Recently I was speaking with [/caption]
The natural reaction of many businesses experiencing a downturn in their revenues is to cut costs in advertising and promotion, yet literature on the subject suggests that small firms should do the very opposite if they wish to ride out the recession. Evidence gathered from the PIMS (Profit Impact of Market Strategy) database of almost 4,000 businesses throughout the USA and Europe shows firms who increased marketing spending were not significantly less profitable in a recession. Moreover, firms which spent more on marketing during a recession saw their profits increase dramatically once a recovery had started. In fact, SMEs that increased marketing spend gained market shares three times more rapidly during a recovery than those that had previously cut their budgets. The consensus is that companies should plan their marketing budgets for the long term and continue to spend on marketing in the short term, in order to survive during hard times and to be more profitable in the future.’
How do you believe the current recession affects consumers?
‘Economic crises hit consumers psychologically as well as economically and consumers tend to adapt their shopping behaviours and habits. As a result changes need to be made to the general marketing strategy and particularly to the four main elements of the marketing mix: product, price, place and promotion. As part of a general strategy, firms operating in International Markets should concentrate on the markets in which they are strong and withdraw from markets where they are not the main players. Entering previously untouched but potentially lucrative foreign markets is also an important strategic option to consider by SMEs who are adversely affected by the recession back in Ireland.’
So how should Irish SMEs change their marketing strategy?
‘Savvy marketers can increase sales and market share during hard times by concentrating on price promotions and by tailoring advertising to suit the uncertain climate. Companies should emphasize durability and reliability in their advertising as consumers tend to shop more rationally when their purchasing power has taken a dent due to a recession. More proactive personal selling can also be beneficial and can help build stronger customer relationships.’
Pricing can be a very sensitive issue during times of recession and it is a topic I have written about recently: from your research how should SMEs price their products in a recession?
‘The rationale of many small firms is to reduce prices in the short term in order to increase sales but this can greatly impact profitability in the long run. This can also effect the brand image long term and customers may be reluctant to buy at previous price levels once the downturn is over.
Firms need to be careful with pricing strategy and it should be integrated with other marketing mix initiatives during a recession.’
Improving perceived quality of your offering relative to competitors pays off in better profits and growth. Although it may seem natural to decrease marketing spending due to the current economic climate, having discussed this topic openly with Mícheál it is plain to see that Irish SMEs should continue to spend on marketing if they wish to ride out the recession and continue to be successful once the recovery begins.
Many thanks to Mícheál for his contribution to this post. Read more from Mícheál on his blog