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Wednesday, December 30, 2009

Marketing through the recession: ten lessons from 2009

I have been a sponge for stories about how organizations have reacted during the turbulent times that defined 2009. Sometimes, I have watched in horror as managers panicked and unraveled strategies that had previously made sense. Other times, I have watched marketing and innovation at work as necessity forced managers to reevaluate assumptions held of the market and/or how to reach customers.  One example is the explosion in the use of social media – without the recession, marketing managers might not have been so quick to embrace and experiment with social media and include it as an integral part of their marketing communication strategies.

Here is a list of 10 lessons that I believe define good marketing practice during the turbulent times we experienced through 2009.

1.     Be customer focused and remember that customers are the reason you are in business.

2.     Maintain competitive levels of marketing expenditure. In an earlier post, I reported the results of some analysis I did on firm behavior through the 1980s recession. I found that firms that spent ahead of their competition during the 1980s recession had a higher market value five years after the recession ended than firms that did not.

3.     Be more accountable for marketing expenditure and be willing to demonstrate the return on marketing investment: “marketing must align itself more to the goals and language of finance.”  The current recession has put more pressure on marketing managers to justify every last dollar of marketing expenditure in a way that analysts and chief financial officers understand.

4.     Learn to work with the new metric of cash flow. Traditionally marketing activities have been tied to metrics such as sales, market share, awareness or preference. In 2009, firms sought to maximize profits and hoard cash and marketing managers had to adapt by justifying strategies in terms of their impact on cash flow.

5.     Don’t mess up the brands (Part 1). During a recession, brands can be used to empathize with customers: “I can see by its actions that the brand is on my side”. Examples include JetBlue, Hyundai, Denny’s Walgreen and FedEx – all of which ran special promotions to appeal to the immediate, and often dire needs of customers. But care needs to be taken not to alter the brand’s core market position in an attempt to stay relevant by for example, lowering prices, or cutting costs by reducing quality or making products smaller.

6.     Don’t mess up the brands (Part 2). In an attempt to generate short-term sales, marketing budgets have been diverted away from long-term brand building activities. While organizations need short-term marketing activities to stay afloat, a portion of the marketing budget needs to be retained for long-term brand building activities. If not, the danger is that once the recession ends, organizations will find they own irrelevant and confused brands that have been abandoned by their core customers.

7.     Understand the underlying profitability of customers. American Express provides the best example here of an organization that identified positive and negative customers and then set about firing those customers it deemed too risky. While the strategic fallout was significant, American Express obviously felt it was important to abandon unprofitable customers.

8.     Be decisive: “To do well in turbulent times requires a special blend of management and leadership skills”. During the recession, managers need to control and manage the bottom line while at the same time skillfully communicate a compelling vision, and inspire people to follow that vision. The skills required to manage and lead can appear to be contradictory but both are essential.

9.     Don’t mess up: “Don’t lose opportunities for growth through sloppy execution of the current marketing strategy”.

10. During recessionary times, it is important to focus on generating growth through the excellent execution of the current marketing strategy – this means, avoiding the temptation to divert scarce resources to a plethora of new activities in the hope that one will be successful. But markets are dynamic and evolve and so even during recessionary times, some attention needs to be placed on future growth opportunities.  Therefore, simultaneously engage in a disciplined approach to identify new growth opportunities.

The economic circumstances of 2008 and 2009 were beyond our comprehension – after all most of us did not live through the Great Depression and many of us were not in senior roles during the 1980s recession. The recession will pass and adversity has brought about some positive change and important lessons for marketing.

Jenny Darroch is on the faculty at the Drucker School at Claremont Graduate University. She is an expert on marketing strategies that generate growth. See www.MarketingThroughTurbulentTimes.com

 

6:16 pm pst 

Monday, December 7, 2009

IT IS TIME TO REFOCUS ON EDUCATION, R&D AND INNOVATION IF WE ARE TO “THINK DIFFERENT” AND REMAIN COMPETITIVE

I have often wondered what it takes for a dominant economy to fail as Spain did in the late 17th Century, France did in the late 18th Century, or the Ottoman Empire did in the mid-19th Century. Niall Ferguson, a Professor of History at Harvard University, provided great insights on this phenomenon in a recent Newsweek article in which he questioned the future of the US (December 7).

The trends Professor Ferguson identified are frightening. He predicts that by 2039, federal debt held by the public will reach 91% of GDP, up from 41% in 2008 (he quotes an even more pessimistic forecast that puts debt at 215% of GDP by 2039). As Professor Ferguson notes, “This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in resources available for the Army, Navy, and Air Force.”

So how can such staggering levels of debt be reduced? If households incur exorbitant levels of debt, short of declaring bankruptcy, they can cut expenses or increase income. Countries can do the same. For a government to increase its income it needs to either increase marginal tax rates or increase the tax base – that is, find ways to encourage economic growth so that people and organizations earn more and the tax on this additional income finds its way into government coffers.

Innovation is critical to long-term economic growth. CNNMoney.com ran an article called “Driving change: innovation is key to the future of the US auto industry” (December 1). The central thesis of the article was that the US auto industry was at a crossroads. Consumers around the world are demanding “greater fuel efficiency and cutting edge design” and the question is whether US automakers can respond or whether the balance of power will move to other economies with emerging auto industries, such as India and Tata Motors. Steve Jobs’ advice to the US auto industry is to “Think different”.

The ability to “think different” is critical to the future success of many industries. To innovate as a way to generating growth within organizations can only help industries and the economy as a whole. Innovation requires inputs: money to support the development of ideas before the idea generates any revenue, a highly skilled labor force capable of working with cutting edge concepts and taking these ideas to market, an infrastructure to support the commercialization of ideas, and business conditions that encourage innovative organizations to stay in the US.

It is easy to see how a recession fuels a downward spiral: demand falls, expenditure is cut, income falls, demand falls (again), etc. When looking at where governments and organizations make expenditure cuts, “safe bets” include R&D because cutting R&D expenditure does not have an immediate effect on consumer demand nor is R&D expenditure tied to the immediate production of goods.

Similarly, education budgets are cut, and in some States such as the State of California, cut drastically. The impact of a deteriorating education system has an even longer-term impact on innovation because it may take years to feel the effects of deterioration in the quality of knowledge workers, people who have the capacity to drive an innovative society.

While I am not convinced we are completely out of the “recession woods” yet, I do believe the time has come to be more future-focused.  In particular, it is time to focus on restoring expenditure in areas that will drive innovation and generate economic growth to such an extent that the income base expands and the level of debt does not eventually blow out to an unconscionable level.

11:30 am pst 


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