AMA Presentation June 9, 2009 Pdf Version

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Marketing Through a RecessionSurvival Tips From a Grizzled Veteran

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American Marketing AssociationJune 9, 2009

“In an ideal world, every company would enter a recession led by a team of grizzled veterans who could draw on their experiences of past downturns to guide it through the current one.

Many companies don’t have grizzled veterans and even for those that do, it can be difficult to rise above the crisis to ponder the lessons of history.

Yet in a recession, developing accurate strategic plans is usually a high-stakes effort.”

Source: McKinsey & Company; Mapping Decline and Recovery Across Sectors, Winter, 2009

Marketing Through Recessions

• 1973 – 1975• 1981 – 1983• 1990 – 1991• 2000 - 2001

Agenda

• Budget Cuts• Perspective on recessions

– Lessons Learned– Eternal Truths

• Marketing Must Be Accountable• What Is Marketing?• Who Needs a Strategy?• What is a Brand?• Reprise from the Experts

Budget Cuts

• How many of you:– Have had your budgets cut this year?

• Lump sum dollars in budget– Had your budgets tied to specific programs?

• If the budget was cut, the program was cut– Had your budgets tied to specific revenue results?

• If the budget was cut, revenue projections would not be made.

• Make it painful for others to cut your budget.

Fact or Fiction?

We are living in the worst economic conditions since the Great Depression.

We have nothing to fear but fear itself.

Marketing doesn’t work during a recession.

“We are living in the worst economic conditions since the Great Depression.”

This is fiction.

Economic Indicators

STATS 1929-33 1973-75 1980-82 2008-09Q 1 Q 1

Real GDP -13.0% -0.5% -6.4% -5.7%

U. Michigan N/A 57.6 51.7 68.7Consumer Sentiment

Unemployment 24.9% 9.0% 10.8% 9.4%

Inflation -9.9% 11.0% 13.5% 3.8%

Data as of June 9, 2009

Dow Jones Industrial Average - 1987

Dow Jones Industrial Close - By Month 1987

Jan Feb Mar April May June July Aug Sep Oct Nov Dec

DJI Close

A Closer Look at DJIA 1987

Dow Jones Industrial Close - By Day October 1987

DJI Close

Black Monday / Black Swan Event

Sure, economic conditions are tough today, but two-thirds of the US population have lived through tougher times, and we came out alright on the other end.

The biggest difference between the current recessions and prior ones is that cable TV and Internet news coverage now encourages spreading of fear farther, faster than ever before.

“We have nothing to fear but fear itself.”

Franklin Delano Roosevelt – March 4, 1933

This is fact.

“We Have Nothing to Fear but Fear Itself”

• In 2002 Daniel Kahneman, of Princeton University, was co-recipient of the Nobel Peace Prize for Economic Science:

“For having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.

“Consumers today, because of lack of confidence in the economic future, are spending less and saving more of their income. Well-planned promotion can increase sales by helping to overcome this propensity to save.”

“When consumers are reluctant to spend any money, they are unwilling to settle for products that do not precisely meet their need specifications. A firm must be more careful both in measuring the needs of the market and in designing products to serve these needs”.

“What is the role of marketing in a recession?” Journal of Marketing, April, 1975

“Marketing Doesn’t Work During a Recession”

• This is both fact and fiction:– Dumb marketing doesn’t work during a recession.– Smart marketing does work during a recession.

• Too often we get sloppy in our marketing practices during booming economic times.– Then we run into a wall and have to shed our bad

habits during recessions.

GM Survey of Prospective Car Buyers

“If a company can ascertain concretely and in detail just what its buyers would like to have, if it can build its products in conformity with those desires and design its sales and advertising messages so that they will answer the questions that are uppermost in the minds of the motorist, obviously there will be continued improvement in the merchandising processes and a broadening of the service rendered.”

GM Survey of Prospective Car Buyers

• Dependability• Operating economy• Safety• Appearance• Comfort• Ease of control (handling)• Smoothness (ride)• Low list price• Pick up and speedSource: Ad Age, January 27, 1934 – Opportunities in a Downturn, December 2008

“General Motors got into trouble when they thought they were in the business of making money, instead of the business of making cars.”

Marketing Does Work in a Recession

• McGraw Hill Studies:• During the recession of 1974 / 1975 firms who cut

marketing and advertising saw a 21% decline in sales effect over two years compared to firms that did not cut marketing investments.

• During the recession of 1981 / 1982 firms that cut their marketing investment saw a 45% decline in sales effect over two years compared to firms that did not cut their marketing investment.

Source: Capturing Opportunities in Challenging Times, DDB Yellow Paper – December, 2008

Marketing Strategies During Recession

• “Recession calls for marketing managers to use strategies to stimulate consumer demand. Such strategies often require a re-definition of target customers and the marketing mix.”

• Although the (1990-91) economic environment has been termed a “mild recession” on the national level a survey of 101 Marketing Managers showed:– 39% have seen it as a recession– 38% perceive the economy as growth– 17% say the market is stagnant

Journal of Small Business Management: “Marketing Strategies During Recession: A Comparison of Small and Large Firms”, July 1993

Turning Adversity Into Advantage: Does Proactive Marketing During Recession Pay?

• “All firms are not equally affected by recession. Some firms view recessions as opportunities to strengthen their business, invest aggressively and establish their advantage over weaker competitors.”

• “Firms that have a strategic emphasis on marketing, and entrepreneurial culture and slack resources are proactive in their marketing. Firms that have a proactive marketing response in a recession achieve superior business performance even during the recession.”

International Journal of Research in Marketing, June 2005

Recession for Some Companies = Growth Opportunities for Other Companies

• In 1929 only 34% of US Households owned a radio.• In 1933 over 60% of US Households owned a radio

– Cost of radio in 1933 = Cost of Big Screen Hi Def TV in 2009

• Time launched Fortune in 1930 and People in 1974• Fed Ex, Microsoft and Vanguard mutual funds were

all launched during the 1973 – 75 recession.• Some companies create their own recession by trying

to “save their way into growth.”

Basic Business Truth

In a declining market, a company must increase its share-of-market just to maintain the status quo.

Marketing in Troubled Waters

“Marketing efforts don’t have to be expensive – and they may be the worst things for firms of any size to cut in a downturn.”

Source: Journal of Accountancy. March 1993

“Challenge No. 1 for marketers, both in their own minds and dealing with their senior management, is to get over this culture of fear we’ve all been dealing with.”

Source: Get your head in the game. Marketing News 02.28.09 AMA

A Game Plan To Do Well This Recession

• Get a grip

– The time for panic & inaction are over

– Become proactive in showing how marketing can help your organization

• Get closer

– Find out what customers expect from your brand

– Examine your customer touch points.

– Prioritize customer retention

• Re-examine your marketing mix…

– With a closer eye on ROI

– To get a better understanding of how best to reach your audiences.

– And learn to target, target, target. Because hyper-targeting could become the major marketing legacy of this recession.

Source: Get your head in the game. Marketing News 02.28.09 AMA

Marketing Executives Networking Group

• Back-to-Basics Strategy Being Pursued:– What marketing concepts are most important?

• 79% - Customer Satisfaction• 76% - Customer Retention• 65% - Marketing ROI• 61% - Brand Loyalty

“Economy Weighs Heavily on Marketing Execs in 2009”, Ad Age, Jan 5, 2009

Marketing Must Be Accountable for Increasing Revenue Profitably

Marketing ROI

• Finance and Operations are measured on ROI.• Marketing usually not measured on ROI.• Management wants to allocate scarce resources

using a common measure.• Marketing ROI can be measured.• Marketing ROI difficult to predict because of

intervening variables:– Customer behavior– Competitive behavior

Greater Marketing Accountability

• Change in Sales and Profit Trends• Changes in Marketing Contribution• Changes in Share of Market• Changes in Marketing / Sales Ratios• Number of Leads / Orders / Deliveries• Conversion rates – Lead / Order / Delivery• Number of Customers• Lifetime Value of a Customer

Marketing P & L StatementSales (Gross Revenues)

(minus) Cost of Goods Sold (Direct labor, purchases, commissions)

= Gross Margins

(minus) Marketing Variable Expenses (e.g. Adv., promo.)

= Marketing Contribution AKA Marketing Margin

(minus) Fixed Costs & Overhead (G&A Expenses, Rent, Insurance)

= Net Income Before Interest & Taxes

One Way to Measure ROI

Marketing ROI = Marketing Contribution

Marketing Variable Expenses

Marketing Management (a pub of the AMA) has many excellent articles on Marketing ROI.

What Is Marketing?

AdvertisingPromotionPublic RelationsEventsWeb SiteClick Through RatesGraphic DesignGross Rating PointsSocial Media

What Is Marketing?

“Marketing is a business discipline for obtaining and maintaining profitable customers”.

Charlie Larson

Profitable Customers!

Top Line Rev. Bottom LineProfits

Market Share Volume Total Customers Stock Price Share of Wallet

Source: Prophet’s 2005 State of Marketing Survey

CEO’sCMO’s

Marketing

• Art?• Or Science?

Marketing Is Behavioral Science

Where Can Marketing Add Value?

• Planning for Profitable Revenue Growth!• Executing the Revenue portion of the business plan.• Marketing and Sales have to compliment each other.• Relationships and Transactions.

– Marketing has to start the relationship.– Only Sales can consummate the transaction.– Both need to continue the relationship after the

transaction.

5 Very Important Questions

1. Do you know who your best, most-profitable customers are?

2. Do you know what makes them different from your other, less-profitable customers?

3. Do you know where to find more customers like your best, most-profitable customers?

4. Do you have a plan to attract more of these kinds of customers to your business?

5. Do you communicate with your Sales and Accounting Departments on these issues?

Who Needs A Strategy?

• People who want to win.• People who do not want to waste resources.• People who want a long and productive career.

Building the Business & Putting Out Fires

You are here X

Building the Business & Putting Out Fires

You are here X

You want to be:

Here ?

Available Tactics

Twitter

Facebook

Web 2.0E-Mail Blasts

Direct Mail

Print Media

Broadcast Media

Consumer Generated Content

Public Relations

Events

Thinking Tactically

You are here X

You want to be here

Tactic Tactic

TacticTactic

Tactic

Thinking Strategically

You are here X

You want to be here

Road Map Strategy

Tactic

Stimulus

Experience

Consider(options)

Search(information)

Choose(options)

Identify the customer behavior that needs to be modified at each stage of the Buying Process and the most appropriate contact programs to accomplish this.

The Buying Process

Universal Marketing Planning

Objectives

Past Business Results

Competitive Analysis

Positioning

Branding

Tactics

StrategyRoad Map

The Difference Between:

• Objectives• Strategies

• Tactics

“Too many people concentrate on doing things right than on doing the right things.”

Peter Drucker

The Difference Between:

ObjectivesQuantifiable measurements of achievement in the future.

StrategiesDoing the “right things”. What we should do to accomplish our objectives.

TacticsDoing “things right”. How we should do things to accomplish our objectives.

Objectives

• Objectives have numbers:– Either a concrete number, such as $X revenue

and $Y profit.– Or a relative number, such an increase of Z%

over the previous year.

Strategy

• Strategies do not have numbers.• A strategy is a behavioral statement of how the

objectives will be met, such as “draw customers from competition”.– What changes in customer behavior do you

need to meet your objectives?– What changes in behavior will your

organization make to change customer behavior?

Tactics

• Tactics have specifics, usually stated as numbers:– Size and frequency of advertising messages.– Prices and costs– Timetables.

Boston Consulting Group Portfolio

High Brand Share

Low Brand Share

Industry

Growth

Industry

Growth

Cash Cows

(Milk Profits)

Dead Dogs

(Bury Business)

Rising Stars(Invest Time& Money)

Problem Children

(Invest Time)

Source: Boston Consulting Group

Strategy Example

• There are only three real sources of business (customer behavior):– Attract entirely new customers to the market

category.– Attract customers from your competitors (build

share).– Have your current customers buy more of your

services or products.

Strategy Example

High Market Share

Low Market Share

High Market Growth

Low Market Growth

Attract entirely new customers.

Attract customers from competitors.

Have current customers buy more from you.

Exit the business, invest in CD’s.

Brand Strategy Format

Target Audience Description:

Insights that describe the motivations that bring someone into your market in the first place:

Examples:

Coffee drinkers concerned about caffeine intake.

Blue collar workers who travel the Midwest.

New mothers concerned about what to feed their baby.

Target Audience Description

Current Thoughts & Behavior

Target Audience Description

Current Thoughts & Behavior

Desired Thoughts & Behavior

The Brand Strategy

Current Thoughts and Behavior.

What’s in It for Me?

Why Should I Believe You?

Brand Personality.

Desired Thoughts and Behavior.

Audience Description

As a real person. Their needs and motives as they enter the market for your brand of service or product.

Winning & Maximizing Resources

• To win, you need to know the answers to these questions:– What are your business objectives?– Who are your sources of business?– What changes in behavior do you need from

your sources of business?– What changes in your behavior should you

make to elicit this change in customer behavior?

• People who want to win.• People who do not want to waste resources.• People who want a long and productive career.

Branding

To Make Your Company More Valuable

What Is A Brand?

“A brand is an economic relationship between a buyer and seller based on a consistent experience with the product or service which meets or exceeds the buyer expectations.

“This relationship can be functional, emotional or both.

“The relationship is strengthened or weakened by every contact between the brand and the customer.”

Charlie Larson

What Is A Brand?

“A brand is an intangible asset defined by the expectations people have about an entity. These expectations are developed over time by what the entity communicates and – more importantly – by what it does.”

Eric Hutchinson – The Brand Consultancy

What Is A Brand?

“Your brand is the relationship between you and your target audiences that secures future earnings by securing preference and loyalty.

A brand is the fusion of the emotional with the functional components of a product or service…

Strong brands address an idea beyond the attributes and functional benefits.”

Nick Russel - Interbrand

Experience = Relationship

Expectations

Common Brand Elements

If the Experience is equal to, or greater than Expectations, you have a positive relationship.

If the Experience is less than Expectations, you have a negative relationship.

Financial Reasons for Strong Brands

A strong brand =

A strong relationship with customers =

Strong positive cash flow into the future.

Financial Brand Valuation

Internal Branding

“Marketing is too important to leave to the marketing department.

“Everyone in the organization has to make decisions based on the impact on the customer.”

David Packard – Co-Founder – Hewlett-Packard

Internal Branding: Basic Premise

• Companies are missing a competitive advantage if their employees are not brand advocates.

• CRM is more than software.• Everyone in a company needs to “walk the talk”.

Internal Branding: Definition

• Delivering the brand promise to your customers through internal:– Functions– Departments– People

Who’s Delivering Your Experience?

• The Marketing Department?• Manufacturing?• Operations?• Finance?• Your Sales Department?• Brokers/Dealers?• Your employees?• Your customer’s employees?

Delivering Your Brand Experience

• If it is someone outside the Marketing Department (and it usually is)…

• Then the expectations set up by the Marketing Department has to be met (exceeded) by another Department(s).

• Is anyone facilitating this internal relationship?• Hint: This could make you a hero.

Internal Branding Initiatives

• Market research to determine unmet needs in your market.

• R&D to innovate solutions to customer needs.• Strategic marketing plans to take advantage of

competitive weaknesses.• Greater emphasis on customer service to cement the

brand relationship.• Improvements in existing products / services.• Stronger warranties to take the worry out of

purchasing by buyers.

“Why have marketing? To make money.”

The End of Marketing As We Know It

• “Marketers need to stop fooling around with the marketing-is-an-inscrutable-mystery hogwash and get down to business.

• When you understand that marketing is what you do to sell stuff, then the money that you lay out is an investment instead of an expense.

• You absolutely cannot spend more money every year just to keep your old volume.

• Strategy is the one thing that will keep you clean. When in doubt, just check what you want to do against the strategy”.

“You are trying to move product and / or service. Period.”

Why Most Marketing Sucks:

1. They really don’t know what marketing is,2. They go for generalities,3. They do not employ a swarming offense,4. They launch expensive programs that are devoid of

innovative thinking,5. They ignore readily available research that would allow them

to pinpoint ideal prospects.6. Corporate management allows the drivers of the marketing

process to be unaccountable for generating a measurable ROI.

7. Managers refuse to admit the only meaningful ROI is:a) Recruitment of new customersb) Sale of additional products to existing customers

Important Sources

• www.marketingpower.com (American Marketing Assn.)

• www.brandchannel.com (Interbrand)

• www.prophet.com (Prophet)

• www.adage.com (Advertising Age)

• www.wsj.com (Wall Street Journal)

• A Technique for Producing Ideas (James Webb Young)

• The Essential Drucker (Peter Drucker)

• Marketing Management (Bi-monthly publication of AMA)

Marketing Through Recessions

• Get to know the mind-set of your best customers.• Develop strategic marketing plans that change

behavior in order to:– Obtain and maintain a larger number of profitable

customers.• Be accountable for increasing revenue.• Use Internal Branding to deliver a superior

experience to your customers.• Smart marketing has always worked..

AMA Presentation June 9, 2009 Pdf Version

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