Building More Than Market Share During an Economic Downturn

April 23rd, 2008 Posted by B2B Marketing 2 thoughts

Napoleon once said, “Never interrupt your enemy when he’s making a mistake.” Many marketers have been told that to retract and retrench during economic downturns is a mistake that will not only affect their own opportunities, but also significantly increase opportunities for enlightened marketers to seize (even at the risk of “interrupting” the blissfully proceeding enemy). However, that seizing doesn’t come without cost, and sometimes a reminder of the bounty to be gained (beyond just short term sales) is needed to provide the proper stimulus to move forward aggressively.

Studies (among them the CARR Report) have shown that (1) a minimum threshold of awareness must be reached before a brand will begin to see the upgrade conversion to preference, (2) once higher levels of awareness are reached, the conversion to preference occurs more rapidly, and (3) awareness (and subsequently preference) will decay over time if awareness-building activities decline. In a TNS Intersearch study, it was also determined that “discontinuing advertising not only reduces a brand’s presence before the consumer, but actively helps the competition, which then gains a greater share of voice without increasing advertising expenditures.” Or the more aggressive marketer can even elect to increase expenditures and gain an even greater share-of-voice (including a greater distance between their share and those of competitors) by striking when the iron is hot—and the misguided, reluctant competitors are not.

Why is awareness and increased share of voice so significant? Because research has shown that every one percent increase in awareness ultimately leads to a half percent increase in market share. That “half” sounds like a small number—until you consider the value of a share point in some industries. And then consider that there are studies claiming a direct correlation between the growth of market share and growth of stock price. To add credence to that stock price consideration, in a battery of six studies the researchers at Meldrum & Fewsmith determined conclusively that “advertising aggressively during recessions not only increases sales but increases profits.” Consider then this continuum: From increased share of voice to increased awareness to increased sales to increased market share to increased profits to increased stock price. That continuum can be rearranged, but the outcome is the same. And certainly a greater prize than just “sales”.

But there is quite likely an additional increase as well, with far beyond short term implications for the enlightened marketer: It is the increase in “Brand Equity”. Part of that has to do with what competitors allow themselves to lose. TNS notes that “positive brand disposition is lost much faster than it is regained, and is much more expensive to regain than maintain.” Ries and Trout discuss the difficulty category competitors have in displacing the perceived category leader—with that difficulty driving up the cost of the attempt. Multiple studies have shown that the cost of acquiring (or re-acquiring) a loyal customer is as much as five times more than the cost of maintaining one. Combine these and extrapolate, and the logical conclusion is that not only does the enlightened marketer who exploits the downturn opportunity gain in an objective, measurable financial way, but also gains in the subjective but very real consideration of brand equity. The brand is held in higher esteem by more customers. That gives the marketer permission to extract a premium price for its products. It enables the marketer to reduce marketing cost for not only existing products, but also for line extensions, because in the mind of the loyal customer, the proving of the brand has already been done. It is more fortified against market intrusion by new competitors including generics. And as long as the brand continues to meet the customer’s expectations of it, the positive perception of the brand will continue to build right along with the objective measuring sticks of growth.

The fact is, wrong decisions made in addressing an economic downturn can result in the downturn for a company that can well be permanent. And for the strategically savvy marketer, the opposite reaction can result in a business upturn that sans major changes in marketplace dynamics can be effectively irreversible.

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2 thoughts on “Building More Than Market Share During an Economic Downturn”

  1. Jeff Gwynne says:

    Buzz-

    Thanks for sharing the conclusions of those awareness studies (e.g., the CARR report). Having survived a downturn in high tech (early 00s), I know firsthand that marketing is the first to be cut. Now I am armed with data that shows the consequences of such action.

    Jeff

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