Sunday, March 16, 2008

Are You First In Line? Marketing during Recession

How often have you heard the question “should we increase or decrease our marketing and selling expenditures when the economy softens?” We’re in recession. The politicians may not use the word, but it’s clear that the market has slowed and growth has stalled. Today, with business orders soft for many companies, there is concern about how long the economy may be in the doldrums. The value of the dollar remains weak (and I have a trip to Paris in a month!), Bear Stearns is getting a bailout, and 8% of mortgage holders can’t make their monthly payments. Many project a protracted slowdown before a recovery. So what do you do with your marketing budget as you try to protect your profits?

You may be looking in the wrong place for the answer. The answer may well lie in the state of your balance sheet rather than your income statement. We’ve all seen it: sales are soft and in order to achieve our net profit for the fiscal year we reduce expenses. When sales soften, marketing and advertising budgets are among the first to go. It’s the easiest, least painful expense reduction in the income statement. It typically means the fewest reductions in labor costs as well. At the same time (how often have you heard this?) business leaders will say “I know I am mortgaging future sales and wish we could have kept our marketing spending at current levels. I wish we could spend even more.”

Take a look at your balance sheet. The answer to your approach to marketing and sales spending during this soft economy may be answered, in part, by the health of your overall business as indicated by your assets and liabilities, not your revenue and annual profit lines. If the economic slowdown has strained your existing capital resources and you’ve taken on additional debt burdens to fund your operations or growth plans it may make sense to hold back on marketing and sales expenses. But if you’ve been taking care of business and your balance sheet remains relatively healthy despite a near-term slowdown, and if you believe the economy will eventual begin to heal, accelerated (or at least maintaining) marketing spending may be an advisable strategy.

Why? As the market turns and returns from negative growth businesses will experience increases in orders and production requirements, inventories will build, labor requirements will begin to increase and the flow of dollars through the economy will increase. Whether your business delivers goods and/or services to consumers or businesses, those customers will begin to increase demand for your needed product. You need to be first in line when that demand occurs. You need to be positioned so that the customer reaches out to you to meet that need at the very moment that they are ready to return to the market. Be prudent, but stick with your customers through the tough times and they will stick with you through the good times.

Marketers talk of being first in “mind share”. You want to be in position to be the first among your competitors to be contacted. Better yet, you want to be in contact with your customers when they recognize their need to place an order. If you’ve taken care of your balance sheet, now may be the time to use efficient, effective marketing strategies to tighten relationships with your customers.

Are you first in line?

If this was interesting, take a look at Seth Gdin's comments about how to craft your story during a recession.