Strengthening your brand in an economic downturn
Published : October 2008
At a time when budgets are tighter than ever, cutting your marketing spend might seem a logical step. But, as David Thorp explains, to do so could prove a false economy.
The marketing budget is often the first to be cut in difficult times. In an economic downturn, when companies become negative about growth and fear for their long-term prosperity, the temptation to reign in marketing activity and play things safe for a while is strong. However, sometimes playing it safe is a much riskier strategy than it seems.
There’s increasing evidence that a robust plan to maintain marketing spend can be a key part of an effective strategy to weather the storm of a downturn. Peter Drucker once said that there are only two business drivers – innovation and marketing. With this in mind, it’s clear how ‘steady as she goes’ is potentially a trap to be wary of. To achieve growth, sustain profits, maintain market share and fight off your competitors, you need to continue your investments in innovation and marketing, not cut back on them.
Consider the passenger airline business. Received wisdom might dictate that in difficult times, customers will cut back on flights, as holidays are luxury spends and among the first to be dropped from a personal budget. The response might be to anticipate this loss of revenue, reduce marketing spend accordingly and hope that your company survives until better times. The marketer, however, will respond more creatively and positively than this. There’s evidence that customers can behave counter-intuitively in such situations, or as the marketer might say: ‘Times are tough – your holiday is the one luxury you can still afford.’ Not only that, but if people love your brand, they will still buy from you – as long as you maintain a presence and avoid the temptation to cheapen the brand by discounting. Alternatively, a bold marketing approach would look at what the market wants and act accordingly, instead of continuing to do the same thing despite changing environmental conditions. If our hypothetical airline company does start to lose business from declining passenger numbers, marketers will try to strengthen the brand by looking for opportunities in other sectors. A strategy where business passengers are targeted, for example, might reap dividends: can we target customers who still want to make three or four business trips a year, but who want to make savings on the service their usual airline offers?
Ryanair and easyJet have both proved the wisdom of this kind of robust marketing strategy in difficult times. After the 2001 terrorist attacks, Ryanair confounded expectations across the airline industry by embarking on a vigorous marketing campaign encouraging passengers back to the skies.
Brand intangibles are strengthened by identifying with the customer
The reason this works is because the marketer understands customer psychology. People don’t always behave rationally or logically, or even reasonably – for example, often the first response to tougher times (or perceived tougher times) is, in fact, to spend more on certain items. Understanding this human component of business is where the marketer can make a difference. The marketer knows that buyer psychology is complex, can be influenced by putting together the right marketing strategy in place at the right time, and is not set in stone. The long-term effect is that a brand is strengthened by the customer’s perception that the company is ‘on their side’. A powerful brand is often indefinable; but consistently behaving in ways that customers identify with and can emotionally respond to is a quality that helps brands become loved rather than merely admired.
Tesco, for example, achieves its growth by identifying what customers want and providing it to them in ways that make the competition seem irrelevant – the essence of good marketing, and the clearest benefit of having Sir Terry Leahy, a marketer by trade, as CEO. Faced with a downturn, Tesco does not look at ways of cutting back on service, closing under-performing stores, reducing quality, or trimming quantity of product to enable it to continue selling at the same price. Instead, it looks at customer-focused solutions. At the moment, it is considering more own-label products and finding ways of reducing the price of its standard lines without compromising quality.
Marketing as a differentiator for services
In over-commoditised marketplaces, as increasing numbers of companies fight for a limited market share, your quality of service is often your only real differentiator. If all your competitors offer a quality product and you don’t want to compete merely on price, improving service is often the most cost effective option. It’s only by thinking from the customer’s point of view – that is, developing a marketing mindset – that you can begin to research and identify what customers want and expect, research what your competitors are doing, and develop new service strategies that will satisfy your existing customers and encourage them to continue buying from you, in addition to aiming to gain new business by poaching customers from competitors.
Rather than discounting or reducing market spend, increase features, value and service in your business, as this will keep the brand strong and mean that when the downturn eventually changes direction once more, your brand will be in a healthy position and won’t have been damaged by being watered down. A recent report from the Confederation of British Industry showed that across the entire services sector, volume of business fell sharply in the quarter to April 2008. Profitability was the weakest since the survey began, falling at a record rate for consumer-facing businesses and remaining flat for business services firms. However, two sectors bucked this trend and reported increased profits – telecommunications and IT was one, and marketing was the other. Perhaps this is an indication that the strategic value of marketing is finally beginning to be recognised, and that in increasingly competitive markets, it’s using marketing insights and information that can make the difference between a customer choosing your company and going elsewhere.
The rise of the CMO
However, any ring-fencing of marketing spend (or even an increase) must, more than ever before, be judicious – it needs to be a case of allocating spend wisely, not just maintaining things as they are, or increasing spend across the board and expecting magical results to follow. Increased marketing knowledge and leadership is the answer – and it’s here that the role of CMO (chief marketing officer) might begin to become more apparent. Rather than pushing for increases in budget, the shrewd CMO will be able to distribute existing spend more effectively, develop a more rigorous media plan for communications, and use marketing insight to influence new product development and help ensure the product portfolio matches what customers want in a changing financial climate. News International, for example, recently appointed its first CMO as part of a major corporate restructuring. James Murdoch is expected to increase marketing spend in the second half of 2008 and repeat the successful strategy he initiated in his last role at BSkyB.
This creation of new board level roles for marketing is one sign that major corporates are beginning to recognise the importance and relevance of marketing, particularly in terms of the effectiveness of having a customer-focused board member to complement the strengths of company-focused executives.
Be creative in campaigns
If budgets really do need to be tightened, there are other ways to achieve maximum hits for minimum spend. Focusing on electronic or mobile campaigns instead of direct mail, for instance, is one way of slashing costs without reducing marketing activity. According to the Internet Advertising Bureau, retail advertising on the web “delivers 40 per cent of total brand engagement” compared with press advertising (31 per cent) or television (19 per cent). Also, look at new technologies such as social networking sites in order to encourage viral campaigns – very cheap, and when done well, very effective.
Contrary to a company’s instincts to pull up the drawbridge, investing in brands during a downturn is actually the most effective response to a changing climate. Cut your marketing, and the gap between you and other brands will merely increase. Instead, maintain your advertising and promotions, just don’t overdo it; allocate your spend differently if needs be, but don’t slash it. Try to offer increased value rather than price cuts; and bear in mind that customers don’t always behave as logically as you might expect them to. END
David Thorp is director of Research and Information at The Chartered Institute of Marketing, which offers several courses on developing successful brand strategies and measuring marketing performance. To find out more, please visit www.cim.co.uk/training or telephone 01628 427 200.