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Sent: 10-03-2009 11:27:01
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Global Banking: Facing Up to the Changes Email Newsletter Business Opportunity - Helen Bairstow The Current Climate, a Threat or an Opportunity The Easiest way to do a Client Newsletter. An Analysis of the Cause of the Current Recession
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The Current Climate, a Threat or an Opportunity

Click here to buy - A How To Book of SMSF's by Tony Negline

Lester Wills

I would imagine that many companies out there are under all sorts of pressure to rein in expenditure as revenues fall. I have personal experience in such situations of bean counters seemingly emerging from nowhere and immediately casting their eyes over areas to cut. More often than not their first victims are the marking/advertising budgets. I must admit that I have never really understood that approach for one basic reason. When there is even greater pressure to generate income, why on earth cut the very area whose specific purpose is to attract new money into the company? I must be missing something because I have never got that sort of logic, but there again, I cannot claim to be a bean counter. But, is it just my bias showing through, or are my instincts correct?

I am happy to say that there is evidence to back up my rhetoric. I recently discovered an article from Knowledge@Wharton which tackles this very issue. As they point out, executives who succumb to the temptation to cut their marketing/advertising expenditure during times of financial stress are actually putting the long term future of their companies at risk. As the Wharton article explains, by reducing their marketing exposure they are leaving empty spaces in the minds of consumers. Spaces that can all too easily be filled by aggressive marketers of other companies. In fact situations such as those existing today actually provide an opportunity to differentiate your company and enable it to stand out from the crowd.

What those focusing on the short term numbers usually forget is that in such climates, there is likely to be reduced demand for advertising services. As any one who has even a rudimentary understanding of economics will tell you, when demand is reduced, the price tends to fall as a result (supply and demand 101). As a result, far more can be achieved with the same spend. Consequently, if a company has something relevant to say in this climate, it is far more cost effective to say it now than in the future when the economy (and the pricing of advertising services) has recovered.

This is not just some marketing spiel, it is based on fundamental research of companies in exactly this type of situation. By way of example, a McGraw-Hill Research study looked at approximately 600 companies between 1980 and 1985. They found that those who chose to maintain or raise their advertising expenditure during the 1981/82 recession had significantly higher sales when the economy recovered. As the Wharton article pointed out, the companies that advertised aggressively during this period had sales more than 2 ½ times higher than those who did not advertise during that time.

However, the key is not just to maintain or increase advertising and marketing, it is to craft the message to reflect the times and demonstrate how the service benefits the consumer. I have witnessed just such an approach here in the US (I do not know if this particular example has been extended to other countries but would not be surprised if it has).

As we all know, car manufacturers are suffering badly all over the world. You only have to drive by car sales showrooms (or even used car lots) to see large numbers of vehicles that they simply cannot move. The flow on effect of course is that the manufacturers have to lay people off, thereby further weakening the economy, reducing the level of income available for discretionary spending. This means that many are reluctant to commit to buying a car as they are uncertain about their future and in particular, keeping their jobs. Most manufacturers over here have merely continued to emphasize the quality of their cars, the fantastic fuel mileage they produce (the Americans have suddenly caught on to that idea) and how cheap their vehicles are, especially in comparison to their competitors (negative advertising is also on the rise, but as I explain in part 2, that can also be a mistake).

Sadly, such advertising is not particularly effective and sales are still falling. However, one company has adopted a very different approach.

Hyundai has recognized that people are unsure about their future and states in its new advertising campaign that buying a car is a contract between two parties. As they say, one side makes a commitment to buy the vehicle, but what about the other side of the contract? They go on to add that if the buyer loses their income in the first year of the contract, they can return the car with no penalty, thereby reducing the risk to the buyer. They have adjusted their message to reflect the times and the concerns of people who are potential customers.

Needless to say the campaign has provoked a great deal of interest, with some media outlets suggesting that it appears to be having some success. Sadly at the time of writing I do not have figures to confirm that but clearly it is an example of a company selling a commodity in tough economic times, differentiating itself and standing out from the crowd.

There is of course more to this approach but that will have to wait until next time.

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