In tough economic times, most firms experience stress, and marketing budgets are particularly vulnerable. It is a time of retrenchment and focus on short-term results, if not survival. In this climate, three priorities should help avoid missed opportunities and irreversible mistakes.
Look for Opportunities to Gain Market Position
The normal reaction to financial stress is to reduce budgets across the firm and to reduce the marketing budget the most because it is assumed that marketing is an investment that can be deferred without short-term impact. However, being defensive is not always the optimal direction. A rare chance to change the competitive landscape creating a stronger position should not be ignored or dismissed.
Since the early 1920s, there have been extensive efforts with a variety of models and methods to study the impact of marketing budgets during recessions. The results of dozens of studies have had a remarkably consistent finding. There is a strong correlation between the marketing budget during a recession and the performance of the business both during and in the years after the recession. Those firms that increased or even maintained their budget enjoyed more success, on average, than those that did not.
It is not clear how much influence the budget decision had on the outcome. Some of the correlation is spurious—weak businesses may have reduced marketing by necessity and might have experienced weak performance even if they had increased marketing. Nevertheless, this extensive data coupled with many case studies strongly suggest that some firms should consider being aggressive rather than defensive. What types of firms are likely to fall into that category? They would include those that:
It is too simplistic to recommend increasing the marketing budget to gain position. Relevant substance is needed to make the investment of precious resources worthwhile. So the challenge is to create or exploit a situation involving a product, position, or program to gain market position.
Upgrade Marketing Programs
Especially in tough economic times, marketing needs to elevate its game to move beyond competence to excellence. This means marketing programs that are mediocre or worse need to be identified and no longer funded. Wasting money on ineffective marketing is simply too costly. A budget reduction can represent an opportunity to overcome the organizational resistance to reduce budgets in those areas where the return is low.
Upgrading marketing also means creating or enhancing programs that work - that are obtaining superior returns. In many cases, how a budget is spent can be up to four times more important than how much is spent. When budgets become tight, the challenge of creating home run programs needs to be a priority. Easier said than done, of course.
Three suggestions. First, make sure there is a free flow of ideas throughout the organization and beyond by enabling creative organizational people and units. Second, adjust the organization so that great ideas are recognized and tested and do not sit on the shelf unrecognized or untried. Third, look to the cost as well as the impact side. One route is to share marketing over product and county silos and with other firms. The result can be a program with a fraction of the cost of a go-it-yourself route. The partnership of United Airlines and FedEx to send luggage to a destination to allow travelers to fly without carry-on is an example. Another is to try alternative media to lead the program. What may be too costly with mass media may work with an Internet-based program.
The cornerstone of upgrading marketing is a data-driven process of measuring marketing effectiveness, so that budget allocation decisions can be made objectively. This process needs to include ongoing experimentation whereby marketing programs and their variants are tried out in the marketplace. Though difficult, it is also imperative to measure the long-term effect of marketing so that programs that drive sales in the near term, but damage the brand do not dominate. The fact is that some marketing efforts have been shown to have effects only with a two and three year delay. Surrogates for long-term health of the business such as the size and loyalty level of the loyal segment (and perhaps the very loyal segment as well) or brand health indicators such as image, differentiation, and energy of the brand can help.
Protect the Brand
The brand is the asset that will not only support the business during tough times but it is also the key to future strategic success. There is a serious danger that the market will evolve toward a commodity because all brands will be emphasizing value and attributes. Brand protection starts with making sure that there is a brand vision that everyone in the organization understands and buys into. The brand vision needs to be accompanied with a system that makes sure that off-brand programs and activities do not occur.
It is important to find ways to communicate value, often a necessity during tough economic times, without hurting the brand. Shouting price and deals is the wrong course because it announces that the brand is not worth the price. One way is to divert attention to value subbrands such as the BMW 1 Series or the Fairfield Inn by Marriott. Another is to bundle services to provide extra value at the same price, such as free shipping by Amazon or McDonald’s Happy Meals. Still another is to demonstrate the value of quality—Bounty towels are worth it because they simply last longer. Finally, the frame of reference can be changed—other products can become the comparison standard. For example: KFC’s Family Value Meal vs. home cooking, or Crayola’s 64 colors vs. more expensive toys.
During tough times, it is crucial to protect the loyal customer base, which is usually the most important brand asset. Overinvestment in their satisfaction will pay long-term dividends because when things turn around, they will be the base on which the brand will build. Resist efforts to compromise the experience and especially the quality of the offering. Use loyalty programs to focus on them. Introduce surprise awards that will support their relationship with the brand and the firm.
During bad economic times, marketing cuts are going to be inevitable. Smart marketers will find a way to capitalize on moment-in-time opportunities, raise their game, and build a foundation that will serve both brand and business when better times return.
By David Aaker
Brand and marketing pioneer David Aaker is Vice Chairman of Prophet; he has published more than 100 articles and 14 books, including his latest, Spanning Silos: The New CMO Imperative.