Whether our country’s in slowdown, panic or recession—or headed for one—now is an ideal time to leverage what has worked to companies advantage in prior downturns. During a recession, one of the first business casualties is the marketing budget. The instinct is to save money by cutting back on marketing, advertising and publis relations. Though this strategy might seem to make common sense, recessions are times that call for uncommon business wisdom. Recessions reward the agressive marketer and penalize the timid one.
Thus, it’s also an ideal time to increase public relations budgets as public relations is generally more cost-effective than advertising and often is a solution to limited marketing budgets.
“Companies that actually increase targeted marketing communications during a recession often can increase market share and/or reposition themselves to take advantage of changes and unstable economic conditions,” said John R. Nelson, managing director of CalCap Partners, LLC. “Focused communications that convey a company's value proposition will appeal to buyers, and result in the savvy company improving its market position—later to emerge stronger than it was before the recessionary period.”
For well-positioned companies, an economic recession should not prompt marketing cutbacks, but rather an aggressive increase in marketing spending to achieve superior business perfomance. Such is a key finding of a study (entitled "Turning Advertising into Advantage: Does Proactive Marketing During a Recession Pay Off?") authored by Gary Lilien and Arvind Rangaswamy of Penn State's Smeal College of Business. The study futehr notes that firms entering a recession witha pre-established stategic emphasis on marketing; an entrepreneurial culture; and a sufficient reserve of under-utlilized workers, cash and spare production capacity are best positioned to apporach recessions as opportunities to strengthen their competitive advantage. "Athletes often choose time of stress to mount attacks; strong runners and biccle racers may increase thier pace on hills or under other challenging condidtions, "the authors write. In a similar vein, proactive marketing includes both the sensing of the exsistence of the opportunity (a tough hill and fatigued opponents) and an aggressive response (possessing the necessary strength or nerve) to the opportunity."
A recessionary market can provide an opportunity for an industrial business to break from traditional budget-cutting patterns and build a greater market share through
aggressive media outreach. That is according to The Strategic Planning Institute of Cambridge, MA in an analysis of more than 1,000 industrial businesses in the PIMS (Profit Impact of Market Strategy) database.
In fact, the study indicated that businesses that are aggressive media spenders can increase their market share more than the typical business during market downturns. Correspondingly, businesses that reduce media expenditures in expansion times suffer loss of market share. Aggressive businesses may be able to accomplish these gains through greater expenditures without reducing short-term profitability.
Jim Roche, CEO of AutoPoint, which provides relationship-building software to automobile dealers, advises his clients to “Keep in mind that millions of consumers are still buying vehicles, both new and used, every day. Successful dealers empower their teams to think up new marketing campaigns that draw customers…The single common thread [among successful dealers during a downturn] seems to be the attitude that emanates from their leadership.”
Businesses that maintain aggressive marketing programs during a recession outperform companies that rely more on cost-cutting measures. Penton Research Services reports that shortly after the 1990-91 recession, Coopers & Lybrand, in conjunction with Business Science International, surveyed CEOs from companies about the effect the recession had on their profit growth and the actions they had taken in response.
Better performing businesses were more likely to have taken such actions as selling to new customers, expanding to new markets and increasing marketing communications spending. A larger percentage of firms were only “somewhat” slowed by the downturn than companies that were “significantly” slowed. This indicated that marketing actions were most effective in coping with the recession. A strong marketing program enables a firm to solidify its customer base, take business way from less aggressive competitors and position itself for future growth during the recovery.
According to a recent Yankelovich/Harris Interactive Research Report, three in five growth companies slowed by the recession found aggressive marketing worked better than traditional cost-containment measures to beat the downturn. Other important findings:
- Among those firms reporting they were “only somewhat” slowed by the recession, 63% placed primary focus on marketing; 26% focused on cost containment.
- In contrast, firms that were “significantly” slowed by the recession were considerably less market-driven as a group: 46% placed primary emphasis on marketing; 45% concentrated first on cost containment.
These results bear out the effectiveness of an offensive strategy in times of economic uncertainty. Generally, companies looking first to build market share fared better than their counterparts who relied predominately on cost-cutting techniques.
Further, an overwhelming majority of American executives (86%), agree that companies that visibly communicate in a down economy stay more top-of-mind when purchasing decisions are being made and create more positive impressions about their commitment to their products and services. Also, a whopping 99% agree that even in a down economy, it’s important to keep abreast of new products and services.
“In my experience working with emerging growth companies over the years, I’ve learned that in a recession the last activity in the business to cut is the marketing, and that all other activities such as research and development, product engineering, administrative and clerical should be cut or postponed, but not marketing,” said Lee R. Petillion of Petillon, of Hiraide, Loomis & Katz LLP, a law firm that has worked with venture capital firms, emerging growth, and middle-market companies through several recessions.
Contact: This article was written by Devon Blaine, president and CEO of The Blaine Group, Inc. She can be reached at [email protected].