MARKETING IN A DOWNTURN

1. MARKETING IN A DOWNTURN

2. “Consumers don’t stop spending when economies go through down cycles. They look harder for value”. Kevin Roberts, Saatchi and Saatchi

3. American Marketing Association believes we have entered a period of austerity marketing, which is defined as a marketing to consumers who don’t want to spend.

4. Austerity Marketing • In this period of troubled economy, a shift in consumer behaviour has taken place. Research showed that consumers are re-evaluating their needs and cutting out nonessentials. • Consumers are taking a different approach to shopping and money management, they are being careful how much they are spending and how they are spending it. Consumers are seeking out the best value for their money. And they are balancing satisfactory purchases with discount shopping. • Marketers have to adapt their marketing strategies to this change in behaviour, to keep selling their products. Consumers want to know what they are getting for their money. This value proposition is now becoming a primary differentiator.

5. Ph.Kotler on Recession • http://www.youtube.com/watch?v=7hbRZ3ZCyI8

6. Consumers response to downturn • A move toward lower-priced products and brands. Consumers will replace buying national brands with store brands and even generic brands. This changed behaviour will fall hard on national and international premium brands, especially the weaker higher priced brands. • A reduction or postponement of discretionary purchases such as autos, furniture, major appliances, and expensive vacations. • A cutback in driving and a tendency to buy more from suppliers nearer to their work or home. They will spend more time eating their meals at home and relying on in-home entertainment from TV and the Internet.

7. Businesses response to downturn • Reducing production and ordering fewer goods from their suppliers. They don’t want to build inventories in the face of falling demand. They don’t want to slash prices in order to liquidate inventories. • Cutting their rate of capital investment. This will hurt the demand for steel, cement, machinery, software, and many other inputs. • Reducing their marketing budgets substantially. • Postponing new product development and putting major new projects on hold.

8. What to do? • Drop losing customer segments • Drop losing customers within a segment • Drop losing geographical locations • Drop losing products • Lower prices or promote lower cost brands • Reduce or discontinue ads and promotions that aren’t working

9. P&G decided to cut marketing costs from 25% to 20% of sales toremain competitive in a down market. • Standardised more of their product formulations, packaging and advertising around the world. • Reduced the number of sizes and flavours. • Dropped or sold some weaker brands. • Launched fewer but more promising brands. • Reduced trade and consumer promotions. • Reduced the rate of advertising growth.

10. What to Do?

11. Profit Impact of Marketing Strategy (PIMS) Study In 1999, PIMS conducted a study of 183 UK-based companies that compared advertising spend during recessions to share and profit gains during recovery – those that spent in recession did better afterward than those that did not.

12. Why keep advertising in tough times? Short term profitability vs increased profitability in long run • Evidence suggests that cutting advertising in the short term won’t boost profits by much AND will damage long term profitability. • Companies which cut their marketing budgets saw a decline in ROCE in post recession years. • Those which maintained budgets saw a modest increase. • The largest increase in ROCE in recovery years were those who increased their marketing activity during recessionary times Source; Hilier analysis of PIMS data 2001

13. Firms maintaining ad budgets during recession significantly outperform their rivals in the following years Companies who increased advertising budgets during recession Source; McGraw Hill Study

14. Actions That Have Been Taken In Response To The Recession

15. Changing Use Of The Marketing Tool Kit

16. I.Ansoff Matrix and The Recession New products Existing products 54% are finding new markets, such as new industries or new geographical areas, for their current product offering 39% are adding new products or services to current offering and selling these to new markets such new industries or new geographical areas New markets Existing markets 76% are focusing on current product offering in order to extract more business from current markets 59% are adding new products or services to the existing product offering and selling these to market(s) currently served

17. “Good costs, bad costs”* Analysis shows that some costs must not be cut during times of recession, some costs can be cut, and some depend on the strategic strength of the company and brand. IT DEPENDS Retain spare capacity Price aggression Out-sourcing CAN CUT Fixed capital Working capital General and admin DO NOT CUT Marketing Quality Product Development /R&D *There is no “business panacea” which dictates that one strategy will work for all businesses, and these strategies are generated from analysis of averages across different sectors, brands and businesses

18. How marketing specialists agree with the given statements Lowering prices during economic recession is the right strategy The effectiveness of marketing means during recession becomes particularly relevant The market share of companies that do not reduce marketing costs during recession, after recession grows faster than the share of those companies who reduce marketing costs Economic recession offers new possibilities

19. How marketing specialists agree with the given statements During economic recession demand for business consulting services deceases Big companies reduce marketing budget on a larger scale than small companies Increasing marketing costs during recession slightly reduces companies‘ profitability

20. Using a 5-point scale, marketing specialists evaluated for which of the below listed strategies (means) changes in the business environment have the greatest effect (from 1 – very slight effect to 5 – very strong effect).

21. Using a 5-point scale, marketing specialists evaluated for which of the below listed strategies (means) changes in the business environment have the greatest effect (from 1 – very slight effect to 5 – very strong effect)

22. How should the use of integrated marketing communication channels change during economic recession?

23. How should the use of small budget communication channels change because of economic crisis in organizations?

24. High RISK OF SALES DOWNTURN Low High Will seek lower-cost product and brand substitutes such as private labels Will deeply reduce or eliminate treats or seek lower-cost substitutes Will put off all durable purchases unless forced to make emergency replacements; will delay repairs and personal services Will eliminate purchases in this category Slam-on the- Brakes BEHAVIOR CHANGE Will seek out favorite brands at lower prices but settle for cheaper, less-preferred alternatives; will stock up on good deals Will cut back somewhat on frequency and quantity and emphasize value Will delay major purchases, repair rather than replace, seek value and low ownership costs Rather than extra features, and negotiate at point of sale Will deeply curtail expendables Pained-but- Patient Will continue to buy favorite brands at prerecession levels Will be more selective in purchasing luxuries Will seek better quality for the price; will negotiate harder at point of sale Rarely regards any purchase as unjustifiable but may reduce the most conspicuous consumption in this category Comfortably Well-Off Will continue to buy favorite brands at prerecession levels Will continue to buy favorite brands at prerecession levels May buy if there is a great deal; otherwise may postpone Is reluctant to regard any customary purchase as unjustifiable; may not want to expand consumption to new types of purchases Live-for-today Low

25. DECLINING MARKET Substantial reduction in opportunities for companies STABLE MARKET Slight or no change in opportunities for companies MIXED MARKET Slight or no change for stronger competitors; a reduction for others

26. Understanding the Post-Recession Consumers by Paul Flatters and Michael Willmott Harvard Business Review 2009, July/August

27. Post recession consumers It’s possible to predict how consumers will behave post recession by understanding: 1) how they’ve behaved in previous recessions; 2) how this compares; 3) how their past experience will affect their response this time

28. Four key trends are being acceleratedby this recession 1) consumer demand for simplicity, 2) a call for ethical business governance, 3) a desire to economize, 4) a tendency to flit from one offering to another

29. Four other important trendsare slowing • green consumption, • a decline in respect for authority, • ethical consumption, • extreme-experience seeking.

30. Mature Slowed Trends Dominant Trends Decline of deference Demand for simplicity Focus on the boardroom Green consumption Slowed Accelerated Mercurial consumption Ethical consumerism Extreme experience seeking Discretionary thrift Advancing Trends Arrested Trends New

31. How Trends Will Drive Consumption (I) Advancing Trends Post recession During recession Long term Before DEMAND FOR SIMPLICITY Consumers are seeking uncomplicated, user-friendly products and services that simplify their lives. FOCUS ON THE BOARDROOM Outraged by corporate malfeasance, people are punishing companies for unethical governance. DISCRETIONARY THRIFT Even those who don’t need to economize are Pursuing a more wholesome and less wasteful life. MERCURIAL CONSUMPTION Easy access to information and friction-free purchasing is making consumers ever more agile – and less loyal

32. How Trends Will Drive Consumption (II) Slowed Trends Post recession During recession Long term Before GREEN CONSUMERISM Consumers are forgoing pricey green products and instead are cheaply and discreetly reducing waste. ETHICAL CONSUMERISM Altruistic consumption And spending, such as eating cage free eggs and giving to charity, are falling as people focus on their own dire situations. DECLINE OF DEFERENCE Respect for institutions And authority, long in decline, will temporarily level off as people look to them to fix the economy. EXTREME-EXPERIENCE SEEKING Expensive, frivolous, or risky recreational experiences, popular during the boom preceding the recession, have fallen out of favor