Smart marketing can help you survive, and even prosper, until the economy restores.
The World Bank recently halved South Africa’s economic growth forecast from the initial 1.6% to an estimated 0.6% and StatsSA’s Quarterly Employment Survey for the second quarter of 2017 reports a decline of 34 000 jobs. This means most businesses will begin revising budgets and introducing cutbacks on what they perceive to be non-essential expenses.
Along with multiple ratings agency downgrades, this is not good news for business. A poor performing economy essentially means that there is less money to go around — it is a contractive environment in which businesses and consumers spend less. Budgets, from household, to business, to government, will shrink. During these times brands need to get a whole lot smarter about marketing.
Many businesses will have to make cuts. As revenues drop, one response could be to cut marketing budgets. But often cutting back on marketing can mean that your competitors will close in, your brand could be affected by aggressive competitor marketing.
There are places where cuts can be made. According to the PIMS (Profit Impact of Marketing Strategy), a study by Malik of 1 000 firms that weathered previous economic downturns, communications, R&D and new product development were all areas where increased expenditure was associated with business success during downturns. Companies that kept marketing budgets steady, or increased them, took advantage of competitors that cut back on marketing.
The study found that companies that rather cut manufacturing and administrative costs, as well as spare capacity, remained profitable. Companies that introduced cost saving by reducing quality or cutting marketing and new product development tended to underperform. More bad news is that they took longer to recover when the economy improved.
Cutting adspend may bring short-term savings, but research shows that good marketing campaigns can have results that linger for up to five years. The long-term impact of cutting back on advertising could result in a longer recovery time when the economy starts to grow.
Writing in AdWeek, Les Binet, European director at DDB Matrix, notes that offering discounts and “buy one, get one free” type promotions are, at best, short-term solutions. “Heavy reliance on promotions tends to erode brand values and destroys profit margins,” Binet notes. Even if price-sensitive customers switch to a cheaper brand, they will likely come back to you when the tough times subside.
What is important, says Binet, is building and maintaining “a strong emotional bond with customers”. Binet refers to an analysis of 880 case studies published by the World Advertising Research Centre that shows that “ad campaigns that focus on emotional engagement tend to be more profitable than ad campaigns that focus on rational messages (such as low prices or special offers), even when times are tough.”
The assumption that consumers cut their spending when the economy stagnates has historically been shown to be untrue. Spending will more likely level off, or continue to grow, but more slowly than inflation. This can be managed and planned for.
Various studies have found that it is at least five times more expensive to get a new customer than it is to keep an existing one.
Yet, according to Khalid Saleh, CEO and co-founder of Invesp, and author of Conversion Optimisation, The Art & Science of Converting Prospects to Customers, reveals that 44% of companies focus more on customer acquisition than retention.
Core to a customer retention strategy is the need to identify and target your loyal customers. In an era of big data analytics, this is becoming more practical to do. Paul Dunay, global vice president of marketing for Maxymiser, a web optimisation and analytics company, and author of five “Dummies” books on marketing, writes in Forbes: “The aggregation and use of big data are crucial to segmenting and targeting your individual customers with the appropriate experiences. It requires employing predictive behavioral targeting and optimisation techniques to remove the complexity. Your systems need to make real-time digital decisions for the masses — anytime, anywhere.”
Dunay says that automated personalisation solutions are the holy grail; by analysing users’ current and past purchasing behaviour, advanced predictive models can be created to serve content and offers that drive sales.
“This way, your visitors will always have the most relevant and appropriate experience on home pages, landing pages, search engine results pages, the booking funnel and every page in between. In the case of repeat visitors to your site, for example, you might retarget them with an offer based on their last purchase, or their last search, all in real time,” Dunay notes.
The principle doesn’t only apply to online businesses.
Every brand needs to understand its customers better and make an effort to surprise and delight them, and in doing so build loyalty.
Certain aspects of a poor performing economy can work in your favour. All else being equal, customers are more likely to go with the brand they know and trust, so you need to make sure they know you are listening. Give your sales team a set of pertinent questions to get feedback about what current customers want or how you can improve your service to them. Or consider hiring a reputable market research firm to evaluate your target market’s needs.
In your marketing, emphasise your brand’s core proposition and value. Even if your product is relatively expensive, emphasise those qualities that make your product desirable in the first place. Consider ways to make your brand more accessible — for example, an FMCG brand could create smaller packages with a low unit price, for consumers who tend to run out of money towards the end of the month.
In a recession, an opportunity lies in the fact that economic pressure is on media as much as anyone else. You can use this to your advantage to bargain for cut-rate deals on advertising exposure. And if your competitor is cutting back on adspend, all the better, because your brand will really dominate.
Oresti Patricios is CEO of Ornico.