Management Matters with Mike Myatt: Surviving the Economic Downturn
- Oct 17, 2008
As odd as it may sound, if you want to survive the economic downturn, increase your marketing expenditures. If you’re the short-sighted CEO who cuts back on marketing, branding, and advertising budgets in an attempt to reduce costs, shame on you. Top CEOs recognize that economic slow-downs are not all doom-and-gloom. In fact, the smartest executives understand that swimming upstream against the conventional wisdom of the risk adverse can actually create significant opportunities for growth. By making heavy operating investments into marketing, advertising, business development, and sales initiatives, the aggressive enterprise can create significant competitive separation during a time when many are pulling back on such expenditures. In today’s column I’ll make the business case for applying contrarian thinking by becoming very bullish in the face of a waning economy.Let me start by asking a question with the intent of pointing out the obvious. What better time could there possibly be to ramp-up sales and marketing investments when your competition is slashing costs and going into hibernation? The answer is, there couldn’t be a better opportunity to increase market share, sales penetration, and brand equity than to exploit the flawed business logic of timid competitors. The fallacious thinking which underpins some of the slash-and-burn management tactics that tend to get traction during economic downturns can ultimately devastate a business that adopts a bunker mentality.If you doubt my logic, all you have to do is look at the research and historical data supporting my conclusions. McGraw-Hill Research assessed 600 companies across 16 different industry categories analyzing their advertising expenditures during the recessionary periods of the early 80’s. The results of the research showed that companies who maintained or increased their advertising budgets during recessions demonstrated significantly higher growth in revenue and brand equity, both during the recession, and for the following three years, when contrasted with competitors that eliminated or decreased marketing, advertising, and branding expenditures. Another study by the Center for Research & Development revealed that companies who aggressively advertised during a recession garnered almost 5 times the market share of their cautious competitors.The research mentioned above is also validated by examining the historical marketing data for companies that thrived during the Great Depression. The reason that brands like Kellogg, Coca-Cola, Kodak, Campbell’s, and others survived those devastating economic times was their total commitment to continued marketing, advertising, and branding initiatives. My final warning is not to become a CEO who sacrifices long-term shareholder equity considerations for short-term financial benefits. Because Wall St. often rewards cost cutting measures with a temporary bump in stock price, fiscally conservative CEOs tend to focus on short-term benefits for all the wrong reasons. The smart CEOs realize that cost-cutting does not constitute a sustainable business model and will forego temporary incremental moves in lieu of long-term, disruptive moves. This more aggressive strategy will ultimately reap more significant rewards from the market when the analysts realize the company is positioning itself to exploit current market disequilibrium while favorably positioning itself for the coming growth cycle. This thinking most definitely applies to your marketing outlook.The reality is that when Company “A” cuts back on marketing initiatives and Company “B” increases marketing initiatives, Company “B” will take marketshare from Company “A”. As noted above, history has shown us that recessions create new brand leaders as aggressive companies are creating their future while conservative companies attempt to protect their future. Smart CEOs, while certainly aware of risk, spend considerably more time managing opportunities than they do risk.