Jon Peddie Blogs
In Prosperous Periods Promote Tactically, In Down Times Promote Strategically
Posted by Andy Marken on October 14th 2008 | Discuss
The sudden realization that the emperor had no clothes and magnitude of the financial crisis is only now being fully addressed.. But, economists are unanimous that regardless of what governments do, it will take time, a lot of time, to rebuild faith in financial institutions and rejuvenate the economy.
In a knee jerk reaction management is moving to cut costs – circling the wagons – by reducing staff and marketing budgets.On the surface it appears logical. But if you look at downturns and recessions in the past it wasn’t financial institutions or governments that led the economy back. Recovery was developed and carried out by Silicon Valley (which is somewhat symbolic of the complete PC/CE industry). And it will do it again as consumers and partners come to realize that the intellect, credibility and creativity reside in the technology areas; not in the world’s financial centers and most assuredly not in our seats of governmental power.
So while Paring overhead and “discretionary expenses” would seem to be relatively simple it has always had a greater or lesser degree of negative impact. Keep in mind that NPD recently reinforced the strength of the industry by pointing out that in downturns and upswings consumer and computer technology has consistently beat the overall market’s averages. NPD’s June retail-tracking service showed a three percent dollar increase over June 2007. This was the second consecutive month of positive news, after May’s jump of over seven percent. And this is after five straight months of flat or negative results, stretching back to December.
Before you wade into your promotional budget with a massive red pencil, consider how much should you cut from the promotional (advertising, sales support and PR) budget? To answer this, ask yourself:
- What does advertising/PR do for us? Can we accomplish this with a smaller investment? How much smaller?
- What will happen next year or a couple of years out if we cut our promotional budget, keep it the same, or increase it?
- If our competition is in the same position, is there a way to use the short-term problem to our advantage?
Long Term Investment Advertising/public relations should be an investment in both immediate sales and long-term objectives. It helps retain your share of market/image among your customers and prospects. It reinforces customers’ commitment to do business with you. Some of the more successful (profitable) manufacturers and retailers in the PC/CE industry view communications not as an expense, but as an integral part of their total marketing mix. If at all possible, they maintain an aggressive promotional policy and program. They know their advertising and PR have a favorable effect on sales and income.
Today, there is a volume of data which indicates that during deep, long recessions or other “difficult” times, the firms that trim their communications budgets suffer—and suffer hardest.Other research found that companies that accelerate advertising/PR spending during market slumps perform better in both the short- and long-term.Researcher Vernon Van Diver studied over 10,000 companies in about 800 business media sources found a relationship between promotional activities and subsequent sales.
He found two interesting patterns: 1. Companies that invest in promotion above their industry norm invariably, in succeeding years, have rising sales curves. 2. Companies that promote below their industry norm invariably, in succeeding years, have declining sales curves.
Additional Research Researchers from the BPA and several communications firms have drawn conclusions similar to Van Diver’s. Relationships between advertising/PR and sales have been proven time and again:
- Sales increases follow promotional increases, but rarely in the same year
- Sales decline with increasing momentum after promotion is cut back
- To retain your share of sales, promotion must increase as much as the overall average
- To increase your share of sales faster, communications must be increased faster than the industry norm over a period of four years or more
- If a marketer increases or decreases his traditional share of promotion relative to his competitors, similar changes occur in his share of market
- It is now possible to predict—with a high degree of accuracy—what the volume of sales will be at some future date
- It is possible to set an attainable sales objective very near maximum
- It is possible to determine the change in sales volume that follows each change in the advertising/PR budget, up or down
- It is possible to figure how much to allow for increases or decreases in competitive promotion
Using these principles, Van Diver studied 100 businesses across all industry segments. He made predictions six months or more before earnings and sales were disclosed. On the average, his predictions were within one percent of the actual figures.
In a similar study, it was found that over a one year period organizations that did not cut back promotional spending enjoyed increases in both sales and net profits the next year. Sales were up an average of 55 percent and net profit was up 40 percent over the base year. Marketers who cut back expenditures experienced no real growth during the period. Their net profits did not keep pace with that of consistent promoters.
Do these types of results hold true in good times and bad? Are the same results achieved when the market is flat, down, booming?
The quick answer is yes!
NPD just reported that the industry experienced a three percent dollar increase after six months of flat or negative results. The challenge in the months ahead for the industry’s players will be to can grow during this down period or be drug down with it. Growth, stagnation or shrinkage is really in the hands of senior management.
A Competitive Edge Company management should exploit opportunities that deliver an ever-greater competitive edge. If you want to be an industry player, present yourself as one. Don’t wait on your promotion until all of the marketing variables are right. If the stars are in perfect alignment for you, you can be certain they are in line for your competition as well!
By waiting, everyone starts out on an even footing.
The best plan of action is to proceed with your promotion while the competition is pulling in their horns.
In good times and bad, make your choices based on:
- Long-range, progressive promotion is synonymous with company growth
- Company strengths that hold up in hard times can be permanently molded with steadily aggressive advertising/PR
- Keeping pace with or exceeding industry communications norms is a company’s insurance of increasing sales.
- A rise or fall in ad/PR spending is followed at some later date by an increase or decrease in sales
The more aggressive your promotion, the easier it is to meet and even exceed, energetic sales and profit projections. Today’s environment is going to put past research conducted in good times and bad to the test!