There is a considerable body of research documenting the startling conclusion that a down economy is the best time to capture market share. Don’t believe me? Take it from the chief executive of Procter & Gamble, who was quoted in the Wall Street Journal a few years ago as saying, “We have a philosophy and a strategy. When times are tough, you build share.”
At first glance, this seems counterintuitive. After all, the prime directive in an economic downturn is to survive, and cash flow is king. And the marketing and advertising budget is an attractive and seemingly easy target when expenses have to be curtailed to match the falloff in revenue. So it’s logical to pull back on marketing costs and wait for the turnaround.
That could be a strategic blunder. Harvard Business School professor John Quelch writes, “It is well-documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times.”
A Cahners Advertising Research report found companies that increased their media advertising during the recession of the 1980s gained an average of 1.5 points of market share. I’ll concede that as a major publishing house Cahners may have a vested interest in persuading its advertisers not to cut back on their media budgets, but there are plenty of other sources corroborating these findings.
In 1980, the Harvard Business Review reported, “The company courageous enough to stay in the fight when everyone else is playing safe can bring about a dramatic change in market position.” In a study of the 1990-92 recession, Management Review polled American Management Association member firms and concluded, “Firms that increased their budgets and took on new people were twice as likely to pick up market share.”
Seeing beyond the recession
The Profit Impact of Market Strategy Program conducted a detailed analysis of data from more than 3,500 strategic business units that are divisions, product lines or other profit centers of some 200 companies. The data revealed that companies that trimmed marketing spending during recessions enjoyed a superior return on capital employed during the recession, but performed more poorly during the recovery than companies maintaining or increasing their spending. The “spenders,” it was reported, had significantly higher return on capital employed (ROCE) and gained an average of 1.3 percentage points in market share. Because recessions typically last 6 to 15 months, the short-term gain in ROCE was temporary.
In other words, increasing your market share during the downturn will produce a much higher return when the economic curve turns upward. You will be riding the crest of the wave of recovery rather than struggling to catch up with a wave that has passed you by.
In researching this column, I came across an interesting case study from Mercedes-Benz in Taiwan. The recession hit the Taiwanese luxury car segment hard, with sales dropping 30 percent from 2007 to 2008. Some luxury car manufacturers responded with aggressive price promotions, creating market confusion.
Instead of joining the price war, Mercedes-Benz decided to hold its brand value with a surge of television ads that contained a creative strategy emphasizing the emotional connection with a luxury brand. The results were astounding. During the campaign, calls to the Mercedes sales hotline were up sevenfold and website visits tripled.
The Taiwanese luxury car segment declined by 28 percent, but Mercedes increased its market share from 26 percent to 28 percent without cutting prices. In fact, Mercedes had the highest selling price among its luxury car competitors. The marketing director was reported as saying, “The campaign cleverly removed us from a blood competition, allowing us to stand out and win both in terms of business and branding. Moreover, it proved again that branding is a crucial and worthy investment, especially in a recession.”
Can’t spend more? Spend wisely
Of course, not every company has Procter & Gamble’s or Mercedes-Benz’s deep pockets. For many, especially thinly capitalized small businesses, surviving the recession means cutting everything to the bone, hunkering down and hoping they can claw their way back when the economy turns upward. Increasing the advertising budget is just not an option. But I would suggest that lean times provide unique opportunities for entrepreneurial marketing departments to promote their brands and win market share from their competitors.
In other words, even if you can’t spend more money, you can spend it more wisely. Let me give you a few examples from my own experience. I knew a company that during the 1980s recession closed its communications department and sent everyone out on the road, calling on customers as direct salesmen. It kept them on the payroll and beefed up customer service. They also learned a lot about how to sell and market their products by listening to what their customers told them. When they returned to their jobs in the communications department, you can bet they brought a new point of view to the company’s advertising, PR and marketing programs.
During the downturn of the early 1990s one of our clients — an OEM supplier to the boatbuilding industry — discerned a major opportunity. Its largest competitor was visibly cutting back on customer service to save money. Our client assigned one of its best salesmen to the competitor’s biggest account. He practically took up residence in a motel near the boatbuilder’s plant and gave the company his undivided attention. When the economy recovered, guess who ended up with the account — and a substantial increase in market share?
I have seen reports from companies that withdrew all of their media ads and spent the money on direct mail and direct sales instead. It brought them closer to their customers and gave them an edge on their competitors, resulting in a higher market share in the end.
Happily, there are now many options for promoting your brand beyond traditional print and broadcast media. Innovative companies are leveraging the power of the Internet, social media and smart phones to connect with their customers. I know of one company that has developed a clever suite of iPod apps for boat dealers to engage on a personal level with prospects and customers. (Full disclosure: I will not name the company because it is a client of ours, but I’ll be happy to tell you about it if you give me a call.)
Although some positive indicators are starting to appear in the boating business, the economy is still sputtering. There is nearly no job growth. Family debt levels remain high. Credit is tight for businesses and consumers. The stock market has a case of the jitters. The baby-boomer generation, which should be driving a healthy boating business, is hoarding for retirement in anticipation of a collapse in the value of their investments and pension funds. High entry-level pricing shuts out many first-time boat buyers.
Sooner or later, the recession will ease and the economy will improve. There will be winners and losers, and the companies that emerge as winners will be the ones that used the downturn to their advantage by building their brand and customer loyalty.
Jim Rhodes has spent more than 30 years in marine industry public relations and marketing. He is the president of Rhodes Communications (www.rhodescommunications.com) and its Marine NewsWire subsidiary, and is a founding board member of the Marine Marketersof America.
This article originally appeared in the November 2011 issue.