Marketing in Recessionary times.pdf

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  • 8/13/2019 Marketing in Recessionary times.pdf


  • 8/13/2019 Marketing in Recessionary times.pdf


    To try and market premium products in difficult times is atough task, and requires two questions to be answered rightat the outset. One, what is the change in spending habits ofconsumers in the new economy and two, what segment isyour product catering to.

    To answer the first question, consumers change theirspending habits significantly during the bad times.Consumers tend to balance the household budget byspending on daily necessities and cutting down on luxurieslike chocolates, biscuits etc. Even within luxury items,consumers tend not to refrain from luxury items altogether.Instead, the decision becomes much more priority basedand more thought goes into the process. Thus, thebuying decision is dependent on the value theproduct offers and the need that exists for theproduct.

    T h e s e c o n d q u e s t i o n w a r r a n t ssegmentation of the high-end market into

    high net-worth buyers, must-have buyersand luxury wannabes. High net-worth buyersare generally less impacted by the recession andtend to continue the same lifestyle. Must-have buyersare considerably affected by the downturn and have atendency to downgrade, yet consider quality and brandimage as their primary concern. Hence, this segment mightneed discounts or exclusive buying options to inducebuying. The last segment does not possess the innatecapacity to consume luxury products and hence would bedowngrading to lower price point substitutes.

    So this brings us to the question of what can be done to

    market such premium products during difficult times. Theonly solace is that consumers traditionally seek solace inlower-cost treats during hard times to indulge themselves.

    Thus the best way out is to position existing products andservices as affordable luxuries . This would encouragespending by giving the perception that you are deliveringmuch more value than what is being charged.

    A good example would be that of DeBeers whose recentadvertisements are aimed at convincing consumers thatexpensive diamonds are not luxuries but thoughtfulinvestments. Changing their mantra from the familiar ADiamond Is Forever", their new advertisements played thetune of "Here Today. Here Tomorrow. In times like these,it's perhaps wise to reflect on the things that last rather thanthe things that come and go." To emphasize the longevity of

    the investment a diamond could be, DeBeers addedA diamond has outlasted all that history can

    throw at it, from the formation ofcontinents to the turmoil of markets. Across the generations, in a thousandyears' time, a diamond will still be here.

    Just like love."

    There are other aspects also which couldalso be kept in mind when marketing luxury

    products during a downturn. The first is to offer enhanced value to the consumer by means of green credentials,ethical sourcing etc. However, care has to be taken to notdilute the brand. The second aspect is to continue to investin marketing, even if the means of promotion is changed.

    The third aspect is to engage with customers deeply, thusencouraging word-of-mouth promotion. The fourth is tofocus on in-home luxuries since people tend to spend moreon making their stay at home as entertaining and enjoyableas possible during difficult times.


  • 8/13/2019 Marketing in Recessionary times.pdf


  • 8/13/2019 Marketing in Recessionary times.pdf


    Marketing during recession has always been seen as a luxuryon the part of a firm primarily because advertisement andmarketing have mostly been labeled as discretionary costs

    or expenditures and not as investments by a firm. Butcontrary to the popular perception and also taking a dig atthe way most firms operate, we are trying to argue for thecase that maintaining or increasing marketing spend duringrecession is a sound way to strengthen a brand and derivesubstantial long term strategic benefits.

    Firms, during recession focus entirely onconserving their cash flows and thus to nethigher profits they resort to a cost cuttingspree, marketing being one of the

    liabilities. On the other hand, firms tendto increase marketing spend during goodtimes, which does not yield proportionallysignificant benefits because all competitors dothe same and thus on a relative level you have notincreased your proportion of the total marketing spend inthe industry.

    Probably this is where the opportunity lies. Duringrecession firms in general cut down marketing expenditure.

    Therefore, a firm that increases or even maintains its

    marketing budget has a significant advantage as it cancapture greater share of mind from the customer, becausethe competitive advertisement levels are reducedsignificantly. Also the firms get a better return on their

    marketing investment as the price of advertising goes downsignificantly during recession due to reduced demand, whicheffectively translates into higher reach for the firm.

    Moreover, during recessionary times consumers tend tocontemplate on higher value addition from the productsused by them. Thus, the switching potential of theconsumers at this time is pretty high, which makes the casefor increasing or maintaining marketing expenditure during

    recession even stronger.

    Not just from an argumentative standpoint,but also this claim is backed by a strong and

    consistent body of historical data. Severalstudies of marketing over the ten

    recessions of 20th

    century have concludedthat the sales and profits of firms that cutback on marketing declined significantly

    during recession and continued to lag evenafter economic recovery. On the other hand, firms

    that continue to invest in marketing during recession reapedsignificant profits not only during recession but also for afew years after the recovery because as has been mentionedearlier, during recession a consumer doesnt vanish, he justbecomes marginally discretional in his purchases and seeks ahigher value for his money. Companies that have conveyed

    this value through strong marketing have done well in therough waters of recession, and also beyond. The followingcases are examples in that direction only.


  • 8/13/2019 Marketing in Recessionary times.pdf


    Procter and Gamble

    P&G's philosophy of spending during economic downturnsdates back to the Great Depression. Radio took Procter &Gamble's message into more homes than ever. Then a

    variety of products such as Camay, Ivory and Lava Soap were promoted on product-oriented shows, almost likeinfomercials. In 1933, in the heart of the Great Depression,Procter literally invented the daytime soap operas throughradio networks, an advertising model that still exists.Looking ahead some 60 years to the recessionof 1990-1992, P&G's strategy of marketingfortitude once again prevailed. Procter &

    Gamble was the only marketer amongthe five biggest U.S. advertisers toincrease spending in 1991. P&Gmanaged to increase sales and earningsduring this period (the late 1980s to early1990s) and company sales surpassed the $30billion mark in 1993.

    Dell Computers

    Dell Computers founded in 1984 was based on the direct-to-consumer model, which eliminated the retailer, allowingfor price discounts and continuous customer feedback. In1988, spurred by growing investor interest in technologystocks, the company went public. But it wasn't until 1991,

    the height of the 1990-1992 recessions, that Dell chose tomake its most aggressive marketing move up to that time,and take on the established computer giants. The campaigncoincided with the introduction of its first notebookcomputer. In 1991, advertising in the entire computerhardware category was down by 17.5% over the previousyear. Apple, Digital, IBM and Tandy - some of the

    category's leading spenders - all made significantspending cuts in the range of (-25%) to (-40%).

    At the same time, Dell increased theirmarketing dollars 346% to $6 million, up

    from just half a million in 1989 and $1.4million in 1990. While Dell was still notspending in the amount of the computer

    giants, its message - eliminating themiddleman while offering superior

    customer service - seemed to hit home withconsumers. Perhaps the marketing cut backs by its

    competitors offered the opportunity that Dell needed tobreak into the consciousness of the mainstream Americanconsumer. The following year, Dell was included for thefirst time in the Fortune 500 roster of the world's largest

    companies. By 1993, the company was among the top 5computer system makers worldwide, and in 2001, Dellbecame No. 1 in global market share.


  • 8/13/2019 Marketing in Recessionary times.pdf


    Economies cannot always grow. Every period of boom in theeconomy is eventually followed by a slowdown. Such adownturn acts as a checkpoint for the economy and ringsalarm bells for investors. If this downturn makes theeconomy's GDP growth negative for two or more consecutivequarters, the economy is said to be in recession. A country'sGDP(Y) is a function of consumption, net exports,investment and government spending.

    Y= C+I+G+X

    When an economy faces a slowdown, a fear of recession gripsthe market. Hence, instead of spending more to increaseGDP by increasing consumption, consumers startcutting on spending. This leads to a viciouscycle of less consumer-spending taking theeconomy further down into recession.

    Consumers now defer purchase of "longterm" goods like washing machines, furn