Marketing lessons from past recessions

Diet Coke launched in a recession
Diet Coke launched in a recession

LONDON - Should marketers spend more, less or the same on their brand during the downturn? Marketing asks those who made it through the last economic squeeze what the experience taught them

There cannot be a marketer in the country that has been unaffected by the economic downturn. While the much-derided 'Generation Y' is experiencing a downturn for the first time, many marketers have seen such economic turmoil before.

However, the precise nature of its constituents, namely the lack of available credit and the potential marketing opportunities, is unprecedented.

While commentators may herald the 'end of conspicuous consumption' and a return to austerity, there is no doubt that this is being forced upon debt-laden consumers.

'The British public [owes more] than any other European nation and the generation that has bought its way to happiness on

a credit card now faces unprecedented uncertainty, ' says Martin Runnacles, the former marketing director of Jaguar and BMW and currently marketing director of Ultegra Consulting.

According to Runnacles, brands such as John Lewis that held their nerve over Christmas and did not resort to price-cutting will reap the dividends. 'The key is to avoid distressful marketing and hold true to the quality of the brand,' he says.

Mark Simpson, marketing director of Ford of Britain, has learned his economics lesson the hard way. 'At all costs, we have to continue to invest in our future products,' he says. 'We didn't do that in the last recession, and we paid the price. We gave every marketing cost a haircut back in 1990/91, including our future product plans, and we emerged from recession with poorer products as a consequence. That decision affected us for about five years, until 1998, when we replaced the Escort with the Focus, which marked a fundamental shift in our fortunes. We could possibly have done that earlier by maintaining our investment in product development.'

The lesson for Ford of Britain's management has been salutary, adds Simpson, who held two marketing jobs

and one district management role for the company during the last recession. 'We are absolutely committed to maintaining future product flow, because the success

of this business depends on it.'

Since 2005 the company has launched two cars every year, apart from 2008, when it launched three: the Fiesta, Focus and Kuga. This year got off to a flying start on

5 January with the launch of the latest Ka - but that doesn't mean the company is being profligate in its spending.

'The industry contracts and revenue falls, so you have to rein in your expenditure,' says Simpson. 'That is one of the first things you do, and anyone who tells you otherwise, that you need to spend your way out of a recession, is talking utter nonsense. Try telling the shareholders that you're not going to make any money for two years.'

Ford of Britain is renowned for running a tight financial ship, but even there, costs can be cut, says Simpson. 'We are looking at all our marketing expenses and taking out some things that are not critical to our current or future success. For example, we will be ending our title sponsorship of the Rugby Football Union, and the Society of Motor Manufacturers and Traders, of which we are a member, has cancelled this year's Commercial Vehicle Motor Show.'

 

Targeted spend

Crucially, however, Ford will focus its marketing investment on its key products - those that bring in most revenue currently and those that offer the potential to do so in the future. 'The time is right for small cars, and in November, sales of the Fiesta alone were higher than the total number of Vauxhall sales,' says Simpson. 'In a recession, you have to make your marketing and advertising work harder with less money, which means you have to do a fabulous job on the critical things.'

While the marketing for these launches acknowledges consumers' restricted spending power, with the message that there is no need to compromise on the benefits of a big car to enjoy the additional advantages of a small car, it is emotional rather than functional, according to Simpson.

'The lesson for big ticket items such as cars is that the desire does not change in a recession, so we have to work even harder to convert that desire into purchase,' he adds.

'Reducing prices will not affect consumers' decision to buy, though it can help their justification process. Although there are good deals around, we don't advertise them. We also do better than some of our competitors at times like  Â these, because our cars are very affordable.'

It is early days, of course, but the fact that Ford's retail sales were down only 18% in the year to November, compared with

45% for the overall UK retail car market, suggests that its focused strategy is paying off - so far, at least. Ford grew share by 5.5 percentage points - from 11.2% to 16.7% - over the same period. In contrast, other companies are panicking and thoughtlessly cutting costs.

'We are, admittedly, in an unprecedented tough climate, but we are witnessing unusual behaviour from businesses that are normally cool and rational,' says marketing consultant Andrew Seth, who was marketing director and then managing director of Lever Brothers during the late 70s and early 80s. His tenure covered the end of one recession and most of another.

'You shouldn't throw the business strategy out of the window when recession hits, but some companies are doing things aimed purely at keeping the business here tomorrow, as though anything else further into the future didn't matter,' he says.

 

Rash movements

One of the most alarming aspects of this unusual behaviour is the stampede toward price promotions designed to maintain volumes.

'The effect of price promotions is to reduce profits and reduce brand value,' says Andrew Marsden, principal of brand consultancy Andrew Marsden Consulting, and a former marketing director of Britvic Drinks and HP Foods. He claims that the one-day-sale-type promotions by retailers in the run-up to Christmas were particularly foolish. 'All they did was bring forward demand for things that would have sold anyway at a higher price. Businesses are acting before they think.'

One of the biggest differences between this and the last major recession in 1991 is what Hugh Davidson, author of Offensive Marketing and a former Procter & Gamble and United Biscuits marketer, calls 'the compelling evidence' that has accrued, indicating that cutting back on investment, innovation, product quality and customer service results in a market share loss that is impossible to recapture.

In contrast, those that maintain, or even increase, their investment can take advantage of falling media prices to steal

a march on the competition.

'Companies like Procter & Gamble, Colgate and Reckitt Benckiser have been applying this formula for a long time,' says Davidson. 'They rub their hands when they see a recession coming, because they know they can really score.'

Marketers certainly understand the theory, which consultants such as Les Binet and Peter Field, joint authors of Marketing in the Era of Accountability, elucidate so clearly. However, applying

it in practice is much more difficult.

Those with experience of past recessions also argue that when money is tight, companies must think about the best way to get a return on investment.

Indeed, in many ways, a recession can be a positive force for good, according to Adam Smith, futures director at investment management company GroupM. 'The quality of people's judgement deteriorates over time and they take bigger risks and become blind to the downside - some-thing we've seen clearly recently with the banks,' he says. 'You need periods of recession to correct that. Recessions have a purgative, healthy and even necessary effect. Gordon Brown claimed to have stopped boom and bust, but we need boom and bust to help the economy function properly.'

As Smith points out, recessions over the years, dating as far back as the Depression following the 1929 Wall Street Crash, have spawned countless innovations, from approved used cars, cashback, frozen food, radio and zipper flies, to Calvin Klein underwear, Miller Lite, Diet Coke and loyalty marketing.

'Recession speeds some things up in a creative destructive way, while it slows others down - investment in long-term projects, like digitising posters, for instance,' adds Smith. The fundamental difference for marketing in the current climate is the proliferation of digital media. 'Marketers have the ability to target individual consumers with a knowledge of their financial situation,'

he says.

Recessions also sort out the wheat from the chaff. 'Strong brands get stronger and weak ones get weaker,' says Robert Shaw, professor of marketing metrics at Cass Business School, who argues for a targeted and judicious approach both to cutting and increasing marketing spend in a recession. 'Small, weak brands should be allowed to die, and throwing money at them to keep them alive is stupid,' he argues.

 

On the bright side

It is equally stupid to assume that consumers go into hiding during a recession. Marketing consultant Mike Sommers was marketing director and then commercial director at Woolworths during the recession of the early 90s. He recalls arguing with the then group finance director Archie Norman (later a chief executive and chairman of Asda), who wanted to severely cut expenditure and forecasts.

'I pointed out that in the recession of the early 80s low-value sales hadn't suffered, and people kept money by for little luxuries,' says Sommers. 'The same happened in the early 90s. Woolworths' profits rose through the recession. People treated themselves with videos and CDs and the cost-conscious Ladybird children's clothes brand did very well.'

Sommers joined TSB in 1991 as marketing director as that year's recession was bottoming out.

'We were trying to compete with the banks and the building societies in all areas and not doing anything very well,'

he recalls. 'We had cut the marketing spend in real terms through the recession but were still attempting to support initiatives across the board. So when

I joined we reduced our key objectives to

a handful, and focused all our marketing energy on them - just as other banks

were continuing to cut back on all fronts.

'We successfully launched new savings products, started to build a significant mortgage book for the first time and, within the space of two years, went from fifth to first place in terms of the numbers of young people we recruited.'

Hugh Burkitt, chief executive of the Marketing Society, advocates a balanced approach. 'A good idea is always a good idea, recession or not, and, arguably, this is a particularly good time to try new ideas, as consumers are looking for things that offer them real value. However,

you cannot spend money that you

haven't got, so you have to make savings somewhere.'

Marsden's advice is simply to 'keep calm and carry on, and to remember that the marketer's job is to grow brands, not destroy them'.

 

Experts reveal how brands can weather the downturn

Consumers will draw in their horns, but if they are putting a foreign holiday or a new car on hold, they will compensate. If you are in a position to take advantage of people trading down their treats, you should go out and aggressively promote yourself. Mike Sommers, marketing consultant

Recognise what you are good at and build on that. Ensure that relation-ships with customers, suppliers and staff are in excellent shape so you can build a climate of mutual trust and co-operation that will help find solutions to the challenges ahead. Andrew Seth, former marketing director, Lever Brothers

Media will be relatively inexpensive this year, so take advantage of that. Continue to buy media at the same level and take the savings back in cash, or invest more in the hope of building share. You need a strong argument to justify investing when working capital is difficult to obtain. Adam Smith, futures director, GroupM

Bringing forward product launches helps shore up the bottom line during the worst of a recession by generating short-term sales and news. Spending more on NPD will stand you in good stead to take advantage of the recovery. Surviving the recession is about a commitment to product development as well as marketing communications.  Peter Field, marketing consultant

The customer relationship should be sacrosanct. Sustaining customer trust will be vital, not only through the downturn, but in the upturn. Evidence suggests that firms are trimming their service policies, so queues in call centres may lengthen, and consumer rights be eroded. Robert Shaw, professor of marketing, Cass Business School

Challenge external costs. Do you need those expensive management consultants, and are outsourcing arrangements delivering the return on investment you had hoped? Interim marketers can be a very cost-effective and flexible way of getting high levels of expertise and experience, as most of them will have worked through at least one recession, without increasing your overheads.

Raoul Pinnell, former marketing director with Prudential, NatWest and Shell

Don't switch all your communications online because it is 'cheaper'. Online is most effective as part of an integrated campaign. Television emotionally engages people, and using it to prompt consumers to go to a website can not only drive sales, itself important in a downturn, but also allows them to engage further with the brand and helps you defend your pricing. Peter Field, marketing consultant

Ensure that the connection between the function of marketing and the business is as strong as possible. That means justifying all plans in hard financial terms. Brand health measures will cut no ice at a time when you are losing customers, and if you want to launch something such as a value range, first be sure you can make a decent margin on it. Olly Watson, regional MD, Michael Page International

 

 

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