Author(s) Frank Durden ( Ogilvy Advertising - London ) Haruna by baa17504


									                       Marketing in Recession: 9 Rules of Thumb

Frank Durden (Ogilvy Advertising - London)         Haruna McWilliams (Ogilvy Group UK - London)

1. Absolute levels of spend are often less important than share of voice

The IPA DataMINE of more than 200 advertisers backs this up. In particular, the analysis suggests
advertisers continually monitor and ensure their share of voice exceeds their share of the market in
order to maximise the chances of maintaining and growing market share.

The PIMS (Profit Impact of Marketing Strategy) database also suggests that brands that had SOV
higher than their SOM during a recession gain market share. At the same time, those brands that did
not cut back on their budget during recession gained market share three times as fast as cutters once
economy started to recover.

Advertisers may well find that a less absolute budget is necessary to maintain SOV and/or exposure
in a recession as competitive activity falls and media typically becomes cheaper. This also presents an
opportunity for cheaper, long-term deals on media.

2. Downturns provide a window of opportunity for cheap share gain

PIMS (Profit Impact of Market Strategy) analysis looked at the relative impact in terms of ROCE
(return on capital employed) during a recession in three key areas: MarComms, R&D and NPD. It
concluded that downturns provide a window of opportunity for cheap market share gain to brands
that increase MarComms investment. Increased expenditure on R&D produces similar results, whilst
increased NPD is the best strategy for enhancing short-term ROCE during the downturn, but brings
little benefit thereafter.

3. Cuts in MarComms can produce tempting short term gains in profitability, but rarely pay off
in the long term

PriceWaterhouseCoopers estimates at least 45% of the value of advertising is generated in periods of
over one year. Brands which cut MarComms expenditure can expect to still benefit from past activity
in the short term, but pay a heavy price later. Econometric modelling by Data2Decisions estimates
that a 50% reduction in MarComms expenditure in any particular year will generate a small
incremental profit in year one but a loss approximately twice that large over the next three years.
When budgets are cut to zero in a particular year the recovery time is five years.

4. Price promotions drive volume uplifts but destroy long-term value

Tempting as they may be, price promotions come to be expected for your brand, but rapidly decline
in efficiency if overused. Over time, deeper and deeper cuts are therefore needed to achieve similar
volume uplifts. Successful brands often win through their ability to charge a premium: price
promotions destroy this and increase levels of price elasticity in an unhelpful manner.

5. No one wants to feel cheap: create added-value, not price reduction

So, how can brands succeed without continuous price reduction? By providing consumers "added
value." Sainsbury's "Fiver" campaign is a good example of this. The campaign initially launched with a
TVC featuring Jamie Oliver, where he introduces a dinner for four for £5 or less. They also put the
recipes on in-store displays, so shoppers can try for themselves.

Advertisers will find that providing consumers with added value, not price reduction, will help their
brands in the long-run.

6. Creating new opportunities, new markets, new phenomenon: "Staycation" in the U.S.

Recession doesn't always have to all be doom and gloom. It's an opportunity for brands to look for
different ways of marketing themselves.

One good example of that is "staycation" phenomenon in the U.S. The rise of oil price hit the U.S.
market hard – the American people became more and more aware of how much gas they can afford
when driving, and were also exposed to soaring fuel surcharges on flights. This, on top of the collapse
of the real estate market meant that long-distance destinations for vacations (whether you were
driving or flying) were out of the question. However, through "staycations," the media started to
encourage consumers to actively enjoy staying home.

Major news channels such as CNN and NBC spent hours featuring this phenomenon, involving
brands that made staying home for vacation fun, enjoyable and even somewhat trendy. Food
manufacturers such as Kraft and Nestlé went on the "staycation" segment of the major news programs
to share some recipes and tips on how to bring vacation atmosphere to your home.

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7. Rely on data not intuition

Recessionary environments are inherently unpredictable and, as such, discourage risk taking. But
many initiatives can still be modelled. Look to see if there's a way of doing this rather than just saying
"no" based on a gut feeling.

Another example is Honda UK. Former Marketing Director of Honda UK, Simon Thompson, said
that it had been calculated that Honda's overall cost of doing business in the UK had been reduced
by 2% as a result of the effectiveness of its advertising. Understanding the effectiveness of advertising
and influence it has on advertisers' business during recession is crucial in allocating MarComms

8. Consumers are willing to spend premium for brands with high "bonding"

Millward Brown suggest that brands with good levels of "bonding" with their consumers are
consistently brands with more sales. Bonding is a measure of a brand's ability to convert consumers'
brand awareness to loyalty. BRANDZ• has also calculated that the level of bonding a brand
commands is responsible for as much as 67% of its sales success.

G2 has also conducted a study on 30 high-performance FMCG brands that had survived successfully
through recessions globally, and has concluded that consumers will stay with brands that they feel
close to, as long as the brands acknowledge their behavioural changes in the time of recession.

A good example of this is Dove in Turkey. Dove was faced with a great challenge when the recession
hit in 2001. As a premium brand with a price several times higher than an ordinary soap, Dove had
to find new ways for the brand to grow when people were generally spending less. Having shifted
their core target to the 15-25 age group, from a much wider, slightly older 20-55, due to a bigger
volume in the younger age group, Dove also identified a new product benefit – Dove soap could be
seen as a two-in-one product, since it cleanses the skin while moisturising at the same time. This led
the consumers to believe that Dove was actually a "good value" brand by women who couldn't afford
two different products, on top of the premium imagery the brand already owned in the market.

9. Consumers will scrutinise your brand's value equation more closely

For some, this means switching to cheaper brands that offer similar functional benefits, such as
supermarket value ranges. Others will steadfastly stick to brands they know and trust, being prepared
to pay a premium for the safety and security they bring. Ironically, those who switch to value brands
are often higher up the demographic and economic scale than their more conservative brand-loyalist
brethren who can least afford to make mistakes. However, under sustained recessionary pressures, all
consumers have little option but to trade down on brands and categories that offer less value in order
to justify being able to trade up or maintain their current spending on highly desirable brands.

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