Although any downturn has its unique features, there are still  basic principles which apply to all of them. Those principles will determine whether companies eat – or whether they become – their competitors' lunch.

What’s a marketer to do?  Not what many have done in the past: cut prices, cut product quality or cut advertising. In other words, cut their brands' throats.

Cut prices? Ask Detroit how rebates worked for them. When sales stalled, the three American car companies flooded the market with so many off-price deals that no reasonable person would buy Detroit iron without a big rebate or a 0% financing offer.   Or maybe, if you bargained hard, both.

To complete their self-immolation, the car manufacturers dumped excess inventory onto rental fleets at rock-bottom prices. When the rental companies resold those cars a few months later, resale value was driven way down – which further lessened value and quality perceptions.

Cut product quality or service? Remember Schlitz? Just thirty years ago The Beer That Made Milwaukee Famous was America's second-best-selling brew. It was bigger than Miller or Coors. Then someone decided to trim costs by switching to high-temperature fermentation. Customers probably wouldn't notice, right? Wrong.  Six years later the company was out of business. (The brand was brought back by Pabst, without much success.) 

Cut advertising? When Netflix began to make really serious inroads into Blockbuster's customer base in 2005, Blockbuster cut its $154.2 million advertising budget to $44.7 million. No surprise that Netflix grew from 4.2 million subscribers then to 7.1 million now. How'd the ad cut work out for Blockbuster? In 2007, they closed 500 stores and saw a $33.4 million profit turn into a $125 million loss through the third quarter. So what did they do to turn things around? They cut 16% more out of advertising in the last quarter.

So what should a marketer do?  Take advantage of the opportunity.  Yes, the opportunity.

To quote The Wall Street Journal, ". . . companies that maintain or increase their advertising spending during recessions get ahead. A less crowded field allows messages to be seen more clearly, and that increased visibility results in higher sales both during and after a recession."

A study by the American Business Press Association showed that companies that maintained their advertising spending during  downturns enjoyed average sales increases of 22% and average profit increases of 16% even during the difficult economic times.  When  the economy bounced back, they had a significant lead over their competitors. 

Although The Wall Street Journal and the American Business Press Association share a strong interest in maintaining advertising spending, the Harvard Business Review doesn't. And its study had the same results.                                                                                                  

How should companies capitalize on the recession?  These seven ways:

1. Know – and reinforce – Net Promoter Scores. It's a lot cheaper and simpler to keep current customers and let them bring in new ones than to go prospecting in media for new customers.

The Net Promoter Score is a reliable predictor of market share success. It's a simple metric: Customers are asked to rate their likelihood of referring a brand to a friend or acquaintance, using a scale of one to ten.  The percentage rating the brand one through six is subtracted from the percentage answering nine or ten to determine the Net Promoter Score.

Higher scores correlate very closely to growth in category. It’s crucial to know that score.  It’s also crucial to know what makes it high or low so companies can reinforce the qualities that elevate their scores or fix the problems that depress them.   There has been disagreement on details, but other research confirms the relationship between NPS and growth.

2. Focus on share within category. It's difficult and expensive to move people from category to category. It's relatively simple and efficient to change brand preference within a category. So although there may be a migration of customers out of a category (from casual dining to fast food, for example), it's pointless to try to stop the trend.   Instead, companies should concentrate on capturing customers who stay within – or migrate into – the category. It's smart to take on direct competitors, but it’s much, much tougher and more expensive to buck trends. 

3. A close corollary to staying within category is: Stay with the existing brand position. (Assuming, of course, that the brand has a clear, focused, effective position.) Once a brand has established a strong position within its category, attempting to change that position is usually counterproductive. The brand's existing position is lost or diluted in the attempted change, and the new position is almost never established effectively because of cognitive dissonance with what the brand previously stood for. And it costs a lot more to change a perception than to reinforce one.

4. Don't change the marketing communications program if data show that it is effective.  Like the brand's position, its campaign has momentum and equity. If the campaign works in good times, it will almost always work in tough times, too.

5. Do change a campaign that’s not working.  The beginning of tough times is the perfect opportunity to change a campaign that’s not producing results.  Competitors will probably cut  budgets, so the brand's share of voice will go up, which makes it easier to establish a new campaign.

6. Cut the frills. Reinforce the essentials. Companies should drop  the "compliments of a friend" ad in a golf tournament program, but sponsor tournaments of their own to strengthen their relationships with key customers.

This isn't the time to waste PR on the chairman's election to the opera board. Those resources should be used to promote a new product improvement.

Economic downturns are an ideal time to cut out the ineffective media many companies buy because the rep is someone's cousin's best friend. (Here's where the bad economy can be useful. The agency or marketing director can regretfully say, "Sorry, but these are tough times, so we had to cut back.")

But advertisers should go all out in the media that produce quantifiable results. Especially since their messages will be more prominent as competitors reduce spending. 

7. Experiment. When competitors have pulled back, they're probably not doing much to improve their products or communications. So a new feature will have more impact. And a new, more intuitive web site will be more effective.

Obviously, it's important to stick with what works, but there's no better time to experiment and expand a company's range of effective marketing and communications tools.

The economy is in flux. Retail, housing, automotive, and financial services have all taken major hits.   Business leaders’ confidence is down.  The Discover Small Business study on economic confidence among small business owners reports that 41% perceive that economic conditions for their businesses are getting worse.

Wall Street behemoth Merrill Lynch replaced a swing-for-the-fences CEO with a prudent steward. And all up and down the business spectrum companies are battening down the hatches to ride out the storm.

No matter how deep the recession is, or how long it lasts, this is the perfect opportunity to stay aggressive and grab market share as competitors scale back their marketing efforts. 

An aggressive approach will pay dividends immediately. But the down-the-road rewards are even greater. Because companies that gain share during downturns historically keep that increased share when the economy bounces back. And each share point gained during the recession is worth incrementally more as the market eventually recovers.

A McGraw-Hill study showed that four years after a downturn, companies that maintained marketing communications during the economic slowdown typically experienced 14 times more growth than companies that cut back.

To see how we can help your business in good times or bad, please contact us or call us at 865-330-0033.  You can also download a copy of this article as a white paper here. 

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