Take Advantage of a Recession

CU360
January 21, 2009 | COMMENTS

An economic downturn is no time to stop spending on marketing. The key, says Harvard business professor John Quelch, is to understand how the needs of your customers and partners change, and adapt your strategies to the new reality.

Noting signs of an imminent recession all around us, Quelch, in a posting on Harvard Business School's Working Knowledge online forum, suggests that companies bear in mind these factors when making future marketing plans:

Research the customer. Instead of cutting the market research budget, you need to know more than ever how consumers are redefining value and responding to the recession. Price elasticity curves are changing. Consumers take more time searching for the right products and services, and they negotiate harder at the point of sale. They're more willing to postpone purchases, trade down, or buy less. Trusted brands are especially valued. Conspicuous consumption becomes less prevalent.

Focus on family values. When economic hard times loom, we tend to retreat to our village. Use cozy hearth-and-home family scenes in advertising to replace images of extreme sports, adventure, and rugged individualism. Zany humor is out. Uncertainty prompts us to stay at home, notes Quelch, and to stay connected with family and friends.

Maintain spending. This is not the time to cut advertising. It's well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times. Uncertain consumers need the reassurance of known brands.

Brands with deep pockets may be able to negotiate favorable advertising rates and lock them in for several years, says Quelch. If you have to cut marketing spending, try to maintain the frequency of advertisements by shifting from 30-second to 15-second advertisements, substituting radio for television advertising, or increasing the use of direct marketing, which gives more immediate sales impact.

Adjust product portfolios. Marketers must reforecast demand for each item in their product lines as consumers trade down and seek value. New products, especially those that address the new consumer reality and thereby put pressure on competitors, should still be introduced, but advertising should stress superior price performance, not corporate image.

Adjust pricing tactics. Customers will be shopping around for the best deals. You don't necessarily have to cut prices, but you might need to offer more temporary price promotions. In tough times, price cuts attract more consumer support than promotions such as sweepstakes and mail-in offers.

Stress market share. In all but a few technology categories where growth prospects are strong, companies are in a battle for market share—and survival. Knowing your cost structure can ensure that any cuts or consolidation initiatives will save the most money with minimum customer impact. Companies with healthy balance sheets can gain market share by acquiring weak competitors.

Emphasize core values. Chief executives can cement employee loyalty by assuring employees that the company has survived difficult times before, maintaining quality rather than cutting corners, and servicing existing customers rather than trying to be all things to all people. CEOs must spend more time with customers and employees.

Economic recession can elevate the importance of the finance director's balance sheet over the marketing manager's income statement. Managing working capital then starts to replace the cultivation of customer (member) relationships. CEOs must counter this, says Quelch. Successful companies don't abandon their marketing strategies in a recession; they adapt them.

John A. Quelch is the Lincoln Filene Professor of Business Administration at Harvard Business School.