Marketing Online

When a recession strikes, most companies rush to cut their expenses,
the most obvious one being advertising. Those in top management
(mostly finance guys) don’t believe in advertising, anyway; they tolerate
it as a form of defensive insurance, not as a profit generator.

They
have set the whole marketing budget as a percentage of expected revenue,
and when expected revenue drops, they see every reason to cut
marketing expenditures. But this exposes the illogic of setting marketing
expenditures based on expected revenue. This is putting the
cart before the horse. One doesn’t know expected revenue except by
setting the marketing budget. The marketing budget is the cause,
not the effect. Set a higher marketing budget and you will get a
higher expected revenue.
Kmart’s CEO decided to cut Kmart’s marketing budget when
the recession struck. The result was disastrous, and Kmart lost far
more in sales than it had saved in marketing costs as customers
moved their business to Target and Wal-Mart.
When a recession appears imminent, the CEO should appoint
a multifunctional committee to propose what the company
should do to reduce costs. The committee should examine the
company’s promotion mix, channel mix, market segment mix, customer mix, and geographic mix for activities and expenses that can
safely be reduced. Every company has some losing or weak promotions,
channels, market segments, customers, and geographic areas.
A recession calls for housecleaning.
The basic problem is that in good times companies develop a lot
of organizational fat. They buy excessively expensive furniture, pay
for high-priced country club memberships, acquire company aircraft,
hire a lot of consultants, and say good-bye to thrift. Then they
painfully lay off a large number of workers when the recession strikes.
Companies can save money by switching their salespeople to
economy-class flights and hotels. They can try to renegotiate purchasing
contracts. They can delay selected long-term R&D projects
and postpone capital projects. They can try to speed up collections
and slow down payments.
During a recession, many companies rush to impose cost-cutting
measures. But whatever measures they take, they should observe two
rules. First, don’t compromise your customer value proposition. Customers
buy from you with a certain set of expectations about product
quality and service. Don’t reduce the experience that they have come
to expect. Second, don’t arbitrarily shift the cost burden to your suppliers
and dealers without consultation. If you hurt your partner
value proposition, partners will start shifting their alliances to your
competitors.
Companies should consider temporarily lowering their prices,
even though this will hurt their margins. It is better to hold on to
your customers than to let them switch and sample your competitors.
Because customers are highly price sensitive during a recession, price
concessions are warranted.
Some smart companies, instead of resorting to cost cutting,
may maintain or increase their budgets to grab market share from
competitors who are reducing their budgets. If a company has
the resources, it may see the recession as an opportunity to grow
its business at the expense of its competitors.