Description
Whilst the principles of marketing stay the same regardless of the prevailing economic environment, it is the practice of marketing that changes, especially in a recession. In response to the slump in demand and decreased sales, many marketing teams have had their budgets slashed and their resources cut back
Effective marketing
strategies for a
recession
For large organisations that operate
predominantly in b2b markets
By Julia Cupman
B2B International
Page 2
Abstract
Whilst the principles of marketing stay the same regardless of the
prevailing economic environment, it is the practice of marketing
that changes, especially in a recession. In response to the slump
in demand and decreased sales, many marketing teams have had
their budgets slashed and their resources cut back. These
challenges, along with volatility in the marketplace and constantly
changing customer needs, mean it is difficult for marketers to
determine what marketing strategies to employ.
There are a plethora of factors that influence the appropriateness
of a certain marketing strategy for a particular company, including
the overall objective of the strategy, the level of available human
and financial resources to implement the strategy, the geographical
scope being considered and the elasticity of demand in the
marketplace, to name but a few examples. Common to all
strategies is that some kind of payback is required, in that every
strategy should seek to provide a return on investment.
This paper explores strategic reactions to a recession and
examines the findings from a survey of 310 marketing
professionals who work in b2b corporates across the world.
Various marketing strategies are discussed, with a particular focus
on what makes a strategy effective in turbulent times.
Effective marketing strategies for a recession
Page 3
Contents
1. Introduction ......................................................................... 4
2. The role of marketing strategy .............................................. 7
3. Common reactions to a recession ....................................... 10
Inertia ........................................................................................ 10
Lowering prices ......................................................................... 10
Cutting costs .............................................................................. 12
4. Effective marketing strategies for a recession ...................... 14
Effective pricing strategies ........................................................ 14
Effective strategies in the context of Ansoff – determining
which products and which markets .......................................... 20
Summary ................................................................................... 26
5. Survey on marketing in the recession .................................. 27
About the survey ....................................................................... 27
Effects of the recession ............................................................. 27
The economic outlook ............................................................... 30
Attitudes to marketing in a recession ....................................... 31
Marketing challenges in a recession ......................................... 32
Strategic responses to the recession ........................................ 35
Changes to the marketing toolkit .............................................. 38
Evaluating marketing strategies in the recession ..................... 39
6. Conclusions ........................................................................ 42
Key changes to marketing in a recession .................................. 42
Effective marketing strategies for a recession .......................... 45
7. References ......................................................................... 50
Page 4
“A time of turbulence is a dangerous time, but its greatest danger
is a temptation to deny reality…
[However] a time of turbulence is also one great opportunity for
those who can understand, accept and exploit the new realities. It
is above all a time of opportunity for leadership” (Drucker, 1980)
1. Introduction
In Europe, a widely acknowledged definition of a recession is the
reduction of a country’s gross domestic product (GDP) for at least
two quarters. In the US, the definition of economic recession is
somewhat looser: "a significant decline in economic activity spread
across the economy, lasting more than a few months, normally
visible in real GDP growth, real personal income, employment
(non-farm payrolls), industrial production, and wholesale-retail
sales."
1
Whatever the definition, there can be no doubt that much
of Europe and the US have slipped into a recession.
In virtually all markets, demand has shrunk, there is immense
pressure on suppliers to reduce prices, markets are more focused
on buying on price, and profit margins are squeezed. The fear of
downfall as a result of recessionary pressures has led, and
continues to lead, to a fierce slashing of budgets, in particular
marketing budgets. For instance, Marks & Spencer has reduced
1
According to The National Bureau of Economic Research, Business
Cycle Expansions and Contractions, 19
th
November 2008
Effective marketing strategies for a recession
Page 5
its marketing budget by 20% (Marketing Magazine, 7
th
January
2009)
2
and FedEx has cut its marketing budgets by more than 25%
(Reuters, 7
th
January 2009)
3
. Why are marketers feeling the pinch
with decreased spending power when it is such a crucial time to
understand customers’ requirements and meet their needs before
they could potentially defect? Given that most businesses lose
around half of their customers every five years, it is frightening to
think how many customers have been lost in the past few months
alone as a result of the faltering economy.
This is particularly worrying for companies that operate in b2b
markets, for b2b companies have far fewer customers than b2c
companies and in general tend to have strong relationships with
their customers, especially their largest customers. According to
the Pareto principle, these largest customers comprise 20% of all
customers served by a b2b company and yet account for 80% of
turnover. In a recession, a b2b company is thus highly dependent
on this small clutch of valuable customers and is significantly
affected if any of these customers goes bust or cuts demand. For
obvious reasons, b2b companies need to work hard on keeping
their existing customers during a recession and, of course, on
finding new ones.
Marketing is a means of identifying and meeting needs profitably
and it plays an instrumental role in retaining existing customers, as
well as in attracting and winning new ones. The most profitable
companies in a recession are typically those that delineate and
execute marketing strategies successfully, but determining which
marketing strategy to adopt is not an easy task. Apart from doing
nothing at all, the worst that companies can do is presume that the
only way forward is to slash prices, for in doing so they are possibly
neglecting the other vital elements of the marketing mix, potentially
tarnishing their brand image and underestimating the importance of
meeting customer needs.
Tighter economic conditions sharpen the focus of business and
marketing strategies. Strong economies allow many companies
the luxury of indulgence and a profitable bottom line can
sometimes be achieved in spite of their (in)actions. Furthermore,
2
For 2009
3
For 2009
Page 6
in buoyant conditions, companies may be able to achieve levels of
profitability which delude them into believing that their strategies
are working and yet they may never know that they could be much
more profitable had they adopted a different strategy. In a
recession, the smallest of strategic mistakes could, however, result
in a company failing quickly. The right marketing strategies
therefore act as insurance against risk, making companies less
vulnerable to the vicissitudes and volatility of the business and
economic environment, as well as act as an aggressive marketing
tool that ensures survival and unleashes potential opportunities.
As Harvard Business School Professor John Quelch recently
stated, “Successful companies do not abandon their marketing
strategies in a recession; they adapt them.” (Harvard Business
School Working Knowledge, 3
rd
March 2008).
With this in mind, this paper explores what constitutes effective
marketing strategies for a recession, with a particular focus on
companies that operate in b2b markets. The paper covers two key
aims:
1. To explore how organisations are reacting to the current
recessionary pressures in terms of marketing strategies
they have employed.
2. To determine which marketing strategies can be
considered the most effective for a recession.
The next section discusses the role of marketing strategy, which is
followed by a description of typical reactions to a recession and
effective marketing strategies that can be employed for tough
economic times. This is then followed by an overview and analysis
of the insights obtained through primary research, in which a
survey of marketing professionals explored their attitudes to the
recession and how they are responding to it. The paper concludes
with a summary of key findings, as well as strategic
recommendations for companies that are reviewing their marketing
strategies in light of recessionary pressures.
doc_928972784.pdf
Whilst the principles of marketing stay the same regardless of the prevailing economic environment, it is the practice of marketing that changes, especially in a recession. In response to the slump in demand and decreased sales, many marketing teams have had their budgets slashed and their resources cut back
Effective marketing
strategies for a
recession
For large organisations that operate
predominantly in b2b markets
By Julia Cupman
B2B International
Page 2
Abstract
Whilst the principles of marketing stay the same regardless of the
prevailing economic environment, it is the practice of marketing
that changes, especially in a recession. In response to the slump
in demand and decreased sales, many marketing teams have had
their budgets slashed and their resources cut back. These
challenges, along with volatility in the marketplace and constantly
changing customer needs, mean it is difficult for marketers to
determine what marketing strategies to employ.
There are a plethora of factors that influence the appropriateness
of a certain marketing strategy for a particular company, including
the overall objective of the strategy, the level of available human
and financial resources to implement the strategy, the geographical
scope being considered and the elasticity of demand in the
marketplace, to name but a few examples. Common to all
strategies is that some kind of payback is required, in that every
strategy should seek to provide a return on investment.
This paper explores strategic reactions to a recession and
examines the findings from a survey of 310 marketing
professionals who work in b2b corporates across the world.
Various marketing strategies are discussed, with a particular focus
on what makes a strategy effective in turbulent times.
Effective marketing strategies for a recession
Page 3
Contents
1. Introduction ......................................................................... 4
2. The role of marketing strategy .............................................. 7
3. Common reactions to a recession ....................................... 10
Inertia ........................................................................................ 10
Lowering prices ......................................................................... 10
Cutting costs .............................................................................. 12
4. Effective marketing strategies for a recession ...................... 14
Effective pricing strategies ........................................................ 14
Effective strategies in the context of Ansoff – determining
which products and which markets .......................................... 20
Summary ................................................................................... 26
5. Survey on marketing in the recession .................................. 27
About the survey ....................................................................... 27
Effects of the recession ............................................................. 27
The economic outlook ............................................................... 30
Attitudes to marketing in a recession ....................................... 31
Marketing challenges in a recession ......................................... 32
Strategic responses to the recession ........................................ 35
Changes to the marketing toolkit .............................................. 38
Evaluating marketing strategies in the recession ..................... 39
6. Conclusions ........................................................................ 42
Key changes to marketing in a recession .................................. 42
Effective marketing strategies for a recession .......................... 45
7. References ......................................................................... 50
Page 4
“A time of turbulence is a dangerous time, but its greatest danger
is a temptation to deny reality…
[However] a time of turbulence is also one great opportunity for
those who can understand, accept and exploit the new realities. It
is above all a time of opportunity for leadership” (Drucker, 1980)
1. Introduction
In Europe, a widely acknowledged definition of a recession is the
reduction of a country’s gross domestic product (GDP) for at least
two quarters. In the US, the definition of economic recession is
somewhat looser: "a significant decline in economic activity spread
across the economy, lasting more than a few months, normally
visible in real GDP growth, real personal income, employment
(non-farm payrolls), industrial production, and wholesale-retail
sales."
1
Whatever the definition, there can be no doubt that much
of Europe and the US have slipped into a recession.
In virtually all markets, demand has shrunk, there is immense
pressure on suppliers to reduce prices, markets are more focused
on buying on price, and profit margins are squeezed. The fear of
downfall as a result of recessionary pressures has led, and
continues to lead, to a fierce slashing of budgets, in particular
marketing budgets. For instance, Marks & Spencer has reduced
1
According to The National Bureau of Economic Research, Business
Cycle Expansions and Contractions, 19
th
November 2008
Effective marketing strategies for a recession
Page 5
its marketing budget by 20% (Marketing Magazine, 7
th
January
2009)
2
and FedEx has cut its marketing budgets by more than 25%
(Reuters, 7
th
January 2009)
3
. Why are marketers feeling the pinch
with decreased spending power when it is such a crucial time to
understand customers’ requirements and meet their needs before
they could potentially defect? Given that most businesses lose
around half of their customers every five years, it is frightening to
think how many customers have been lost in the past few months
alone as a result of the faltering economy.
This is particularly worrying for companies that operate in b2b
markets, for b2b companies have far fewer customers than b2c
companies and in general tend to have strong relationships with
their customers, especially their largest customers. According to
the Pareto principle, these largest customers comprise 20% of all
customers served by a b2b company and yet account for 80% of
turnover. In a recession, a b2b company is thus highly dependent
on this small clutch of valuable customers and is significantly
affected if any of these customers goes bust or cuts demand. For
obvious reasons, b2b companies need to work hard on keeping
their existing customers during a recession and, of course, on
finding new ones.
Marketing is a means of identifying and meeting needs profitably
and it plays an instrumental role in retaining existing customers, as
well as in attracting and winning new ones. The most profitable
companies in a recession are typically those that delineate and
execute marketing strategies successfully, but determining which
marketing strategy to adopt is not an easy task. Apart from doing
nothing at all, the worst that companies can do is presume that the
only way forward is to slash prices, for in doing so they are possibly
neglecting the other vital elements of the marketing mix, potentially
tarnishing their brand image and underestimating the importance of
meeting customer needs.
Tighter economic conditions sharpen the focus of business and
marketing strategies. Strong economies allow many companies
the luxury of indulgence and a profitable bottom line can
sometimes be achieved in spite of their (in)actions. Furthermore,
2
For 2009
3
For 2009
Page 6
in buoyant conditions, companies may be able to achieve levels of
profitability which delude them into believing that their strategies
are working and yet they may never know that they could be much
more profitable had they adopted a different strategy. In a
recession, the smallest of strategic mistakes could, however, result
in a company failing quickly. The right marketing strategies
therefore act as insurance against risk, making companies less
vulnerable to the vicissitudes and volatility of the business and
economic environment, as well as act as an aggressive marketing
tool that ensures survival and unleashes potential opportunities.
As Harvard Business School Professor John Quelch recently
stated, “Successful companies do not abandon their marketing
strategies in a recession; they adapt them.” (Harvard Business
School Working Knowledge, 3
rd
March 2008).
With this in mind, this paper explores what constitutes effective
marketing strategies for a recession, with a particular focus on
companies that operate in b2b markets. The paper covers two key
aims:
1. To explore how organisations are reacting to the current
recessionary pressures in terms of marketing strategies
they have employed.
2. To determine which marketing strategies can be
considered the most effective for a recession.
The next section discusses the role of marketing strategy, which is
followed by a description of typical reactions to a recession and
effective marketing strategies that can be employed for tough
economic times. This is then followed by an overview and analysis
of the insights obtained through primary research, in which a
survey of marketing professionals explored their attitudes to the
recession and how they are responding to it. The paper concludes
with a summary of key findings, as well as strategic
recommendations for companies that are reviewing their marketing
strategies in light of recessionary pressures.
doc_928972784.pdf