Marketing makes cents

Think your firm can't afford marketing?  Think again. Kellogg faculty say that companies can't afford not to market during these economic times. Here's how to stretch your marketing dollars and make the most of the meltdown

By Rachel Farrell

Earlier this year, FedEx did something it hadn't done in 12 years: It opted out of Super Bowl advertising.

In light of the economic downturn, other firms are following FedEx's lead and slashing their marketing budgets. But is this wise?

In a word, no, says Tim Calkins, clinical professor of marketing at the Kellogg School. "Marketing becomes more important in a downturn — not less important," he explains. "Some people think that marketing is optional, something that you do when you have enough money to pay for it. That's a very dangerous line of thought, because marketing, at the core, is all about building a strong business."

	Photo © Evanston Photographic Studios
	"Firms have to be really careful about fighting games that they don't win. Don't try to say that you're the cheapest when there's a cheaper option." — Professor Julie Hennessy

In fact, Calkins says, a recession is an optimal time for firms to increase their spending on marketing, because many companies will do just the opposite. But it's important for businesses to adopt the right marketing mix. Calkins and his Kellogg colleagues offer advice on how firms should address the Four P's if they want to ride out the economic storm — and overtake their biggest competitors.

PRODUCT

Launch a sub-brand that stresses value: It's never smart to cut back on the quality of a product or service as a means to save money. But firms may want to consider launching a sub-brand or value brand. "The strong players can launch a sub-brand or a value brand without necessarily [hurting] their main brands," says Lakshman Krishnamurthi, the A. Montgomery Ward Professor of Marketing. "Customers are going to spend money, but they want to spend it wisely." As an example, shortly after the 1987 stock market crash, luxury designer Donna Karan introduced its "Donna Karan New York" or "DKNY" line. Similarly, Vera Wang launched a value brand, "Simply Vera," at Kohl's recently, and Whole Foods is pushing its "365 Everyday Value" brand. But Calkins warns, "This can erode the brand long-term."

Evaluate product lines and eliminate under-performing brands: When times are good, companies expand their product lines. "And then, after a while, they have no idea why they have so many products," says Krishnamurthi. "I mean, do you need 80 SKUs of toothpaste? Why?" The pruning of brands has to happen, Krishnamurthi says. It will eliminate a firm's excess costs and return the focus to its more successful, tried-and-true brands.

Don't stop innovation — if you can budget for it: If you can afford to launch a new product, "downturns are wonderful times to do it," says Calkins. "But protecting the core has to be the top priority. Not launching some new great innovative product is, to me, more likely to be a missed opportunity than a dangerous thing to do." Krishnamurthi argues that if you want to be top dog, you have to take a more aggressive stance. "Innovation should never stop," he says. "If you want to be a great company — during a recession period or not — you have to be on the forefront. You have to be better than the other company."

PRICING

If you can win the price game, then play: Companies such as McDonald's can slash prices and customers will take notice. But cutting prices doesn't work for some firms, such as Target, which doesn't offer lower prices than competitors like Wal-Mart. "You don't want to be in a price war with Wal-Mart," advises Julie Hennessy, clinical professor of marketing. "Firms have to be really careful about fighting games that they don't win. Don't try to say that you're the cheapest when there's a cheaper option." In addition, price cuts should be modest, just enough to send the message to consumers "that we are here for you and understand that you're hurting and want to do our part to help you," says Krishnamurthi. "If you [cut prices too much], once the recession is over you could have a lower price image."

Photo © Evanston Photographic Studios
"Some people think that marketing is optional, something that you do when you have enough money to pay for it. That's a very dangerous line of thought, because marketing, at the core, is all about building a strong business." — Professor Tim Calkins

If you can't win on price, talk value: Products and services that cost more than their competitors should stress value over price. This is an especially smart strategy for luxury brands. Diamond company DeBeers, for example, stresses its value with the tag line, "Fewer better things." "In a way, I think it's a wonderful message for this environment," says Calkins. "It says that, relative to where you put your money these days, diamonds are a smart place to go." But Krishnamurthi points out that talking value isn't always enough. "If everyone is saying value, how do you differentiate yourself?" he argues. "You have to give customers more than that. There has to be a reason why, among five value offers, I should buy your product as opposed to someone else's."

PLACE

Support distributors that you value: Professor of Marketing Anne Coughlan emphasizes the importance of evaluating your list of distributors. Figure out which ones you value the most, and then "make sure you do what you can financially to make them successful throughout the downturn so that they're there for you," she says.

Fire your "customer": On the flip side, customers, partners or buyers that hurt you financially need to be eliminated from your distribution channel. "There's an expression, 'Fire your customer,'" says Coughlan. "There are some customers or partners that, if they're very demanding, are actually money-losers for you. Get rid of them. You can't afford that right now."

PROMOTION

Play into cultural shifts: Spending less and saving money is now the smart and responsible thing to do. "Just months ago, it was cooler to spend a lot and have new things," says Hennessy. "And day by day and week by week, it's become cooler and cooler to be prudent. There's a shift in attitude." Use that attitude shift in your promotional efforts, like Target does in its commercial, "Brand New Day." The commercial boasts that the "new" way of living is substituting luxuries with lower-cost, do-it-yourself options — such as painting your own toenails with $3.99 polish instead of getting a pricey pedicure. This strategy also worked during the Great Depression. According to the New York Times, Sears' 1930 catalog used phrases such as "Be smart and thrifty" and "Look at the chic economy."

Be consistent with your brand image: Playing into these cultural shifts only works if it's consistent with your brand image. Otherwise, it can be dangerous to do. "You don't want to totally modify and reposition your brand with every up-and-down of the economic winds," says Calkins. "Because then you're going to lose track of your brand and end up with a very weak brand."

Most importantly, connect with your customer: Figure out what makes your customer tick — and then find a way to connect with them. "Great marketers find a way to connect with people," says Calkins. "When marketers have a message that connects with what consumers are feeling at a particular point in time, that's really magical."