How the downturn can represent new business opportunities

Businesses that allocate spending to innovative campaigns stand to benefit

Bill Gates famously said that, if he was down to his last dollar, he would spend it on marketing. But, with the UK still stuck in a deep economic crisis, many companies are setting aside strategies for growth altogether and are intent solely on survival. Indeed, the Institute of Practitioners in Advertising’s (IPA) annual survey from last year found annual marketing budgets were being slashed by the greatest extent ever recorded in the survey’s history, and although this has since started improving, many companies are still cutting back.

On the surface, who can blame them? The signals are still not that encouraging. Spending on innovation programmes surely equates to sheer madness. Not so, according to the Chartered Institute of Marketing (CIM), which claims companies are increasingly realising it is the creative marketer, ripe with innovation, imagination and the right budget, who grasps the downturn as |an opportunity.

They would say that, of course. But a wealth of studies backs this up. Global consultancy McKinsey & Co found companies that remained or emerged in the top quartile of their sample overspent their less successful peers by almost 10 per cent during recessions, while other studies have found that companies that increase their marketing spend in a recession recover three times faster when economic conditions normalise.

Consider the cereal company Post and its reaction to the Depression in the Thirties, says Adrian Lomas, managing director of the creative and digital agency Blueleaf. “They were neck-and-neck in terms of market share with Kellogg’s, but decided to tighten their belts to survive the economic environment. Kellogg’s, on the other hand, saw this situation as an opportunity to increase their market share. They doubled their advertising budget and even launched a new product – Rice Krispies. Kellogg’s profits increased by almost 30 per cent and became the market leader, while Post never regained.”

According to the CIM, there are six key reasons why committing to a marketing plan pays off in a downturn. The first is that the obvious alternative – heavy discounting – may devalue your brand in the long term. “Look at PizzaExpress,” says Scott Knox, managing director of the MCCA (Marketing Communication Consultants Association). “The majority of their consumers will only return when they have a voucher in hand. It will take the brand years to recover from this, and as a result they are incapable of taking advantage of the improving market.”

Secondly, people don’t stop buying in a downturn – they just buy more safely. If you find out how your customers are redefining value and reassure them accordingly that they’re making the right decision, they’re likely to feel more confident about you both now and when the downturn has long gone. People don’t even necessarily want cheaper versions of things, points out the marketing agency Dragon Rouge – they just want more compelling reasons to put their hands in their pockets. “Sony, for instance, have dramatised the quality of their products – through colour definition and picture quality – to amplify the research that’s gone on in its development and help position the brand above all others, without succumbing to price wars and discounts,” says Joe Hale, client director.

Third, if you don’t communicate with consumers, you risk an “out of sight, out of mind” response. Worse still, they’ll smell failure. “Consumers cannot understand why, in a recession, companies aren’t desperate for business and will penalise those with a desultory attitude or who go quiet on them,” says Carole Lowe, executive planning director at the advertising agency Archibald Ingall Stretton.

Fourth, companies of all sizes need to adapt to survive. Paul Spaven, strategic growth partner at the building and property consultants Tuffin Ferraby Taylor, says: “This was my fourth recession, and I knew that cutting marketing costs is a false economy. So we took a careful look at our business and services, and established which areas we felt would be the most sustainable in the highest demand, and then we launched new innovations for these services. We then invested in specific marketing campaigns to support these, mixing trade advertising, direct mailing and PR support. In fact, our total marketing spend increased from 2.4 per cent of turnover last year to 3.1 per cent this year.”

Sodexo Motivation Solutions agrees, having recently re-evaluated its messaging and rebranded its employee benefits division. “The result has seen double-digit growth rates for our business, increased brand awareness, more customers and an internal energy level that makes us well placed to grow further out of the recession.”

Fifth, consumers want reassurance you’re “on their side”. Consider the success of Sainsbury’s “Feed your family for a fiver” campaign and Waitrose’s Essential range. Meanwhile, many smaller companies are winning customers through voucher, incentive and loyalty schemes. Michael Moszynski, chief executive of the global advertising agency London Advertising, has even started publishing its production costs online to prove their commitment to cost savings.

Finally, the difference between this downturn and the last is the growth of the internet as a cost-effective, measurable platform for marketers to test messaging and gain consumer insight. “Building an online presence might seem like needless expense at a time when brands are looking to cut costs,” says David Donnan, director at the digital marketing agency MSG. “But the average UK surfer spends 22 hours and 15 minutes on the net each month, according to the UK Online Measurement Company, which is testament to its power as a marketing and business tool.”

Focusing on electronic campaigns is cheaper than direct mail, and research shows that marketing which enables customers to respond has better outcomes. Many small companies report the most effective and powerful way to market is through email marketing. John Peers, managing director of health and fitness chain Total Fitness, says digital marketing has been key to growing its business throughout the credit crunch. “Membership sales through online routes have gone from 3 to 10 per cent, and we expect that proportion to grow further. What’s more, digital marketing gives us 100 per cent clarity as to how interest in our services translates into a sale.”

Promoting on social networking sites, such as Facebook, is also essential, not least because it enables you to see a level of detail about what your customers think of you, never seen before.

Meanwhile, Patrick Peal, managing director of Tribe PR, is a big fan of online search advertising. “Pay-per-click does not require significant origination or production costs,” he says. “With search marketing, there is no wastage either. Because you only pay when a prospect clicks on your message, your costs are clearly focused on people interested in your proposition. Online is infinitely adaptable too – campaigns can be changed in real time at a moment’s notice. Finally, online is accessible to everyone and can be targeted to an individual.”

Brands need to get out of the mindset that marketing is a luxury, says Knox. “It’s not. If SMEs take advantage of the quietness in the rest of the market and deliver well thought-out, innovative marketing communications, they will achieve greater cut-through at far less spend.”

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