Features and tRends

(July 2008)

Maximize Marketing Return on Investment During Difficult Economic Cycles

By Shannon K. Benton and Nikki Harmon

Rising energy costs, inflated prices, and the housing sag have sent companies, organizations and institutions deep into analysis of where the potential lies for cost efficiencies without sacrificing potential future market share gains. Often this leads to an assessment of marketing budget dollars with a focus on the highest return on investment and a view that some areas of the brand development program investment can be reduced when sales are not meeting planned goals.

A Smart Company poll conducted in May 2008¬ found that 44 percent of companies had made plans to cut their marketing budgets in response to tighter economic conditions. This alarming figure reflects a need for the marketing profession to do a better job of providing benchmarks against which results can be measured. Or it just could be that this is a seemingly easy fix to adjust the bottom line.

Companies in conjunction with their marketing partners need to reconsider the quick fix and look ahead to what will inevitably be an economic cycle change. Long-time marketing analyst Graeme Chipp, Managing Director of Growth Solutions Group encourages marketers to buck this trend. According to Chipp in a recent article in Business Victoria titled Ten Tips for Marketing in a Downturn, “Marketing should be seen as an investment, not a cost. Time and again I’ve seen companies cut marketing and they get into a spiral of cutting costs and that leads to a lower presence in the market, revenue and profit margins decline, that puts more pressure on costs and the spiral continues.”

Brands that increase marketing efforts during a recession can improve return on investment and brand awareness at a lower cost than during booming economic times according to John Quelch, Harvard scholar and author of Conversations with Marketing Masters. Bottom line: now is the time for firms to keep their marketing budgets in tact to strategically brand the business and remain profitable.”

Before a corporation, whether large or small, makes the decision to reduce its yearly marketing fund, they should conduct preliminary research on the value of marketing, especially in an economic slow period. Making the decision to not cut the marketing budget can save a firm from incurring a costly mistake. Moreover, this marks a calling for marketers to engage in more ROI-based programs in order to gain a demonstrative competitive advantage and increased profitability, as reported in the American Productivity & Quality Center (APQC) 2001 Report on Maximizing Marketing ROI.

Pareto’s 80/20 Rule
Renowned 19th century economist and philosopher, Vilfredo Pareto established an important rule relating to wealth and income among the population that remains important for marketers to keep in mind. Pareto’s 80/20 rule states that 20 percent of the population creates 80 percent of the revenue. In tough economic times, it is more important than ever for companies to strategically identify and narrow down its target market as refined as possible. When done effectively, marketing to this narrow segment is best suited to generate substantial results by increasing brand awareness and preference.

Building upon Pareto’s 80/20 theory, a business must always understand that the customer is the most valuable asset to any company, and whether or not these customers’ needs are being met will determine their brand loyalty. The job of any successful marketer is to determine the needs, wants, and demands of the consumer, and to then offer these items in an efficient and effective manner. When a company decides to reduce marketing efforts, they risk the possibility of weakening the brand because it becomes more difficult for the customer to see what’s in it for them.

How to Market in an Economic Decline
When the economy is flourishing, it is standard business practice for a corporation to invest in numerous marketing strategies and tactics in an effort to ensure its advantage over competitors. Realize the impact that could be made if a company expands or strengthens its marketing efforts in an industry where its competitors have decided to reduce marketing tactics. The smart marketing-driven company will reach new target markets, while expanding brand awareness and overall market share.

A successful business can be seen as a three–legged stool; the legs being sales/distribution, product/innovation and of course, marketing. For the stool to be sturdy it must have all three legs under it. If funds are extremely tight, it may be wise to decrease the marketing budget or product development, but not eliminate these investments. At that point it is time to get creative and look for more affordable methods of marketing.

Some examples of cost effective marketing efforts include: blogs, co-op newspaper advertising (in selective local markets), E-mail campaigns, direct mail and customer loyalty programs. Furthermore, Public Relations is another gainful method to market services and products. In general, companies should meet with their marketing executives to address the business needs before setting a budget. An economic downturn is a vital period when targeted marketing initiatives have the potential to provide significant opportunities for a business to strengthen its brand and visibility.

A final thought from Chris Lockhead, chief marketing officer at Scient Corp.:
"Go ahead. Cut your marketing budget when things get tough. I get it. That's like saying 'I'll throw some logs on that fire when it warms up in here.”

For more ways to maximize success during hard times, contact Steve Kleber at 770.518.1000 or visit www.kleberandassociates.com for valuable industry information.


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