefit from your services/products and statistics that point to success for clients. Good brand exudes value; thereby reinforcing loyalty in customers.

Tug at prospects' heartstrings. It's not a fluke that successful campaigns tap into consumers' brand loyalty and emotions. Fast food chain Wendy's acknowledged that the 90's recession was difficult, but that you could still eat well at their establishment. Hamburgers were made of freshly ground beef and made to order. The bountiful and healthy salad bar was an all-you-can-eat value. Sales remained steady for them during that period of economically tough times. Though very effective, you must ensure that your message is genuine, mirrors the beliefs and behaviors of your target audience and is easy to retell. Why? Because a highly visual, emotionally-charged message is more likely to have a ripple effect as your customers spread awareness of the brand. In essence, your customers and prospects turn into a marketing vehicle for you.

Bridge the communication gap. Technology has overshadowed the importance of the human touch in business. No matter how great technical advances are, they cannot replace the power of human connections. Leverage this idea and drop in to meet face-to-face with your customers and qualified leads. Ask them about their current obstacles and concerns and how you can help them. Really listening and helping customers solve their issues goes a long way to maintaining momentum in the marketplace.

Look at your product/service in a new way. Your offerings may have had a successful run in the past. In economic slumps, you cannot rely on a "same old, same old" attitude. Reexamine your product/service to find fresh ways it can be used or benefit the buyer. During the 1990-91 recession, Kraft Foods touted its A-1 Steak Sauce as a great enhancement to hamburgers and not just sirloin steak. A good move, since consumers were less likely to be eating filet mignon and more likely to be dining on ground beef during that time period.

Funnel expenses into products/services that thrive during a recession. During that same recession, Dow Chemical Company moved its marketing dollars from Glass Plus cleaner to Ziploc freezer bags, a new product line at the time. The company emphasized the product's ability to maintain freshness in leftovers stored in these bags. Again, a smart move as more consumers were spending less and wasting less.

Carefully evaluating your business and implementing strategic branding and marketing initiatives can help you sustain profitability when times get tough. In fact, if you build and promote your brand properly, you can even grow it despite the grim forecasts.

Recessionary Times Call for Proactive Measures

In tough times, it is essential to foster trust between you and your customer, to understand their values and behaviors, and to stay in front of them with a message that addresses their concerns. Continue to build and manage your brand value in the market and your business will be able to weather any economic downturn.

The possibility of a recession can lead many to be reactive. Instead, take a proactive approach and identify ways to leverage this as an opportunity for your brand. By doing so, your organization will come out stronger, and quite possibly with a few new customers.

In difficult economic times, a brand must reinforce the attributes that make it appealing.

Companies often respond to the onset of a poor economy by cutting operating costs. And much of the time, marketing and advertising budgets are the prime targets.

A great deal of evidence suggests that it’s not a good idea to reduce marketing dollars during a recession in order to hit financial targets. Doing so may leave your brand in a less competitive position when the economy recovers. And over the years, research studies have confirmed that the best strategy in terms of long-term return on investment (ROI) is to increase marketing expenditures during an economic slowdown.

An analysis of the Profit Impact of Marketing Strategies (PIMS) database, presented at a March 2008 Independent Practitioners Alliance (IPA; New York City) conference, provides the latest evidence. This analysis compared the results achieved by companies that increased, maintained, and reduced marketing spend during a recession. Metrics used were return on capital employed (ROCA) during the recession, ROCA during the first two years of recovery, and market share change during the same period of recovery. While companies that cut marketing spend enjoyed superior ROCA during the recession, they achieved inferior results after the recession ended. During the recovery, the "spenders" achieved significantly higher return on capital employed and gained an additional 1.3 percentage points of market share.

Past Recession Periods
In 2002, McKinsey & Co. (New York City) published a study based on data collected from approximately 1000 firms between 1982 and 1999 and included the recession period of 1990—1991. The study identified some key differences between the strategies of the best and worst performers, with the measure of performance being changes in the company’s market-to-book ratios. Interestingly, one of the most significant differences between winners and losers was with respect to their spending on marketing and advertising during the recession period. Far from tightening their belt when the economy went south, the best performers increased their spending in these areas, not just relative to their competitors, but also compared to their own spending in better times.

For well-positioned companies, an economic recession should not prompt marketing cutbacks, but rather an aggressive increase in marketing spend to achieve superior business performance, according to research authored by Gary Lilien and Arvind Rangaswamy of Penn State's (University Park, PA) Smeal College of Business. Companies that have done this quite successfully in the past include Procter & Gamble (Cincinnati) pushing Ivory soap during the Great Depression, Intel (Santa Clara, CA) launching "Intel Inside" during the 1990—1991 recession, or Wal-Mart (Bentonville, AR) smothering the competitors with Every Day Low Prices during the 2000—2001 post-bubble slowdown.

Just three years ago, a survey of more than 150 senior marketing executives published in the International Journal of Research in Marketing mirrored findings of the McKinsey & Co. report. The authors developed and tested a model examining the outcomes for companies who pursued active marketing strategies during times of recession. It found that those companies that increased marketing and advertising in the contraction phases of the business cycle performed better than those that stuck to the traditional line of cuts that often take place during a recession.

The Nutraceutical Industry
Looking forward, what companies are primed to have an advantage when a recession hits? In spite of all the evidence suggesting that recessions are a good time to market more aggressively, management teams need to judge each case on its individual merits. The best strategy for your brand—whether it is offense or defense—will depend on a number of things: the nature of your category, your category's size, the inclinations of your customers, your brand’s strength relative to others, and, most important, the actions and reactions you expect from your competitors.

It's rare to find a company that has historically valued marketing, features a corporate culture that rewards risk taking, and has more than a little spare change lying around. The firms that have all three characteristics will do very well in a recession. These statistics provide a strong endorsement for ongoing marketing campaigns to sustain product brands in lean times.

Discussion among publishing leaders in the nutraceutical marketplace revealed that for some time it's been difficult to sway advertisers to maintain a viable ad program. Most advertising representatives say they are doing well with renewals. One publication noted that while advertisers have not increased placement, some companies have expanded presence from a one-third page to a full-page ad. Overall, publications noted that ad sales were up approximately 10–45% over 2007.

A new study including more than 675 B-to-B marketers was conducted by BtoB magazine in January 2008. Despite concerns about a recession, over 70% of marketers indicated they would either hold or increase their marketing budgets in 2008.

Of those surveyed, nearly half increased spending for online marketing. Direct and event marketing followed by print advertising also showed increases.

According to Len Monheit, global supply products portfolio director at New Hope Natural Media (Boulder, CO), supplement industry print advertising seems to be up in many parts of the market, while e-media marketing is consistently moving at a higher pace.

"Industry surveys indicate overall fourth quarter advertising may stall a bit, but e-media should be fine. For the most part, it appears right now that the industry has weathered the storm," says Monheit.

Reality Check
That means now is the time to take advantage of this space vacuum. If clued-up companies aggressively market more, there is greater potential to pull in business.

In his book Ogilvy on Advertising, David Ogilvy discussed marketing in a recession.

"What should you do in a time of recession, when you need every penny to sustain your earnings? Stop advertising?"

Citing research, Ogilvy noted that companies that retained their ongoing advertising budgets had more than doubled their sales two years later, while sales from companies that cut their advertising budget had barely gone up 50%. Three years later, sales were down for companies that had cut their advertising while it was up for those that did not. The net income for those companies also followed the same suit over the same period of years—those companies that did not cut back their advertising had more than tripled in sales, while companies that did cut back during the recessions had barely doubled.

Marketing During a Recession
During recessionary times you have to be smarter. You have to market smarter and reach a larger target audience with your brand marketing message.

The arrival of a recession means it is time for corporate executives and marketing managers to change tactics and focus on why brand equity is your best defense in a recession. Talk about the power of strong brands in the face of declining customer spending. Explore the topic of brand loyalty, not in terms of growing share of wallet, but retaining it in the face of lower-priced value alternatives. Most importantly, remember that the brands that continue to build their equity in the recession will be best placed to enjoy the fruits of their labor when the economy inevitably returns to growth.

In difficult economic times, a brand must reinforce the attributes that make it appealing and differentiated in the eyes of existing customers. Different strategies suggest themselves, depending on the existing status of the brand.

Advertising in a down economy clearly creates a competitive advantage. The vast majority of executives agree that when they see a company advertising in a down economy, it makes them feel more positive about the company's commitment to its products and services. More importantly, it also keeps those companies at the top of their mind when purchase decisions are made.

The greater the active marketing of a company during a recession, the better is its marketing and business performance. Advertising aggressively in a recession can not only boost sales and market share, it can also open a lead on the more timid competition. It can skillfully reposition a product to take advantage of new purchasing concerns, give the image of corporate stability within a chaotic business environment, give a company the opportunity to dominate the advertising media, and probably most importantly, increase revenues in the long term

.

Judith Kautz, the editor of Small Business Notes states:

The belief that small businesses fare poorly in economic slowdowns is a common misconception that is not generally true. Solidly run small businesses actually hold their own during downturns. While we all like to believe our businesses fit the definition of "solidly run", let's take a look at what are some commonly cited best practices for all businesses to be following during a time of economic downturn.

Revisit Your Business Plan
The number one recommendation, across the board, is to reexamine your business plan. Your business plan should be the working base for your company. Have you strayed from it in any way? Does it need revision in light of new information? Should you be considering whole new directions that are not included in it? Sit down and read it from the perspective of someone about to invest in your business - and make any revisions that seem appropriate. You may even identify additional information you need to know in order to make decisions about the future of the company.

Seek Supporters and Advisors
If ever there is a time to network, this is it. Many companies set up advisory boards that include a wide spectrum of professional expertise that they can draw on for advice. Such board members often are attorneys, certified public accountants, civic club leaders, owners or managers of businesses similar to yours or whom you do business with, and retired executives. The latest jargon for these types of boards is "Power Circles." An apt name because the members should be power connections for you - knowledgeable about the environment in which you do business and able to connect you with the information you need to make good decisions. The purpose of the board is to offer you objectivity. They should be people you can be truthful with and who will keep your disclosures confidential. Most groups like this discuss specific business problems you have, using the meeting to brainstorm possible solutions.
If you don't belong to civic and professional organizations, do it. Here are groups of people facing similar challenges to you. Their joint expertise and resources can be a powerful support mechanism when times are tough.

Make Customer Satisfaction Your Priority
Your customers are your lifeblood in any economic climate. In a downturn they are what keep you in business. Treat them very well. Spend time listening to your clients to hear what they like and do not like about the services you offer. Change those that you can. Take time to be innovative in meeting your customer needs. Perhaps taking the time to computerize customer information would allow you to more easily access their particular preferences and respond quickly to their needs. Perhaps taking time to call special clients to discuss how you could serve them better would be productive. Maybe an extra telephone line would speed the service time. Do whatever you need to do to keep your current customers loyal and to position yourself to win new customers.

Expand Relationships with Existing Clients/ Sign More Long-term Deals
Given that your customers are satisfied, they should want to do more business with you. Find out if there are ways you can expand what you do for them, perhaps by offering more products or services or fulfilling other needs that they have. Long-term deals add to your security. So, if you have happy customers, offer a discount to those who are willing to sign a long-term contract or who are willing to pay cash up front for a contracted set of services. Cash up front is particularly attractive because it makes you look good on paper and can allow you to lock in favorable financing from financial institutions.

Advertise/Sell
In a downturn one of the first places many businesses cut expenses is in advertising - a real mistake. As part of the philosophy of expanding your base and recruiting more customers, you need to advertise and sell more than ever. People are looking for better ways to do business. If you have established strong customer satisfaction, this is the time to get the message out.

Seek New Business Opportunities (Diversify)
A downturn sounds like a terrible time to diversify, doesn't it? But there are opportunities out there to be taken. And given that you have done your homework in establishing yourself on a solid financial base, this is an opportune time to broaden your base. Diversification gives you more stability because a down market in one product may be compensated for by another product. The tricky part is, of course, finding complementary products that face differing market challenges. You don't want to stretch your expertise by producing totally different products, yet you do want to target different types of markets so that softness in one may not be mirrored in the other. A simple example of a way to seek new opportunities is to establishi an internet business for a retail store. You have provided a new way to service your regular customers and expanded the audience you reach.

Form Alliances
Alliances with your vendors or with closely aligned types of products is always a good way to strengthen your customer base. With the right alliance you are reaching a broader spectrum of possible customers and you have more to offer each potential customer.

Diversify Your Customer Base
It may be possible that you have been selling to a limited subgroup within the community and you can expand the appeal of your product to a wider audience. For instance, you may be primarily selling to a specific age, ethnic, or gender group and with different advertising or a slight modification in the product, you can reach a broader spectrum of the population. Simple things like instructions in another language or wording advertising slightly differently can have a major impact in who your business attracts.

Find Ways to Save Time and Money
Collections are a great place to start in tightening your belt. Not only do you need to be providing incentives to your customers to pay ontime or even early, but you need an efficient collection system that gives you advance warning of problems as they develop. Similarly, you need to be paying your bills on time and taking advantage of every possible discount that you can.
Look at fixed and variable costs. What among the variable costs can you cut back on or put off for later? What among the fixed costs can you find a better deal on or negotiate more favorable terms for? And, pay attention to your banking relationships.
Keep in touch with your banker, apprising them of any company developments. If you face a tight situation, having your banker knowledgeable about the positives of you and your business will make them much more amenable to helping you through difficult times.
Consider lowering your prices. You need to maintain your profitability, but you also need to retain your customers who are also most likely hurting. If you can find more efficient methods that allow you to cut costs, not only will you retain your customers, but you also may attract others.

Watch for Signs and Act on Them
Look for changes in psychology and behavior in your clientele. They may be spending less or putting projects on hold. They may not be paying their bills as quickly. If you are in touch with your customers, you will be aware of differences in buying habits. Contact them before they contact you about what the problems are. Can you help them in some way? You can gain a longtime relationship with a customer by approaching them proactively with the view of being there to help them through their own hard times.

Mobilize Your People to Save Jobs
Economic downturns are scary times for employees. Many firms cut personnel and add to the workload of the remaining employees. Involve them in cost cutting. Let them know they are important to you and that you are committed to keeping them. If they know that they are perceived as an active part of the solution, they can identify sources of savings that never occurred to you.
Find rewards that are not costly yet acknowledge their efforts. As hokey as it sounds, one successful businessman placed post-it notes on the restroom mirrors every evening noting positives that had been reported about various individuals during that day. It became a delightful, early morning ritual for the employees to discover each morning what the CEO had noted from the day before.
Whether or not the econoomy is in a recession, any of these methods can strengthen your organization - and your bottom line. This is what makes a "solidly run" business. It means returning to the roots of your business and making certain that every one is healthy. All of these principles are worth revisiting at least annually, in good or bad times.

Judith Kautz, the editor of Small Business Notes can be contacted by sending email to editor@smallbusinessnotes.com.