An economic downturn actually presents a great opportunity for a brand to stand out and push ahead of its competitors. With the right strategies, marketers can use this time of crisis to their advantage
THE global financial crisis, which has slowed consumer demand and made sourcing for external funds difficult, is putting pressure on companies to slash costs internally.
So what does a company do during these challenging times?
For a large number of companies, the answer is to cut branding and marketing budgets. It is one of the fastest ways to reduce expenses. And if hard times persist, well, they may take the least preferred route of retrenching staff.
However, before taking measures like cutting back on marketing activities, companies need to ask themselves whether it would be worth it in the long run, especially since branding is a long-term process and an economic downturn usually lasts only one to two years.
Bucking the trend
Savvy marketers would say companies should resist the temptation of cutting their marketing budgets in bad economic times. Instead, they should push their brand messages during this period when there is less competition for consumers’ attention, given that competitors may cut back their spending on marketing.
Ogilvy & Mather Malaysia group managing director Zayn Khan says it is important for companies to put in place a long-term plan covering three to five years, including strategies for recession and post-recession recovery.
He says most marketers make the mistake of taking a short-term view, which involves cutting the marketing budget, because they consider the budget a cost that should be sacrificed to “protect” other costs.
“Companies have to treat the marketing budget as an investment. It helps in building brand equity and brand value in the long term,” Khan says.
He says it is good to maintain the marketing budget when rivals are cutting their budgets as it is a way to emerge from the recession strongly, gaining market share as well as improving profitability in the long run.
Khan says research has shown that a company that cuts its advertising expenditure by 50% during a recession year would take two years to recover its market share, while a company that cuts its advertising budget completely in a recession would take four years to regain its market share.
“The long-term cost of cutting your budget during recession far exceeds the savings you make. Your sales will be suppressed in the years you cut your budget,” he adds.
Ghee Hiang Holdings Sdn Bhd director Ch’ng Huck Teng, who is responsible for a 153-year-old brand, concurs: “When times are bad, it is even more important to make sure you have loyal supporters for your products. This is the best time for competitors or unknown brands to come up.
“One has to understand that it is hard to stay ahead, but it will be even harder to chase others once they catch up and surpass you. Once customers switch sides, you will be looking at an even bigger budget to win their hearts back. It is not going to be easy.”
Companies as diverse as KFC, AirAsia, and Hing Yiap have said they would maintain or step up their advertising and promotions (A&P) budget this year as a percentage of sales.
The Government is also doing its part to encourage companies to do promotional activities during this downturn. Malaysian External Trade Development Corp is reported to be revising the guidelines for its market development grant, including more than tripling the eligible amount for promotional materials.
Making the money work harder
For many companies, slashing the marketing budget may seem inevitable.
These companies can take comfort in a remark in an Interbrand report that said the main lesson may not be maintaining or increasing marketing investment, but “achieving superior results with more effective brand management.”
Some companies may be tempted to focus on just one communication channel, but Ogilvy’s Khan says it is more effective to use multiple channels for advertising.
He says a study found that multiple-channel campaigns have a 65% success rate in reaching their objectives compared with 58% for single-channel campaigns.
“It is recommended to use the combination channel as it gives more synergy and efficiency,” he adds.
Having said that, he adds that a company needs to concentrate on certain channels. He points out that emotional advertising and communication is more effective than rational communication as it can help drive market share.
“People still need dreams even during a recession,” he explains.
Paul Corrigan, head of media specialist GroupM Malaysia, says a company should measure the effectiveness of its advertising campaigns. This is important in good or bad times, especially the latter.
“I’m always astonished at how much money people spend on advertising and media, and how little is spent on understanding whether it works or not.
“Try to put in place metrics that can measure the outcome of your spending.
“Take a couple of per cent of what you plan to spend on advertising and media and invest that in trying to properly understand the outcome of your activities.”
Digital vs traditional media
Branding Association of Malaysia president Lewre Lew expects more companies to move towards the digital or online platform during this downturn as the online market is attracting a wider audience and offers a distribution channel that costs less to operate.
Nestle (M) Bhd managing director Sullivan O’Carroll says the digital and online platform is cost effective and efficient as it is relatively faster to deploy compared with traditional advertising media.
“Our investment in this platform will continue as we address the relevant consumer segments.
“For instance, our popular reality series Nescafe Kick-Start Entrepreneur Edition is now conducted fully online,” he says.
Digital or online platform, known collectively as new media, has been around for at least a decade.
Nestle Malaysia has been one of the first to take advantage and adopt digital or online platform as one of its advertising channels.
“Brands such as Milo, Kit Kat and Nescafe, which have the right target audience (frequent users of the Internet and receptive towards digital advertising), have consistently used new media in various marketing activities and campaigns,” O’Carroll says.
Meanwhile, Interbrand Malaysia managing director Shehara de Silva says if companies are in the mass consumer product segment, traditional media would still be more impactful.
“If the target prospects are young enough, the companies should consider using video games, social networks and customer-generated content to drive brand engagement,” she says.
She points out that some people still think that online advertising means having some static wallpaper website.
“The digital world is not a geeky fringe; it is increasingly becoming mainstream media.
“The ubiquitous mobile phone is possibly the media channel of the next decade,” she adds.
Shifting activity focus
De Silva says that during a downturn a company should try to milk the cash-cows if it has a few brands.
“Strong brands in the portfolio (or the stronger businesses) will need to support the marketing efforts of the weaker brands or weaker businesses, and loss leaders need to be sustained too for strategic intent,” she says.
She urges companies to look for brand extensions and brand stretch rather than add new brands.
However, she says, there is a need to rationalise brands in a downturn.
“Look at Unilever. It is one of the few companies showing double-digit growth currently as it has axed so many of its nice-to-have but not-really-doing-much brands,” De Silva says.
Pensonic Holdings Bhd, which markets electrical goods, aims to concentrate on the “sell-out” strategy during the downturn.
Group executive director Vincent Chew says: “We always talk about sell-in (selling to dealers) and sell-out (dealers selling to customers).
“During the good times when there was massive brand exposure, more effort was placed on selling-in as products were moving fast. Now, during the downturn, we will concentrate our effort on helping our dealers sell-out,” he says.
Danger of price discounting
Price discounting may help stimulate sales during the downturn, but it will hurt a company’s brand and profit margin over the long term.
According to Interbrand’s de Silva, price discounting is a short-term sales tactic with bad brand resonance, especially in the luxury and premium segments.
However, she says culturally this part of the world has conditioned its customers to expect periodic discount sales.
“Focus on revenue rather than volume,” she advises.
De Silva recalls her days as marketing director of a dairy brand that had a 16% price premium over the Nestle milk powder in a Third World market.
“It was baby food and the proposition was ‘The best quality that mums could buy’.
“We had twice the market share (60%) of a flagship product of the world’s largest food company and no price discounts was our golden rule.
“Some years on, a new head of marketing started discounting and the market share plummeted. The quality of the product was correlated to the price, and as soon as price became parity with competition, the perception of quality was eroded,” she says.
Ogilvy’s Khan says price discounting “will affect your brand as consumers may perceive the brands differently,” adding that it is better to maintain the prices but improve the value perception of the brands.
He says companies could provide more benefits, improve services and the quality of the products so that consumers will feel like getting more value for money.
“Consumers will pay if they think the product is value for money, even during a recession.”
He says quality is not just about the products; research shows that consumers perceive a brand to have higher quality when there is more money spent on marketing communications.
Past studies by market research firm Nielsen reveal that companies that engaged in promotions and price wars might actually be fighting a losing battle.
The Nielsen Co associate director (analytic consulting) for South-East Asia. Nina Ford, says: “They could be doing the brand more damage than good because shoppers are already ‘wired’ into certain buying modes, which subconsciously pre-determine how they will shop for different products and categories.”
Sheila Luis Abdullah, consultant partner at branding agency Ova, says a company needs to understand the brand from the internal and external perspectives, as there may be a perception gap between the company and the public.
She says the biggest failure in branding is that the company’s own staff do not understand the brand and this will create difficulties in delivering the brand promise.
“Companies should make their brand image clear internally so that their staff can implement the brand in every touch points,” she says, adding that companies could do it through training sessions, workshops, and materials like brand books and video.
Interbrand’s Shehara says brand engagement or internal branding is very important.
She says Interbrand did some brand engagement work with Perodua which is paying dividends to the latter’s brand.
“The brand’s greatest advocates must be its company’s employees. They are the foot soldiers, the disciples that must spread the brand story and must be first brought on board to believe in it and be proud of it,” she says.
CR – to cut or not to cut?
Ku Kok Peng, senior vice-president and general manager of public relations agency Fleishman-Hillard Malaysia, thinks that in an economic slowdown there’s all the more reason to focus on corporate responsibility (CR).
“CR would not just give a greater share of voice; it would also very clearly differentiate a brand or a corporation in terms of how they conduct themselves – what their values are – to consumers.
“And consumers these days are a lot more savvy in terms of from whom they purchase and what service they would want to acquire.
“They not only look at the functional aspects of the products but also whether the companies conduct themselves well,” he says.
De Silva of Interbrand says it is not a good option to pull back CR spending during a downturn as it is integral to brand strategy and brand values.
However, she says most companies spend on CR in a token and ad hoc basis.
“It is critical that the value generation to society is also locked into the brand DNA.
“Brands are assets that generate value to shareholders and most should be managed as such,” she says.
Khan says CR is a strategic investment in building relationship and creating financial value for the brands; thus, cutting back on the CR budget will run the risk of affecting one’s brand value.
Branding Association of Malaysia’s Lew, meanwhile, says spending may be reduced but companies can find other creative ways to do CR.
In a nutshell, companies need to continue to communicate to their stakeholders – customers, employees, investors, the community, and business partners – in a challenging environment.
As Ku says: “The last thing you should do is stop communicating. That would be a big mistake. You’ll lose your share of voice; you could potentially lose your share of heart. And you would be giving opportunities to your competitors to invade your territory.”