Marketers Preparation For Recession

Part
01
of three
Part
01

Marketing Recession Strategies

Marketing strategies that marketers and marketing firms can use to help their businesses avoid the effects of a recession are focusing on profitable effectiveness, thinking in the longer-term, securing customers before the recession, deciding what part of the budget will help in demand generation, focusing on brand value, and making employees a key part of marketing as they can promote a brand cost-effectively. Detailed information is in the next section.

I) FOCUS ON PROFITABLE EFFECTIVENESS

  • To help their businesses avoid the effects of a recession, marketers and marketing firms should focus on profitable effectiveness.
  • Marketers need to put a lot of effort into ensuring that their firms are making a profit rather than having empty growth.
  • This can be used to avoid the effects of a recession as focusing on profitable effectiveness will ensure that the dollar spent can bring returns and cushion the firm against the effects of the recession. This is because the dollar spent cannot be used on something else as the "economic principle of opportunity cost mandates."

II) RESIST THINKING ONLY IN THE SHORT TERM

  • To help their businesses avoid the effects of a recession, marketers and marketing firms should resist the urge to think only in the short term.
  • During a recession, many marketers are tempted to just think about what will generate revenue tomorrow rather than in several months to come.
  • This is because companies tend to have direct control over the money that goes out but not that which is coming in, and they will respond to this by cutting costs. However, cutting costs should be done strategically so that the share of voice is maintained at or above the share of market during a recession.
  • This can be used to avoid the effects of a recession as profitability improvement in the longer-term greatly outweighs short term cost-cutting in many cases.

III) SECURE CUSTOMERS BEFORE THE RECESSION

  • To help their businesses avoid the effects of a recession, marketers and marketing firms should try to secure customers as the recession approaches.
  • The focus here should be to keep a marketing firm's current customers happy. The recession will also affect these current customers, as they will likely experience potential losses and budget cuts, and maybe looking to downsize.
  • To keep these customers, marketers and marketing firms need to be ready to explain to them as to how specific products or services can help customers' businesses thrive even in a recession.
  • Marketers and marketing firms also need to be sensitive to the struggles faced by their customers. This is because identifying with them makes them more likely to identify with the company and help to ride out the recession.

IV) FIGURE OUT WHAT SECTION OF THE BUDGET WILL DRIVE DEMAND GENERATION

  • To help their businesses avoid the effects of a recession, marketers and marketing firms should figure out what budget percentage will drive demand generation.
  • This is because budget cuts are very likely to occur during the recession, and marketers will have to defend the part of a budget used to build their brand.
  • Knowing how much is needed to drive demand generation will help marketers and firms to bring in new business, as "those dollars spent will yield successful business results".

V) MAKE EMPLOYEES A KEY PART OF MARKETING

  • Marketers and marketing firms should make employees a key part of their marketing. This can be done by ensuring that they only have dedicated employees who support the brand and its products enough to purchase them.
  • This way, employees are likely to understand and promote the brand as great advocates. They can tell others about their real experiences with the brand and cost-effectively promote the brand.
  • When employees buy-in with a brand and spread the word on how good it is, it serves as free media for marketers and marketing firms.

VI) MARKETERS SHOULD FOCUS ON BRAND VALUE

  • In good economic times, customers are more open to trying new product offers. However, in a downturn, consumers focus on value. Marketers should, therefore, understand the value that customers put on them.
  • A company's brand has more to do with how it is perceived than how the company defines itself.
  • This can be used to avoid the effects of a recession as knowing the brand value enables marketers to be in a better position to ride out the recession.
Part
02
of three
Part
02

Recession Effects

During the financial crisis, luxury retailers such as Prada built art centers and museums representing their brand to enhance its artistic leadership and resisted price cuts as they did not want to tarnish their brand. On the other hand, middle-average retailers focused on price to differentiate themselves in the market and had intense advertising campaigns that incorporate their competitive prices.

LUXURY RETAIL SEGMENT

  • In 2008, consumer spending slowed down due to the financial crisis, which led to a significant decline in luxury retail sales. Net sales of luxury retailers decreased by 3.43%.
  • Although luxury apparel consumers still made purchases during the recession, they did not purchase multiple items.
WHAT WAS DONE TO COUNTER THE EFFECTS AND THE RESULTS
  • The main concern of top marketers from brands like Gucci, Prada, Tom Ford, and L'Oréal was to understand "who would remain wealthy over the next two years and how they might spend their disposable cash." The brands resisted price cuts that would have created a lower-priced brand as they did not want to tarnish their brand.
  • The luxury apparel net sales increased by almost 2% in 2009 and rebounded in 2010, showing a strong increase of 21.88%. In 2011, the industry experienced a growth of 16% in net sales.
EXAMPLE: PRADA
  • While the US accounted for 18.1% of the net revenue of Prada for the fiscal year ending January 2009, the market share dropped to 14.9% in 2010.
  • During the recession period, the activities of management were focused on the continuous optimization of business processes and cost control.
  • Prada maintained investments and built art centers and museums representing its brand to enhance its artistic leadership during the recession.
  • Among luxury apparel companies, Prada reported the highest gross margin, at 72%, post-recession (2011), where the average gross margin was 61.88% for the luxury apparel segment.

MIDDLE-AVERAGE RETAIL SEGMENT

  • While net sales of middle-average retail companies increased by 1.13% in 2008, it dropped by 2.5% in 2010 as an impact of the financial crisis.
WHAT WAS DONE TO COUNTER THE EFFECTS AND THE RESULTS
  • Middle-average retailers targeted middle-class consumers who are price-sensitive but still put a high emphasis on value and not necessarily bargain-hunting.
  • The mass retailers focused on price to differentiate themselves in the market and had intense advertising campaigns that incorporate their competitive prices.
  • The net sale of the industry increased by 10.75% in 2010 and 12% in 2011.
EXAMPLE: TARGET
  • When Target lost its consumers to discount rivals like Dollar General and Wal-Mart Stores Inc., Target launched a massive marketing campaign to remind consumers of its low prices, complete with its "Expect More, Pay Less" slogan.
  • Target also remodeled its stores, adding fresh food and sprucing up beauty, electronics, and home departments.
  • While the growth rate in 2009, immediately after the recession, was 0.6%, Target's growth in 2011 was 3.7% after adopting the massive marketing campaign strategy.

RESEARCH STRATEGY

To provide case studies of how luxury and middle-average retailers were impacted by the recession, what were done to counter the effects, and what were the results, we commenced our research by looking into industry reports and white papers conducted on the retail segment during the financial crisis. We also referred to news and media sources that have coverage of the 2008 economy and beyond. Furthermore, to present the results of the sectors' efforts to combat the recession, we used the financial reports of the example companies.
Part
03
of three
Part
03

Recession Preparedness-Now VS. 2008

In preparation for the 2008 recession, marketing agencies were reluctant to undertake significant restructuring changes before the recession. In contrast, marketing agencies today have a higher awareness of recession economic signals and are more ready to undertake structural changes.

PREPARATION FOR THE 2008 RECESSION

Overview

  • In 2007, signs of a potential financial crisis were emerging. The high rate of mortgage foreclosures and dampening of real estate prices in the last quarter of 2007 were a cause of alarm. Essentially, it set the stage for the 2008 financial crisis that accelerated in September 2008 after the collapse of the Lehman Brothers.
  • By 8 October 2008, panic in the financial markets triggered the collapse of global financial markets leading to a global recession.

Staff layoffs

PREPARING FOR COMING RECESSION

Overview

  • In the wake of the United States -China trade war, marketing agencies have already started being negatively impacted, which will accelerate in the face of a recession.
  • Marketing agencies operating in China including WFP, Omnicom Group, and Publicis Groupe have reported negative revenue growth in China over their recent quarters as a result of slowing China's economy.

Cost management

  • In preparation for the coming recession, the Interpublic Group, the world's fourth-largest agency, has positioned itself to weather the economic storms by increasing scrutiny and management of operating costs.

Exiting unprofitable ventures

  • Additionally, the Interpublic Group has exited countries where it is facing losses such as Vietnam.

Market Positioning

  • Small marketing agencies are best accustomed to declining client budgets. San Francisco-based agency TBD is seeking to exploit this advantage and attract new clientele.

Outsourcing

  • Tempesta Media identifies that outsourcing is beneficial to marketing agencies in the face of the upcoming recession as it will reduce direct overheads while maintaining quality.

COMPARISON

Recession Awareness

  • In the aftermath of the great recession, American households lost $16.4 trillion in wealth. The drastic loss in wealth was unprecedented and unexpected.
  • Largely, a majority of US marketing agencies realigned their operations to the great recession late in 2008 when the great recession was full-blown. The late realignment of organization operations was driven by less awareness of the potential impact of the recession on their operations.
  • With the hindsight of the 2008 recession, marketing agencies are more aware of warning signs of the upcoming recession. Warning signs of a recession that were previously ignored are now taken into consideration,
  • Before the 2008 recession, marketing agencies took no heed of the declining client retainers as a sign of the recession or the need to align operations. In 2019, clients are more aggressive in evaluating financial and client signals of the upcoming recession.

Restructuring aggressiveness

Sources
Sources

From Part 01
Quotes
  • "Great marketers will shine during the recession, but weaker marketers will not survive. A smart marketer will recognize a good strategy and will work on all communication channels, marketing to employees, customers, and prospects alike. "
Quotes
  • "... we know that advertising effectiveness has been declining as short-termism has been increasing."
Quotes
  • "In any economy, but especially during a downturn, it's all about how customers perceive a brand's value. "During an upturn, consumers are more open to new products," says Andrew Swinand, CEO of Leo Burnett. "In a downturn, people focus more on value." The upshot: Brands that truly understand the value their consumers bestow upon them are better positioned to ride out a slowdown."
Quotes
  • "Your brand is more about how you are perceived than how you define yourself."