HOW TO BEAT THE DOWNTURN BLUES {PART 1}

How To Beat the Downturn Blues

{Part I}history can help you avoid major marketing mistakes!

Times are hard, but does that mean businesses should slash their marketing and advertising budgets in an effort to cushion the bottom line?

If history is any indication, doing so could be a big mistake. In fact, savvy business leaders who understand economic cycles know that recessions can be prime opportunities to capture market share and set the stage for significant future growth.

While the latest recession (brought on by the subprime housing crisis) may be particularly painful, history shows that it is no anomaly. In fact, it is the 13th recession since the Great Depression (13 years of pain!) finally ended in 1942. Since 1797, the U.S. has experienced nearly 50 recessions and a handful of depressions (more painful downturns characterized by a steeper decline in Gross Domestic Product) thrown in.

Post World War II, many of these recessions have been mild, lasting 8-12 months with relatively modest declines in GDP followed by robust periods of economic expansion. A couple of recessions, 1973-1975 and 1981-1982, were more sustained and difficult.

But whatever their various causes or durations, recessions have tended to promote business contraction, even if contraction wasn’t called for in specific cases. The result was missed opportunities and loss of market share to competitors.

WHY? Because a few brave businesses refused to cave in to recessionary psychology. Instead of throttling back or simply keeping their business engines on idle, they continued to move forward on the marketing front, building their brand and bullying their way into their more timid competitors’ territories.

Let’s take a look at a few of the lessons learned from past recessions

1973-1975 — Brought on by the Arab Oil Embargo, this recession was particularly severe. Nevertheless, a 1979 study showed companies that maintained their marketing budgets through this period actually increased their sales and net income compared to companies which cut their marketing expenditures. Furthermore, these companies also beat their competitors for two years AFTER the recession ended. In fact, those which maintained or increased their marketing experienced growth in sales of more than 132% within 3 years of the end of this recession.

1981-1982 — Again, another deep recession fueled by high gas prices and a tight monetary policy to control inflation. A study by McGraw-Hill showed once again that businesses which maintained or increased their marketing efforts averaged higher sales growth and profits during the recession and especially in the expansion period which followed. For companies that maintained a robust marketing position during this recession, sales increased by 275 percent (post recession) compared to just 19 percent for their competitors!

1990-1991 — This was a milder recession rooted in the late 1980s savings and loan debacle and another oil price shock. Again, many firms responded to the downturn by simply cutting their marketing budgets. This proved to be a mistake as a later analysis by Cahners and Strategic Planning Institute indicated that businesses that increased their marketing budgets gained in market share and profits versus their competitors who pulled back. The report concluded that aggressive marketing during this recession captured these businesses an average of 1.5 points of additional market share.

So, what does history teach us about marketing in a recession? If anything, it suggests that taking a steadfast or even aggressive approach will best serve your business in the long run. While it might feel good to cut your marketing budget for short-term gain, you risk of losing hard earned market share to bolder competitors while simultaneously sacrificing robust growth potential when the economy rebounds.

So, when will the economy rebound? No one knows for sure, but it will. And when it does, you’ll want your business positioned for growth, not trying to play catch up and recover lost market share.

In next month’s edition, we’ll explore the secrets of successful marketing during a downturn.

Written by Scott Wigton