Thought Leaders II
Marketing Against the Tide: Go Where Rivals Fear to Tread
Business 2.0 magazine, founded in 1989, rode the "new economy" to extraordinary success. In its second year of publication, it sold 2,000 pages of advertising, perhaps a record for a monthly newsstand magazine. But its fortunes collapsed with the burst of the dot-com bubble. Companies cut their ad pages and the bloated magazine shrank to a mere ghost of its former size. While the companies were running like rats from a sinking ship, Wharton Professor David Reibstein points out that the shrinking competition could have made this an ideal time to advertise in the publication.
"When the magazine was the size of the Philadelphia phone book, it was pretty rare for your ad to be seen," says Reibstein, who is academic co-director of Wharton's Competitive Marketing Strategy program and teaches in the Essentials of Marketing program. "Suddenly it is the size of the Lower Merion phone book [in suburban Philadelphia]. It is then that your ad is much more likely to be seen. Ad rates are likely to be down, but the number of readers decreases only marginally. The cost for an ad may be about the same, but the impact is much greater."
During hard times, there is particular pressure to justify every dollar that is spent. What we saw during the last recession was that marketing budgets were being sliced not because marketing was not a good investment, but because there was no way to demonstrate it.
–David Reibstein, William Stewart Woodside Professor; Professor of Marketing; Academic Director, Wharton Marketing Metrics™: Linking Marketing to Financial Consequences
Marketing Theory of Relativity
This case illustrates the general principle of "relativity" in marketing. The impact of any marketing action, such as advertising spending or pricing changes, depends on the moves of rivals. Reibstein asks: Is a $12,000 car expensive? Today, this would be considered an inexpensive car. But 15 years ago, even after adjusting for inflation, a $12,000 car would have been expensive. The price is relative to what others charge. "What is really clear is that everything we do in marketing has an impact on a relative basis," he says.
When you try to make your voice heard in a huge crowd, you have to keep shouting louder and pay a lot to do so. But when the crowd goes away, you can hear a pin drop. This is the opportunity for marketers in a downturn. As other companies cut their marketing budgets and reduce their advertising spending, you can gain more "share of voice" at a lower price.
"During hard times most people cut back on spending," says Reibstein. "There is strong evidence that those who don't cut back find much more positive impact because their relative spending has gone up dramatically."
This broader view of marketing — particularly examining the impact of the competitive strategies of rivals — is a central part of the Competitive Marketing Strategy program. While these insights are always important, they are particularly vital in a downturn, during times when rivals may be changing their strategies. "How do you anticipate what your competitors are doing and put that into your plan?" Reibstein asks.
Metrics: Make the Case for Marketing
One of the reasons marketing budgets are cut during tough times is that managers are not able to demonstrate the impact of market spending. Marketing metrics are particularly important in making the case for spending, and allow you to demonstrate the effectiveness of marketing.
"During hard times, there is particular pressure to justify every dollar that is spent," says Reibstein, who examines metrics in Wharton Marketing Metrics™: Linking Marketing to Financial Consequences. "What we saw during the last recession was that marketing budgets were being sliced not because marketing was not a good investment, but because there was no way to demonstrate it." If a manager has to choose between investing in a project with a good return, one with poor return, and one unknown, the one with the good return is going to be preserved.
If you don't have marketing metrics in place, Reibstein advises starting by examining the drivers of performance and creating a hypothesis about the important metrics that can be tested. You then can refine those assumptions based on results. The Wharton program and the book, Marketing Metrics: 50+ Metrics Every Executive Should Master, which Reibstein co-authored, can help managers identify and measure the metrics that matter.
Leading the Sales Force
One area where rigorous metrics and planning are particularly important is in managing the sales force. The sales force typically represents a huge investment, and can be an engine of growth.
In times when people and resources are scarce and expensive, every dollar invested in the sales force must count. You need to size the sales force so it contributes the most to profitability and deploy your people so they contribute the most," says Leonard Lodish, marketing professor and academic co-director of the Leading the Effective Sales Force program. "You also need to incentivize them and compensate them so they are encouraged to maximize their value, train them appropriately, and organize them effectively."
And, as with other marketing investments, when competitors thin their sales forces, your own investments can have a greater impact — but only if they are well managed. In rapidly changing markets, the sales force can also offer a critical source of market feedback.
Think Countercyclically
In a downturn, not everything is down. Wal-Mart, for example, recently has been growing its sales as value-conscious consumers flock to the discount retailer. "Not everyone needs to be panicking," Reibstein says. "Some products tend to be relatively inflation proof. The poor economy, for example, plays right to Wal-Mart's sweet spot."
Even some premium products such as Starbucks coffee can benefit from tough economic times. "Everyone is saying that Starbucks must be in real trouble now because their products are so high priced," he says. "But Starbucks really thrived during the last downturn. While people could not afford to buy a new car, they could treat themselves a little. It was a downscale luxury, and these can do well in a downturn. Starbucks has other troubles, but I am a firm believer that the economy is not going to be the thing that does them in."
Companies can also focus more attention on segments or businesses that are relatively inflation proof. Disney, for example, has seen strong sales at its U.S. parks and resorts despite the economic problems. The demand is driven by European travelers taking advantage of better exchange rates against the dollar. Add to that the American tourists who have chosen a U.S. resort over a journey abroad. "Ideally, what you want to do is find some products that are relatively inflation proof," Reibstein says.
"With the right strategies, and if you can make a strong enough case for marketing, there can be a silver lining to this," Reibstein says. "There are real opportunities if you only have the fortitude to take advantage of them."
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