Marketing In A Down Market

Marketing in a Down Market Jonathan Fisher December 26, 2008 Prepared by: 7026 Old Katy Rd., Ste. 210 Houston, TX 77024 713.942.7959 t www.BrandExtract.com

©2008 BrandExtract, proprietary and confidential. 12/26/08 2

Marketing in a down market. Smart companies grow in down economies. We found opinions from various experts regarding strategies for effective marketing during an economic downturn, evidence of strong performance following increased marketing investments during a downturn, and case examples of such performance. Increased Advertising Yields Positive Results during a Downturn In general, it has been demonstrated that companies that maintain or increase their advertising spending during an economic downturn tend to perform better in the long run, despite the immediate financial hit. Results of various studies show that companies who spend more have been able to increase their dollar sales and/or market share:

• In2002McKinseyreleasedtheresultsofasurveyof1,000mainlyindustrialUScompaniesover18years(1982‐99);thestudyfoundthatthosethatpursuedacontrarianstrategyduringtherecessionsinthisperiodoftenbecameindustryleaders(thosethatstayedinthetopquartileofperformanceinthoseindustries).Forexample,successfulleadersspent9percentmore(asapercentageofsales)onadvertisingthanunsuccessfulleadersintherecession(“MovingUpinaDownturn,”McKinsey,2002,http://corporatefinance.mckinsey.com/_downloads/knowledge/mof/2002_no3/3moving_up.pdf;“Itpaystogoagainsttheflowinrecessions,”BusinessTimesSingapore,July8,2002).

• InastudyofU.S.recessions,McGraw‐HillResearchanalyzed600companiesfrom1980‐1985.Theresultsshowedthatbusiness‐to‐businessfirmsthatmaintainedorincreasedtheiradvertisingexpendituresduringthe1981‐1982recessionaveragedsignificantlyhighersalesgrowth,bothduringtherecessionandforthefollowingthreeyears,thanthosethateliminatedordecreasedadvertising.By1985,salesofcompaniesthatwereaggressiverecessionadvertisershadrisen256%overthosethatdidn’tkeepuptheiradvertising.

• Duringthelastrecession(early2000s),25%ofbusinessesaggressivelyincreasedmediaadvertisingexpenditures;thesecompaniesincreasedtheirmarketshare2.5timestheaverageforallbusinessesinthepost‐recessionperiod.


• Anotherstudydocumenteda1.5pointincreaseinmarketshareamongbusinessesincreasingadspendingduringrecessionaryperiods.Bycontrast,duringexpansionperiods,80percentofbusinessesincreasedadvertisingbudgetswithnoimprovementinmarketshare,sincemostcompetitorsdidthesamething.

USA Today reported in August 2001 that several major marketers had boosted sales and share by increasing spending despite the recessionary environment. Coca-Cola’s net income was up 22% after boosting marketing. Gillette increased second quarter advertising spending by 20% resulting in the Venus capturing 45% of the women's razor market. So you’re not Coke or Proctor & Gamble, but the principles are true for any size business. Marketing in a down market yields increased opportunities not found in a bull market. Marketing is not the only elixir to cure a slow economy. Other Effective Marketing Strategies during a Downturn While advertising often plays a key role in driving a company’s success during bad economic times, a recent white paper by Cliff Freeman Partners says that “minus a sound business model, relevant and unique products/services and a core marketing platform (placement, pricing and basic promotion), advertising is a waste of money”. The paper identifies four additional strategies that enterprises have historically used to succeed during tough economic times: • Bydeliveringproduct/serviceinnovation• Bytappingnewmarkets• Byacquiringundervaluedassetsthatalignwithyourenterprise• Byincreasingadvertisingwithamessagethatcommunicatesvalue Dell, Johnson & Johnson, PepsiCo and Staples are four examples of companies that did some or all of these things during tough economic times and advanced as their competitors faded. The following is a profile of Dell from their white paper: In the early 1990’s, while many businesses were responding to declining sales and shrinking revenues by slashing spending and cutting payrolls, Dell did just the opposite. Rather than trim R&D, they stuck to their plan of developing proprietary technology. They committed to a new generation of products and opened a new plant in Ireland to deliver on it. They also stretched their distribution approach by adding new channels including a deal with Staples (a risky move given their direct to consumer formula). Even more aggressive, they focused on expansion into new markets. Their focus and tenacity lead to the introduction of 22 new desktop and laptop PCs that year.


Dell supported the new product lines and fueled their market expansion programs with a heavy investment in marketing and promotion. In 1991 advertising spending in the computer hardware category was down by 17.5% year-on-year. The category’s leaders including IBM, Apple, Digital and Tandy cut advertising expenditure by 25 to 40%. Dell’s increased from half a million dollars in 1989 to $1.4 million in 1990 to $6 million in 1991—an increase of 346%. In it’s messaging, Dell stuck to a clear value proposition “by eliminating the middleman and offering superior customer service, you the customer are the winner.” The value message resonated with consumers and the reduced spending by their competitors gave Dell’s marketing program even more impact. Dell got a big share of mind among mainstream American consumers and sales more than doubled. “It’s as important to figure out what you’re not going to do as it is to know what you are going to do,” said Michael Dell in his book Direct from Dell. As competitors implemented restructuring plans and slashed spending, Dell broke out of the pack by delivering innovation and value to customers around the globe. In 1992, Fortune magazine included Dell Computer Corporation in its list of the world's 500 largest companies. The following year, the company was among the top five computer system makers worldwide. In 2000 Dell became number one in global market share. So what other “Tips for surviving in tough times” can we offer? • Beware,discountingcanbeaddictive:Unlessthepricereductionistrulystrategic‐‐e.g.,adiscountretailerorbrokerageoraone‐timeeventtodrivetraffic‐‐youcouldlivetoregretit.

• Watchthemarketforopportunity:Someofthemostsuccessfulrecession‐eralauncheswerenaturaloffshootsoftheconditionscreatedbyorcausingthecrisis,i.e.highgaspricesspawningfuel‐efficientcars,interest‐bearingcheckingaccountsthatsprangfromhighinterestratesinthe1970sand'80s,ordeclininggaspricesandgas‐guzzlingSUVs.Becreativeandlookforwhatthemarketneeds.

• Getclosertoyourexistingcustomers.Duringnormaltimes80percentoftheprofitscomefrom20percentofyourcustomers.AccordingtoarecentarticlebyBillLowellofBusinessdevelopmentDirectives(CEOofaleadingresearchcompanyandprofessoratUniversityofWisconsin’scommunicationsdepartment)inarecession95percentoftheprofitscomefrom5percent.


• Concentratemediabuysforincreasednegotiatingpowerandevendeeperreducedrates.Chancesareifyouarehurtingsoisthemagazineorradiostation.Inabuyersmarketyou’llsave50to70percentforthatplacement.

• Lockinlong‐termcontractsindownmarketstoincreasebuyingpower.Mostrecessionsdon’tlastmorethan18monthsandifyounegotiateyourbuysnearthebottomyouenjoythosedeepdiscountslongafterthemarkethasdrivenpricingbackup.

• Communicateyourvision.Thevastmajorityofcompaniesdonotadequatelycommunicatewiththeiremployees.Andnowmorethaneveryouneedyourpeoplerowinginthesamedirection.Hostatownhallmeeting,sendaletterfromthepresident,postflyersinthebreakrooms,sendgroupvoicemailsandmore.Don’tassumeyouremployeesareonthepage.Nineoutoftentimestheyarenot.

• Lessismore.Reevaluateyourmarketingforincreasedefficiencies.Maybeyourcustomersdon’tneedaneight‐pagebrochurewhenatwopagecutsheetwilldo.Reservethoseexpensivecapabilitiespackagesforfollowingupafterthetradeshow.Insteadcreatesimplelowcostliterature(targetedtotheshowaudiences)tohandoutatyourbooth.

(“Recession Can Be a Marketer’s Friend: From Soap Operas to iPods: History Suggests Slumps Spawn Innovation,” Advertising Age, March 24, 2008). Tips for advertising in a recession: • Don’thawkpatriotism.• Focusonvalueandrationalbenefits,notprice.• Lookforwaystoputtheconsumerincontrol.• Evaluateexistingbrandmessengersforappropriateness.• Employhumorandescapism. (“How to Market Through Recession Jitters: Experts: Focus on Value, Enable Consumers to Be Informed, in Control,” Advertising Age, March 24, 2008). We hope this research is beneficial to you and we look forward to addressing any questions you may have. Jonathan Fisher CEO BrandExtract www.brandextract.com 713-942-7959


Supporting Materials upon request As articles referenced above: The McKinsey study - Moving Up in a Downturn Cliff Freeman - Recession White Paper Marketing Science Institute, Kristina Frankenberger and Roger Graham, 2003 - Should Firms Increase Advertising Expenditures during Recessions? Advertising Age, Jack Neff, March 24, 2008 - Recession Can Be a Marketer's Friend: From Soap Operas to iPods: History Suggests Slumps Spawn Innovation Advertising Age, March 24, 2008 - How to Market Through Recession Jitters: Experts: Focus on Value, Enable Consumers to Be Informed, in Control USA Today, Theresa Howard, August 7, 2001 - Increasing ad budgets pays off for marketers Advertising Age, February 4, 2008 - Recession, eh? P&G, Colgate boost ad bucks

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Marketing In A Down Market