An article in this month’s issue of McKinsey Quarterly (requires subscription) talks about “the downturn’s new rules for marketers” and how those rules are different than in the last downturn back in 2001-2002.
In previous downturns, marketers were driven to:
- Focus on large, historically profitable customers, geographies, and market segments
- Emphasize traditional media, such as TV and print ads, while cutting back on new advertising vehicles
- Slash back office sales overhead while investing in frontline salespeople
Because the economic downturn is so profound, and affecting everyone in very different but specific ways, and because traditional media has declined in importance as the Internet and social networking achieved meaningful scale, and because people buy differently than they did in the past – those old rules for marketers in a downturn will not work this time around.
The recommendation for this downturn?
First off, companies need to get very granular in prioritizing the geographies that they will compete in. With the complex impact of this economic downturn, you can find cities that have a high growth potential even within regions that don’t. The authors of the article use the example of a beverage company that had access to micromarket data and found that the price sensitivity of people varied as much as a factor 13 across regional markets, a factor 5 across cities within them, and a factor 3 across zip codes within individual cities. When you know how to redeploy you scarce resources across those zip codes, cities and regions that have the least price sensitivity you will increase your profitability dramatically compared to those competitors who will slash across the board.
For b2b companies, the authors argue that a fresh look at segments will not be enough and they recommend doing the analysis on a customer-by-customer basis, saying that:
“Of course, they must start by assessing the basics: whether a customer has enough cash or liquidity and the likelihood that such funds will survive. Then they should think about how the crisis will affect all aspects of their profitability.”
When it comes down to looking at how to invest marketing and sales resources, besides investing in those geographies and customers with the largest profit potential, the authors recommend a mix of traditional and new vehicles, with the latter typically accounting for 10-15% of spending. Don’t use reach and cost as your metrics to evaluate where to invest – instead focus on quality – or the ability to influence customers.
On reprioritizing sales functions the authors have the following to say:
“As we have seen, in tough times companies try to improve their profits by reducing sales overheads while concentrating resources on the frontline sales force. But today’s sales teams use newer kinds of support that are too important to cut indiscriminately: they play strategic roles in the sales process and are critical to serving the most profitable customers and to converting new prospects. An executive who slashes these support functions as part of a broad cost-cutting campaign risks severely damaging the sales force’s effectiveness.”
And of course, and as the article points out, there are things in marketing that never get outmoded – including the constant need to reevaluate the value proposition of your brands, the fine-tuning of your products and pricing, and the cost management of your agencies.
All that being said, it is going to be interesting to see how companies with micromarket data who can develop microtargeting capabilities using a mix of traditional and social media marketing will do compared to their peers who don’t.