Recession can be a positive force

A car manufacturer marketer of repute says although there are good deals around, they don’t advertise them. They also do better than some of their competitors at times like these, because their cars are very affordable. It is early days, of course, but the fact that Ford’s retail sales were down only 18% in the year to November, compared with 45% for the overall UK retail car market, suggests that its focused strategy is paying off so far, at least. Ford grew share by 5.5 percentage points from 11.2% to 16.7% over the same period. In contrast, other companies are panicking and thoughtlessly cutting costs.

A marketing consultant says that the market is in an unprecedented tough climate, but also witnessing unusual behavior from businesses that are normally cool and rational. You shouldn’t throw the business strategy out of the window when recession hits, but some companies are doing things aimed purely at keeping the business here tomorrow, as though anything else further into the future didn’t matter.

One of the most alarming aspects of this unusual behavior is the stampede toward price promotions designed to maintain volumes. The effect of price promotions is to reduce profits and reduce brand value. The one-day-sale-type promotions by retailers in the run-up to Christmas were particularly foolish. All they did was bringing forward demand for things that would have sold anyway at a higher price. Businesses are acting before they think.

One of the biggest differences between this and the last major recession in 1991 is ‘the compelling evidence’ that has accrued, indicating that cutting back on investment, innovation, product quality and customer service results in a market share loss that is impossible to recapture. In contrast, those that maintain, or even increase, their investment can take advantage of falling media prices to steal a march on the competition.

Companies like Procter & Gamble, Colgate and Reckitt Benckiser have been applying this formula for a long time. They rub their hands when they see a recession coming, because they know they can really score. Marketers certainly understand the theory. Those with experience of past recessions also argue that when money is tight, companies must think about the best way to get a return on investment.

Indeed, in many ways, a recession can be a positive force for good. The quality of people’s judgment deteriorates over time and they take bigger risks and become blind to the downside – something we have seen clearly recently with the banks. You need periods of recession to correct that. Recessions have a purgative, healthy and even necessary effect. Gordon Brown claimed to have stopped boom and bust, but we need boom and bust to help the economy function properly.

Recessions over the years dating as far back as the Depression following the 1929 Wall Street Crash, have spawned countless innovations, from approved used cars, cash back, frozen food, radio and zipper flies, to Calvin Klein underwear, Miller Lite, Diet Coke and loyalty marketing. Recession speeds some things up in a creative destructive way, while it slows others down – investment in long-term projects, like digitising posters, for instance. The fundamental difference for marketing in the current climate is the proliferation of digital media. Marketers have the ability to target individual consumers with knowledge of their financial situation.

Recessions also sort out the wheat from the chaff. Strong brands get stronger and weak ones get weaker. A targeted and judicious approach both to cutting and increasing marketing spend is required in a recession.
Small, weak brands should be allowed to die, and throwing money at them to keep them alive is not at all justified.

It is equally incorrect to assume that consumers go into hiding during a recession. In the recession of the early 80s low-value sales had not suffered, and people kept money by for little luxuries. The same happened in the early 90s. Woolworths’ profits rose through the recession. People treated themselves with videos and CDs and the cost-conscious Ladybird children’s clothes brand did very well.