Tuesday, June 15, 2010

Marketing in the time of crisis

Amit Agarwal, Sachin Paul, XLRI Jamshedpur

Webster’s define crisis as “an unstable or crucial time or state of affairs in which a decisive change is impending”. In period of crisis, nothing is important for a brand more than ensuring the operating flexibility necessary for innovative and market-driven decisions.

Global financial crisis that struck the whole world in 2008, has affected almost every business. Infact, brand loyalty has become a concept of past as consumers have been switching between the brands too frequently. Everyone is questioning whether the collapse in the brand valuations is going to be the next bubble to burst after financial bubble?

What Market Survey shows
Over the past few decades, financial markets have consistently pushed up the stock prices of brand-owning companies. But, as per analysts at WPP Group-owned advertising agency Young & Rubicam, over the same period consumers have been “falling out of love” with brands. As a part of “brand asset valuator” research program, in 1993, consumers said they trusted 52% of the brands researchers asked them about. But, the trust level has fallen to 25% now.
Researchers have estimated the size of the “brand bubble” to be $4 trillion, much bigger than the size of the subprime mortgage market.

With the survey it is clear that the branding has become more and more difficult with customers focusing more on the product itself rather than the brand.

How to Maintain Marketing Fundamentals in the times of crisis
Maintaining marketing fundamentals will definitely help even in the times of low market sentiment. Here’s what a company can do ride over the hard times:


Refine the Segmentation
Crisis limits the resources and companies cannot and shall not make products for everyone which makes re-segmentation necessary. The common segmentation techniques based on demographics, geography and even psychographics will not work as they just measure people’s lifestyle, self-image and aspirations but are very weak at predicting what any of these people is actually likely to purchase in any given category. Hence, the segmentation technique selected must find out:
• Who “can pay premium” / “will demand lower prices”
• Which customers drive profits & what values they share
• The dissatisfied customer who is likely to switch
• Those likely to make first-time purchase
• Which benefits and features matter to the customer
• Which attitudes actually affect buying decisions

Refine its Target Segment
Individual marketing can be very costly to start and expand in the crisis times. Hence, the most common marketing to be used shall be either Local Marketing or Niche Marketing whereby we need not make customized products for each and every individual but for people living in a particular area or segments with specific needs. Similarly, the refined segmentation done before shall prevent marketers from doing Full Market Coverage and go for either selective or product or market specialization.

Example: Nike In 1999, Nike started reengineering its customers’ experience around very targeted and specific customers to improve its brand presence. For this, Nike started a global foundation and adopted global processes to position the company for growth as a brand. And the results were clear. It not only improved Nike’s key performance with greater cash flow but also led to improved inventory management and profitability.

Refine the Positioning
The product must have a clear positioning. However, repositioning can always be used to rejuvenate the brand and help in maintaining clarity in positioning. The same can be done via:
Reverse Positioning: This can be done by shedding product attributes the rest of the industry considers sacred & supplementing the stripped product with one or two carefully chosen attributes that would typically be found only in highly augmented products. This practice works best with services industry.

Breakaway positioning: This can be done by getting away from one category & associating with an altogether different one. The conventions of the new category are used to change how the products are consumed and with whom they compete. This works best with Packaged Goods.

Measuring the basics by Marketing Metrics
In tough times, marketers are pressured to deliver hard data on how their efforts increase the company's bottom line. Thus, only a focus on metrics can form an efficient marketing effort.
Following could be done to measure marketing activities:
• Understand objective behind any marketing activity
• Choose correct marketing activity for the goal
• Outline the measurable components of that activity
• Communicate clearly what needs to be measured

But, what to measure is actually becoming trickier these days for the marketers. They need to take a disciplined approach to using accurate, timely and meaningful marketing metrics. In order to help develop more insightful and useful marketing metrics, focus should be on these four fundamentals:

Essential metrics criteria-
It's important not to have too many metrics. Focus on those metrics that:
Return good business results, and,
Can be measured precisely, consistently & cost effectively

Customer-acquisition metrics-
All marketers want to acquire new customers. So metrics to be used to measure the effectiveness of acquisition marketing efforts shall include the following:
• Awareness levels ,
• Purchase-decision drivers ,
• Market share , and,
• Cost of customer acquisition
• Product "wow" metrics

A great product or service is the most important element for building an exceptional customer experience. Examples of product "wow" metric include:
Ease of use,
Satisfaction versus expectations, and,
First-time user experience metrics

Customer-retention metrics-
Marketers want customers not only to continue using products but also to buy other products. Some key customer retention metrics include:
Retention Rate,
Lifetime Value, and,
Brand Equity

Some Best Practices to be followed in the times of Crisis
Protect and cultivate Your Brand: Innovation is the key to success here. Brands can be made or broken in crisis. Retaining profitable customers and reaching out to new ones requires greater innovation. Innovative ideas like new products, services or strategic acquisitions can help in tough times.

Get Closer to Your preeminent Customers: In difficult times, customers look for reliable, trustworthy suppliers. The organization need to segment its customers by risk, size, and value so that it can optimize its sales potential by offering targeted, value-based pricing.

Retain Your peak Talent: Top talent can work wonders for the firm. Thus, organizations need to create programs to retain them and build a team that can help it achieve its growth objectives.
Manage Cash and Run Lean Operations: As credit lines tighten and spending slows, organizations should do the following:
• Manage their cash-to-cash cycle,
• Pay particular attention to balance-sheet health,
• Make liquidity management a vital part of organization’s core processes, and,
• Reduce leverage & boost cash flow through working capital practices to support long-term cash.

Spend on the brand: Market sentiments affect the brand in a long way. Any kind of negative news from market can cause customers to get defensive and gravitate away from brands. Also, companies might be tempted to reduce their marketing expenses and pass these savings in the form of price cuts to customers which may lead to enhanced negative impact on future brand preference.

Spend on brand significance: Brand significance is the alignment of a brand with primary needs & wants of the target audience. Firms need to try & associate the new brand in the domain with the consumer’s personality.

Avoid the sale attitude: Sales promotion provide an attractive alternative to marketers but the impact they have on the position of brand cannot be undone. They puzzle consumers regarding the brand positioning which might change the brand acceptance and association altogether. This can lead to customer dissatisfaction with the brand & loss of brand loyalty.

Example of Brand Revival
Apple Inc.: Apple is a prime example of how a company reinvented itself by creating a customer experience second to none. First, Apple dropped those products that didn’t contribute to its bottom line. Then, the company created a new line of products that took Apple back to its roots (elegance, ease of use, fashionable). Finally, it launched new services like iTunes which was needed for their other products & which they provided for free. A focus on branding, customer experience, and the bottom line was the only way to survive. In last 5 yrs, Apple’s revenue skyrocketed from US$6 bn to $32 bn & its brand value grew from $5 bn to $13 bn.

Consequences and Future Implications
If the Brand Bubble bursts in near future, most of the companies will not be able to save their brands from its effects. But there are certain set of brands whose value continues to rise in both consumer’s and investor’s perspectives. A few of them are Adidas, Apple, IKEA, Red Bull, and Toyota & Tesco. These provide a ray of hope for the future.

But these brands are becoming fewer in number. This shows that the investors and the consumers will increasingly shift brands that will genuinely deliver superior value, from those that are simply going through the motions of branding but are in fact little more than commodities.

Thus, all we need is an altogether new brand-building mantra called brand energy. This brand energy is nothing but the continuous innovation that can excite consumers and builds the brand’s reputation.

Also, there is still a need to stress on the need for marketing considerations to cross corporate silos and learned corporate strategy. If consumer and investor perceptions of brand value have indeed been diverging, a huge re-evaluation of the value of brand-owning companies needs to be done in the near future.

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