Gaining ground on competition during turmoil

"Be fearful when others are greedy, and be greedy when others are fearful."- Warren Buffett

Warren Buffet understood the business mentality you need to experience success during economic turmoil. Keep this quote in mind and instead of approaching this current recessionary period with fear, help your institution experience success.

By examining what actions industry experts have taken during recessions that have allowed their companies to sustain their productivity and grow faster than the competition, you’ll learn how you can help your financial institution experience positive growth during and after economic downturns.

In order to cut back and improve their bottom line during a recession, where do most companies turn? The first steps upper level managers tend to initiate in an economic slowdown are strategies that include (1) reducing the organization’s involvement in community campaigns--- strategies that were initially designed to strengthen the long-term relationship with current customers, and (2) suspending or decreasing the costly television and newspaper advertising campaigns that have proven tough to measure.

During economic hardship, studies show that consumers are more likely to support companies that are involved with the local community. In hard times, consumers retreat to their families and to the familiarity of their local community. They tend not to explore or take risks with their careers and investments.

Local banks and credit unions can capitalize on this tendency by remaining relevant and supportive in the eyes of the consumer. Stepping out of sight out of mind and not using these strategies during a recession could be detrimental to your company in the long term and could very quickly eliminate any competitive advantage you may currently have.

Looking at the recessionary history of companies like General Electric, Disney and HP dispel the myth that not much good can come out of a recession. Each one of these companies was established during a recession recovery period, and each has experienced steady success and growth through the economic state.

What do all of these companies have in common? They each undertook aggressive marketing campaigns during recessions—because they recognized that recessions do not last forever.

If marketing during a recession is so vital to the success of a company, then why do so many executives cut the marketing budget first when budgets are tight?

Many marketers lack the data to back up the success of the marketing campaigns they are currently implementing. When it comes time to sit down and determine how the company becomes profitable, company executives want to see numbers correlated with results. With operations expenditures, executives can see actions correlated with specific results. This is often a difficult correlation to make with most marketing expenditures.

Can you prove what prompted customers to enter your door last month? Was it the unique product offering, or the radio ad you ran on a daily basis? Was it the “freebies” at the trade show, or the pamphlets you have been distributing? Determining exactly what drives traffic through the door can be challenging and frustrating unless you survey your customers on a continual basis. John Wanamaker sums up this dilemma clearly, “I realize that half the money I spend on advertising is wasted, but the trouble is, I don’t know what half!” The lack of supportive data to justify marketing expenditures, makes it easy for executives to justify their decision to cut marketing.

Model the Experts to Prosper During Recessions

Every recession we experience in this country is unique and different. It is important to appreciate that your customers are going to have unique needs each time an economic downturn occurs. In order to satisfy these customer needs, Mary Beth West, CMO of Kraft, relies on consumer focus groups. The focus groups not only provide the most accurate information in terms of what Kraft’s customers’ day-to-day lives are like during a recession, but also reveal the unique buying behaviors customers exhibit in each economic downturn. West explains that focus groups help reposition products or brands, in order to develop further value for products and services. West emphasizes that during tough economic times, consumers are looking for value (more bang for the buck) more than ever.

If you reach out to your customers through focus groups during hard times, it signals to customers that their personal financial needs are important to you. If your products are perceived to be of a higher value, maintaining your current customer base and developing new customers during a recession, will not be as difficult as you might think.

Jeff Seabold, CEO of CD Financial Inc., is also a strong supporter of the “don’t back down” mentality. He believes in being more innovative when the economy is dragging. Innovative products and services tend to take off once the economy recovers. The Apple IPOD is a perfect example of a new product that was designed and released during a recession. Apple continued to innovate while their competition tried to cut back and as a result gained market share that companies like Dell and Microsoft are still trying to recover. Seabold also explains that this is a good time to concentrate on the customers you have already secured. It is four times less expensive to retain a current customer, than it is to seek out and acquire a new customer.

New customers may appear attractive, but may require too much investment during depressed economic times. Use the money you save by concentrating on educating your current customers on the many other products and services you can provide them.

During a recession, customers are more likely to invest in products and services from a familiar institution in which they have already acquired confidence. Understanding this trend is a plus for small banks and credit unions. Today’s money troubles mean consumers tend to perk up every time they hear the words money, finance, savings, etc.

Americans tend to believe that the current state of the economy will last forever, so as soon as the economy begins to pick up again they will most likely lose interest in their future financial needs and will tend to not be as interested in many of your products that will help them sure up their financial future. Recessionary periods are the ideal time to sell customers your products and services that provide future benefits.

Mark Wahlsrom, from the Legal Broadcast Network, believes cutting the marketing budget is THE biggest mistake you can make during a recession---especially for those involved in financial services. Financial institutions are supposed to guide their clients when any financial strain is levied upon them and their families. The consumer expects this service from local institutions more than large national banks because they feel that your organization has more invested in the community and likely cares more about the customer. The number one concern for most Americans during recessions is to make sure that their families are supported and can live a comfortable life. If you can exhibit that you can help them eliminate this concern they are likely to give you their business.

Taking an “out of site out of mind” approach will result in your customers losing their confidence in your institution. Providing them with sound personal advice and quality service during these uncertain times is what is needed and expected. Wahlsrom believes that cutting your marketing budget during a recession, could result in an investment four to five times higher when the recession ends, to gain back the market share you lost during the recession. This loss can be avoided by staying committed to your marketing dollar no matter what transpires in the economy.

The Proof is in the Numbers

In a study of U.S. recessions, McGraw-Hill Research analyzed 600 companies from 1980-1985. The results showed that business-to-business firms that maintained or increased their advertising expenditures during the 1981-1982 recession averaged significantly higher sales growth, both during the recession and for the following three years, than those that eliminated or decreased advertising. By 1985, sales of companies that were aggressive recession advertisers had risen 256% over those that had not kept up their advertising. (CARR Report, Aug 13 2001).

Businesses that aggressively increased media advertising expenditures during the last recession (just 25% of all businesses) increased their market share 2 1/2 times the average for all businesses in the post-recession period (CARR Report, Aug 13 2001).

Another study documented a 1.5-point increase in market share among businesses increasing ad spending during recessionary periods. By contrast, during expansion periods, 80 percent of businesses increased advertising budgets with no improvement in market share, since most competitors did the same thing (Cahners and SPI, 2002).

Initially, it seems hard to justify spending when money is tight and no one is buying your product. However, when consumer morale is low, customers look to brands that give them confidence and make them feel secure. While your competition is cutting back, you can maintain your marketing spending and provide incentives for customers to switch to your brand. When the recession ends, these newly acquired customers will remain loyal to your products and services.

Examining previous recession data and talking to respected peers demonstrates that by maintaining your marketing budget through a recession, you will be able to yield results that can help your company prosper while your competition falters.

What the Numbers Show Us

Aggressive advertisers see:

• 256% growth following a recession. Increase market share 2 ½ times the average market share gains following a recession.

Those who cut marketing see:

• A 2-4 year recovery period from a 50% marketing cut during a recession, even if the budget is increased 60% post recession.
• Expect a 5 year recovery period if you are “Out of Sight, Out of Mind” (100% budget cut) during a recession.