Innovation Series: Growth in uncertain times – Marketing Consulting Services. In a recession, consumers are likely to become frugal and cautious in their expenditures. Past recessions have shown that marketers who have taken the approach of “going through this together” with their customers have been more successful at maintaining share and revenue during a recession than their competition. Not surprisingly, value driven brands tend to do better than brands positioned as premium.
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Companies that target the middle income segment of the market are likely to face the greatest challenges in a recessionary economy. Marketers should brace for a challenging year ahead. The pressure for proven returns on marketing expenditures will increase. Marketers are likely to take a shorter term approach to advertising investments. Arcus recently researched strategies in a slow market and identified seven key drivers of successful marketing plans:
1. Deeper, more frequent customer research.
Consumers tend to postpone purchase decisions, trade down, or buy less in a recession. It is critical to understand how your most profitable customer is redefining value in a recession. It’s likely that price elasticity curves will tighten. Consumers will expect more for their dollar and will spend more time searching for value and be less brand-loyal than they usually are. Trust is a critical component of the purchase influencer mix. Trusted brands are more likely to have successful new product and extension launches. But overall interest in new brands and new categories tends to decline in a recession.
2. Maintain marketing spending.
Uncertain consumers need the reassurance of known brands–and more consumers at home watching television can deliver higher than expected audiences at lower cost-per-thousand impressions. Arcus has analyzed the impact of cut backs in marketing investments in a slowdown in 22 industries. It is proven that an increase in advertising in some industries during a recession, when competitors are cutting back, can dramatically improve market share and return on investment at lower cost than during good economic times.
Managing growth and change as key elements of a business strategy. An interview with Mr. Jeff Cates, Managing Director of Intuit Canada. Mr. Cates says you need to distil to those critical few areas that are going to deliver the biggest impact as you look to grow your business. It is also important to understand the company’s growth opportunities based on customer insights. Once the growth opportunities are identified, CEOs need to distil to those critical few areas that are going to deliver the biggest impact as they look to grow their business. Read more.
3. Adjust product portfolios.
Optimizing product mix and marketing investment strategy is critical to driving an increase in market share. Consumers tend to trade down to models that stress good value, such as cars with fewer options, when the economy slows down. A new demand forecast model for each item in a product line is required to adjust to new consumer purchase patterns. For example, consumers favour multi-purpose goods over specialized products. A multipurpose cleaner will sell better than one targeted to only the shower stall. Industrial customers prefer to see products and services unbundled and priced separately. Consumers tend to focus more on reliability, durability, safety and performance and less on gimmicks. New product advertising should stress superior price performance because tangible benefits will tend to resonate most strongly with consumers faced with a recessionary economy.
4. Stress market share.
In all but a few technology categories that may enjoy strong growth prospects, companies face a battle for market share and, for some, their viability. Study your existing cost structure to find any room for improvement; even a small price reduction may have an impact on how your customer rates your product offering. Companies with strong existing market positions and highly efficient cost structures can expect to hold or gain market share. It may be possible for other companies with money to invest to also be able to grow through the acquisition of weaker competitors.
5. Support your distributors.
Consider introducing early-buy allowances, extended financing and creating flexible return policies as an incentive for distributors to stock your full product line. This holds particularly true with products new to the market that do not have a proven track record. In an uncertain economy, few distributors will invest working capital in excess inventories without an incentive to do so. Be cautious in considering expansion to lower-priced distribution channels; such an action may endanger your existing relationships and brand image. Do consider re-evaluating your relationship with any of your under-performing distributors and, if possible, watch for the opportunity to hire strong talent that your competition may be letting go.
6. Retain core values.
When layoffs and redundancies cannot be avoided, senior management can work to retain the loyalty of remaining employees through assurances that the company will weather the storm. Demonstrate how the company is working to cut expenses and not quality. Stress their value to the company. Now is the time for the CEO and other senior personnel to be visible to employees and existing customers, as well as working to secure new business. Be aware that sometimes managing the balance sheet can take over from appropriate management of customer relationships. CEOs should counter the temptation to do so. A recession is not the time to abandon your marketing strategy; it is the time to adapt it.
7. Strategic pricing tactics.
Realize that your customers will be investigating for the best deals on both large and small purchases. Your company should consider if there is room to reduce list prices, especially if yours are higher than the competition, but do not try to start a price war or race to the bottom with your competitors. See if there is room for more price promotions or other customer incentives. Consider extending quantity discounts previously reserved for your best customers and look into extending credit to valuable customers who might otherwise pass on your product. Avoid leaning on mail in offers and “chances to win”; when there are only so many dollars in the wallet at checkout, a potential refund later may not be enough.