A recession is typically a time when organizations cut down on their discretionary spending and focus on productivity efforts as opposed to growth. The idea is that given the tight market there’s very little scope for growth, so it’s better to shift focus internally and squeeze some savings out of processes and product rationalization as opposed to finding new avenues for growth.
In terms of marketing initiatives, the first things that get trimmed is spending on efforts where there is very little evidence of actual ROIs. So, companies start cutting down on trade show activity, television sponsorships and advertising, outdoor advertising, big ticket promotions (apart from the usual personnel cuts) while seeking to maintain share and brand presence. This is typical for many businesses in the US. However, in avenues where they are able to quantify their ROIs on marketing, they do invest even more than usual. Case in point is the study from the IAB discussing how Q3 2008 online ad spends have actually increased by 11% over Q3 2007. So, folks are possibly spending more on PPC, Affiliate networks, SEO, advertising on social networks since the numbers tell ‘em that this is the way to go.
In recessionary times, more and more people will seek to increase their savings and spend less. The ING ‘wethesavers’ program is very interesting in the sense that it’s trying to capture share in the US market by getting more people to open accounts and ‘save’ more with it. How times have changed – a couple of years ago, it would’ve been a cold day in hell if an ad like this showed in the consuming culture that defines the US. But, today, this simple message is the smartest message around.
A downturn in the economy sometimes provides a great opportunity to gain market share at a reasonable cost. This increased market share in a slow time can help companies maintain sales levels near or even sometimes above previous levels. For this, it is important to evaluate marketing spends and see if there are opportunities to re-distribute the funds or re-negotiate contracts. Ideally, in such an environment, a company would like to maintain (or increase) its current level of media impressions. They can do this through non-traditional marketing, shifting the ad spends to different media and seeking more exposure where they do spend. Contract renegotiation also helps expand your reach and get more bang for ad dollars.
Weaker competition will see their market share decline as a result of a stronger firm’s aggressive tactics. And, when the market rebounds the stronger firm’s share will increase too. A hypothetical case in point :
- In today’s recession, market size of organic goods sold decreases from $150M to $100M.
- Whole Foods reallocates its marketing spends and uses different media (e.g. Twitter, Ning) to increase market share from 9% to 11%. Safeway’s loses share by 2 percentage points.
- Sales increase and Whole Foods’ market share is now $11M.
- The recession is over and the organic foods market returns to its pre-recession size of $150M.
- Whole Foods’ maintain its 11% market share and the value of its share now being $16.5 million.
A contracting economy is infectious and everyone is affected. Expenditures are reduced in both household and organizations. However, sometimes it’s necessary to think out-of-the-box and take some risks. The upside of the above tactic is too huge to ignore. Organizations have spent much more for much less.
