Marketing in Recessionary times.pdf

8/13/2019 Marketing in Recessionary times.pdf

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To try and market premium products in difficult times is atough task, and requires two questions to be answered rightat the outset. One, what is the change in spending habits ofconsumers in the new economy and two, what segment isyour product catering to.

To answer the first question, consumers change theirspending habits significantly during the bad times.Consumers tend to balance the household budget byspending on daily necessities and cutting down on luxurieslike chocolates, biscuits etc. Even within luxury items,consumers tend not to refrain from luxury items altogether.Instead, the decision becomes much more priority basedand more thought goes into the process. Thus, thebuying decision is dependent on the value theproduct offers and the need that exists for theproduct.

T h e s e c o n d q u e s t i o n w a r r a n t ssegmentation of the high-end market into

high net-worth buyers, must-have buyersand luxury wannabes. High net-worth buyersare generally less impacted by the recession andtend to continue the same lifestyle. Must-have buyersare considerably affected by the downturn and have atendency to downgrade, yet consider quality and brandimage as their primary concern. Hence, this segment mightneed discounts or exclusive buying options to inducebuying. The last segment does not possess the innatecapacity to consume luxury products and hence would bedowngrading to lower price point substitutes.

So this brings us to the question of what can be done to

market such premium products during difficult times. Theonly solace is that consumers traditionally seek solace inlower-cost treats during hard times to indulge themselves.

Thus the best way out is to position existing products andservices as affordable luxuries . This would encouragespending by giving the perception that you are deliveringmuch more value than what is being charged.

A good example would be that of DeBeers whose recentadvertisements are aimed at convincing consumers thatexpensive diamonds are not luxuries but thoughtfulinvestments. Changing their mantra from the familiar ADiamond Is Forever", their new advertisements played thetune of "Here Today. Here Tomorrow. In times like these,it's perhaps wise to reflect on the things that last rather thanthe things that come and go." To emphasize the longevity of

the investment a diamond could be, DeBeers addedA diamond has outlasted all that history can

throw at it, from the formation ofcontinents to the turmoil of markets. Across the generations, in a thousandyears' time, a diamond will still be here.

Just like love."

There are other aspects also which couldalso be kept in mind when marketing luxury

products during a downturn. The first is to offer enhanced value to the consumer by means of green credentials,ethical sourcing etc. However, care has to be taken to notdilute the brand. The second aspect is to continue to investin marketing, even if the means of promotion is changed.

The third aspect is to engage with customers deeply, thusencouraging word-of-mouth promotion. The fourth is tofocus on in-home luxuries since people tend to spend moreon making their stay at home as entertaining and enjoyableas possible during difficult times.

MARKETING LUXURY IN DIFFICULT TIMESAYSHWARYA R VIKRAM & TOSHE PRASA


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Marketing during recession has always been seen as a luxuryon the part of a firm primarily because advertisement andmarketing have mostly been labeled as discretionary costs

or expenditures and not as investments by a firm. Butcontrary to the popular perception and also taking a dig atthe way most firms operate, we are trying to argue for thecase that maintaining or increasing marketing spend duringrecession is a sound way to strengthen a brand and derivesubstantial long term strategic benefits.

Firms, during recession focus entirely onconserving their cash flows and thus to nethigher profits they resort to a cost cuttingspree, marketing being one of the

liabilities. On the other hand, firms tendto increase marketing spend during goodtimes, which does not yield proportionallysignificant benefits because all competitors dothe same and thus on a relative level you have notincreased your proportion of the total marketing spend inthe industry.

Probably this is where the opportunity lies. Duringrecession firms in general cut down marketing expenditure.

Therefore, a firm that increases or even maintains its

marketing budget has a significant advantage as it cancapture greater share of mind from the customer, becausethe competitive advertisement levels are reducedsignificantly. Also the firms get a better return on their

marketing investment as the price of advertising goes downsignificantly during recession due to reduced demand, whicheffectively translates into higher reach for the firm.

Moreover, during recessionary times consumers tend tocontemplate on higher value addition from the productsused by them. Thus, the switching potential of theconsumers at this time is pretty high, which makes the casefor increasing or maintaining marketing expenditure during

recession even stronger.

Not just from an argumentative standpoint,but also this claim is backed by a strong and

consistent body of historical data. Severalstudies of marketing over the ten

recessions of 20th

century have concludedthat the sales and profits of firms that cutback on marketing declined significantly

during recession and continued to lag evenafter economic recovery. On the other hand, firms

that continue to invest in marketing during recession reapedsignificant profits not only during recession but also for afew years after the recovery because as has been mentionedearlier, during recession a consumer doesnt vanish, he justbecomes marginally discretional in his purchases and seeks ahigher value for his money. Companies that have conveyed

this value through strong marketing have done well in therough waters of recession, and also beyond. The followingcases are examples in that direction only.

STRATEGIC MARKETING DURING RECESSIONAJAY SAMPATH & ARNAB SAHA


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Procter and Gamble

P&G's philosophy of spending during economic downturnsdates back to the Great Depression. Radio took Procter &Gamble's message into more homes than ever. Then a

variety of products such as Camay, Ivory and Lava Soap were promoted on product-oriented shows, almost likeinfomercials. In 1933, in the heart of the Great Depression,Procter literally invented the daytime soap operas throughradio networks, an advertising model that still exists.Looking ahead some 60 years to the recessionof 1990-1992, P&G's strategy of marketingfortitude once again prevailed. Procter &

Gamble was the only marketer amongthe five biggest U.S. advertisers toincrease spending in 1991. P&Gmanaged to increase sales and earningsduring this period (the late 1980s to early1990s) and company sales surpassed the $30billion mark in 1993.

Dell Computers

Dell Computers founded in 1984 was based on the direct-to-consumer model, which eliminated the retailer, allowingfor price discounts and continuous customer feedback. In1988, spurred by growing investor interest in technologystocks, the company went public. But it wasn't until 1991,

the height of the 1990-1992 recessions, that Dell chose tomake its most aggressive marketing move up to that time,and take on the established computer giants. The campaigncoincided with the introduction of its first notebookcomputer. In 1991, advertising in the entire computerhardware category was down by 17.5% over the previousyear. Apple, Digital, IBM and Tandy - some of the

category's leading spenders - all made significantspending cuts in the range of (-25%) to (-40%).

At the same time, Dell increased theirmarketing dollars 346% to $6 million, up

from just half a million in 1989 and $1.4million in 1990. While Dell was still notspending in the amount of the computer

giants, its message - eliminating themiddleman while offering superior

customer service - seemed to hit home withconsumers. Perhaps the marketing cut backs by its

competitors offered the opportunity that Dell needed tobreak into the consciousness of the mainstream Americanconsumer. The following year, Dell was included for thefirst time in the Fortune 500 roster of the world's largest

companies. By 1993, the company was among the top 5computer system makers worldwide, and in 2001, Dellbecame No. 1 in global market share.

STRATEGIC MARKETING DURING RECESSION


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Economies cannot always grow. Every period of boom in theeconomy is eventually followed by a slowdown. Such adownturn acts as a checkpoint for the economy and ringsalarm bells for investors. If this downturn makes theeconomy's GDP growth negative for two or more consecutivequarters, the economy is said to be in recession. A country'sGDP(Y) is a function of consumption, net exports,investment and government spending.

Y= C+I+G+X

When an economy faces a slowdown, a fear of recession gripsthe market. Hence, instead of spending more to increaseGDP by increasing consumption, consumers startcutting on spending. This leads to a viciouscycle of less consumer-spending taking theeconomy further down into recession.

Consumers now defer purchase of "longterm" goods like washing machines, furnitureetc. They usually understand that the economy

will recover in the months to come and hence wait forthe recovery, rather than buying these long term utility goodsfrom alternative lower priced sellers. Hence, a recessionaryperiod does not necessarily imply higher sales for lower pricedbrands in the long time utility segment. Rather, people whobuy these goods during this period are more conscious aboutquality and value for money and being too decisive aboutspending their bucks, they tend to go for reputed brands.Further consumers who are very loyal to their brands stick tothem even when their pockets are tighter. They might reducethe frequency of usage, but the product used seldom changes.

A monetarily tightened Dove soap consumer will use it moreeconomically, but is very unlikely to shift to Lux. Such brandloyalty and inertia driven behaviour is more common in theluxury goods segment. Analysis of consumer spending doneby Booz & Company in September, 2008 showed someinteresting results.

1. In a period of 6 months between April to September 2008,35% more US consumers stayed at home.2. Level one spending like vacation, dining out, frugalshopping etc. have reduced remarkably more than Level twospending like clothes, coffee, salons etc.

This research shows that during recession,consumers cut down spending on luxury goods

and services and not much on necessitygoods. In necessity goods segment, theconsumers become more conscious of where

they spend and hence brand loyalty and qualityof products drive purchases. Hence companies

should take recession as a period to build andstrengthen brands. They should not compromise on quality orbrand building by axing them by cost cutting measures.History has shown time and again that recession weeds out

weak brands and hails the stronger ones.

Hence, companies should take up recession as a check pointto verify and consolidate their strategic and operational

policies, for once they successfully fight through recession,they emerge as stronger market players.

CONSUMER SPENDING IN RECESSIONARY TIMESRAHUL ANAND


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1. Focus on your competition

Experts believe that during a recession it is always a good ideato focus more on competition using annual reports, feedbackfrom customers, sales force intelligence and information fromthe media. If all the competitors cut back on spending itmight be a good idea to maintain your companys level of

investment to gain a slight edge. For instance, in 2002Kimberly-Clarke reduced the number of diapers in pack ofHuggies in order to improve their margins. Procter & Gamblecould have done something on similar lines, but they decidednot to change the size of the Pampers pack. Instead theyadded the word Compare to the label. They were able tocounter the price advantage offered by Huggies by offeringmore discount coupons and improving the display of theirproduct stores.

2. Focus on your brand

During a downturn when resources arenot freely available it is a good idea tofocus on core brands rather thanintroducing product variants. Brands thatare strong offer value proposition that justifiescharging a price premium even during tough times. Peopleprefer to buy reputed brands as this gives them a sense ofsecurity. During a downturn companies should focus theirattention on trying to make their brands more accessible. Forinstance, during the 2002 Argentinean economic crisis,Unilever introduced small packs of Skip detergent which wereavailable for a small unit price. Also there might be a tendencyon the part of manufacturers to cut back on quality to savecosts. The consumers might not notice this for a while but this

would provide competitors with the opportunity to promotetheir brands as better quality brands in the long run. Also,

Internal branding to convince the workers about the strengthsof the brand is essential during an economic downturn.

3. Focus on your customers

The existing customer base of a brand is its biggest assetduring an economic recession. Feedback from the sales forceis essential to keep track of changing customer needs. Brandsshould focus on customer segments that offer the bestreturns. A more profitable segment can be targeted through ashift in positioning. This technique was adopted by Unilever in

Turkey during the 2001 recession for its Dove brand whereinthe target segment was shifted from upper class women to

women belonging to the middle class. This wasachieved by crafting a new value-orientation

appeal for the middle income group which was Dove both cleans and moisturizes theskin.

4.Focus on your communication

It makes sense to reallocate the marketing budget during arecession. For instance, it might be advisable to switch from

Television commercials to less expensive forms of advertisinglike print or outdoor media. In-store marketing of brandsthrives during downturns because the association of

consumers with brands does not die out all of a sudden sopoint-of-sale promotion of the brand is generally a good idea.

A MARKETERS GUIDE TO SUCCESS DURING A DOWNTMANOJ MOTTIANI & RACHIT KUMA


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On the topic of marketing expenditure

Marketing expenditure is considered a non-core expense in the view of the company and therefore the obvious choice duringdifficult times is cut down on this expenditure. However this isnot desirable since this will affect the health of the brand inthe long term, especially for categories like indulgenceproducts, which need top of the mind recall. Marketingexpenditure can be primarily divided into two promotionalexpenditure and market research expenditure. Promotionalexpenditure (mostly advertising spend) may have a limited

budget in such times and hence the focus must be to improvethe returns/productivity. There can be several ways to do this.One could be to focus on low cost advertising mediums theuse of regional media rather than national media, use ofadvertising in vernacular print media instead of English printmedia, use of radio etc. Another could be to keep thefrequency of exposure constant, but to reduce the duration ofeach exposure, say with a shorter 30 sec commercial instead ofa 2 minute commercial.

An opposing view is to increase the marketing spend during a

recession since the return on advertising exposure may bemore due to less clutter and higher chances of standing out.

The benefits of this expenditure can be reaped in the longerterm. However this might not be a practical option. Hence itis recommended not to drastically reduce the marketing spendduring difficult times. There is a need to use the promotionbudget creatively and effectively, in order to not affect thelong term prospects of the brand .

The second type of expenditure is marketing researchexpenditure. This may assume primary importance during a

recession since consumers undergo behavioral changes - the way they look at products and the factors they consider whenbuying a product tend to change. Thus, companies shouldcontinue spending on market research since it shall help themto understand consumers better and sustain market share.

On the focus promotions should have

There are two types of benefits, which are promoted in aproduct - functional and hedonic. Functional benefits arethose, which refer to the attributes of a product, and hedonic

benefits are indirect benefits, which might accrue from thebrand or image of the product. During a recession, consumerstend to be more value conscious/price conscious. Hence

promotions should appeal to the rationality of the consumerby focusing on the functional benefits of the product.Promotions should be centered on the core benefit beingoffered.

On the topic of how different product categories are affected

Since consumers turn value-conscious, value for moneyproducts of good quality tend to sell more in most segments.Consumers tend to downgrade even for daily necessities. Forexample, the soap segment experienced negative growth in

value terms, not because of volume reductions but becauseconsumers moved to products at lower price points. Intuitivelyit can be said that luxury products like watches, jewelry andbranded apparel may sell less, especially those targeted atmiddle and upper middle class segments. Well-off consumersmay not be affected as much by the recession and hence,extremely luxurious product sales may not be affected. Hencethe products target segment is a huge factor inunderstanding the changes it shall undergo during therecession. In-store private labels may increase in popularitydue to their perception as better value for money products.

On the topic of the internal changes in companies

Companies become more conscious about the returns on anyexpenditure they make at this time. New initiatives areevaluated very closely in terms of cost-benefit analysis. A

widespread reluctance to introduce new products is observed.

Product Rationalization is another widespread practice. That is, companies selectively promote their key products,probably brands that enjoy good consumer appeal and highmarket share. Niche products may be sidelined at this time,since they would not be a primary revenue-generatingsegment.

Long-term relationships with consumers insulate you fromchanges. As B-to-B customers tend to have long-termrelationships with their suppliers, one possible move is toensure that you maintain a good relationship with B-to-Bcustomers. Buyers tend to expect more from you duringrecession but the stable relationship will help keep your salesup.

PROF. SPEAK

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Marketing in Recessionary times.pdf