On Monday we talked about golf and related it to your business: You have to play the ball where it lies in the same way you have to make business decisions based on today’s realities. Wishing for a better lie is silly.

Our economy is in the rough and, while most are slashing expenses, people and marketing budgets, some leaders are using this pre-recovery time to increase investments in marketing. In a recent BtoB Magazine survey, “2010 Outlook: Marketing Priorities and Plans Survey results, 11-16-09, 71% of those surveyed are investing more in their website in 2010 than they did in 2009.

In a separate study from Bain covering over 2500 companies, about 24 percent more firms were shown to “move from the back of the pack to the front of the pack,” with regards to sales and profits, during recessions than do during non-recessionary times. Do significant marketing investments during a recession make sense?

It did for Southwest Airlines and Wal-Mart (see Monday’s post). Both were noted in the Bain study for their vision and results but other companies have made smart pre-recovery investments as well. For example, the “Intel Inside” campaign was launched during a recession in the 1990’s. Before that, Proctor & Gamble invested heavily in Ivory Soap during the Great Depression and achieved spectacular results that lasted for decades. What is it that Southwest, Wal-Mart, Intel, Proctor & Gamble, great companies all, knows that other companies seem to miss?

It’s this, marketing investments that are consistent and aligned with your customers’ needs and aspirations are always wise investments. Now is the time to assess your customers’ needs, as well as your own strengths and goals, and invest.

Slashing marketing to survive in 2008-2009 may have been necessary but now you have to play the ball were it lies. What’s your plan for 2010 and 2011? Do you know what your competitors are doing? Who was weakened by the recession and who became stronger is important marketing intelligence. As the dust settles, where do you stand or do you even know?

A return to the pre-recession competitive landscape in 2010 is unlikely. The mammoth adjustments necessary for survival changed the playing field. You and your competitors were not affected equally and new options, most likely driven by technology and the web, are available to your customers and prospects. In every segment of the economy customers are beginning to look at products and services through a new, post-recession lens. How visible are you?

John Donahoe is CEO of eBay and to summarize what he said,

“It’s not about battening down the hatches and waiting for the storm to pass anymore than it is about betting big in the vague hope your hunches will pay off. Instead, it’s about executing what you do well better than ever before, making improvements, seeing the potential in new opportunities and, most importantly, having the vision to see beyond the immediate situation and taking action…“There is more market-share shift in turbulent times than there is in good times — more of an opportunity for a strong company to gain ground.”

Donahoe is right. You can’t stand over the ball forever. At some point you have to pick a club, commit to the shot and make an aggressive best swing. Are you going to play another round defensively, trying not to shoot over 100? Or are you going to play aggressively in hopes of breaking 90? It’s your choice. Take the shot.

Have you heard about this? In a Wall Street Journal article (July 17, 2009 http://tinyurl.com/lemhhe) written by Miguel Bustillo Wal-Mart announced it will require suppliers to provide an “environmental label” for all products sold through Wal-Mart. This is a huge initiative and, because of Wal-Mart’s clout, could end up defining environmental labeling for every product sold on the planet!

The article stated, “Wal-Mart Thursday will tell suppliers they must calculate and disclose the full environmental costs of making their products, then allow Wal-Mart to distill the information into a rating system that shoppers will see alongside prices for everything from T-shirts to televisions.” That means the largest retailer in the world is now going to be taking on the role traditionally held by a government agency and a consumer advocate. It gets better.

An initiative of this size will take years, maybe decades, to implement. The driving force behind the initiative is marketing. Young consumers typically care more deeply about the environment than their parents and eco-friendly initiatives are highly attractive to this group. In addition, Wal-Mart clearly wants to get ahead of any regulatory actions by setting an early standard. Don’t forget, any company the size of Wal-Mart views the government as a possible competitor because unfriendly legislation can constrain growth.

One has to wonder about the logic behind adding cost to already fragile suppliers in this economy but, since Wal-Mart will always secure the lowest possible price, what do they care?

The specifics of the initiative are unclear (there’s a surprise) but what they’re looking for are metrics on greenhouse gas emissions, solid waste production, and water usage, information they roll-up to determine sustainability. Sustainability is a touchstone word in the environmental community that refers to a company’s ability to continue producing goods using, ideally, a minimum amount of energy and producing a minimal amount of waste. That sounds like a good goal unless "minimum" ends up being defined as zero.

Buried in the new lexicon is another eco-babble term I had not heard before, social compliance, which includes community investment. Wal-Mart is apparently aligning itself with government officials who see social engineering as a core responsibility and necessary to constrain the evil-excesses of free enterprise. Personally, I think returning 7.2 million lost jobs (Bureau of Labor Statistics, July 2, 2009) would be some fantastic social engineering but what do I know?
 
Wal-Mart’s “comprehensive sustainability index” will measure the environmental impact of the suppliers’ products. Wrote Bustillo, “For example, an index might flag how much each contributes to global warming and if it contains wood harvested in ways that deplete natural stocks.” I get it, for every tree we grow we get to sew a shirt.

Jay Golden, an Arizona State University professor and co-chairman of a consortium that will help Wal-Mart design standards added, "You can design something that is carbon neutral, that does not contribute to climate change, and yet is still detrimental to human health in other ways."

Let me get this straight, a group of Wal-Martians and academics are going to make sure that products are not being created from “wood harvested in ways that deplete natural stocks” and that suppliers don’t “design something that is carbon neutral, that does not contribute to climate change, and yet is still detrimental to human health in other ways.”

Here’s an idea: Since it’s been proven that feces adds to global warming, why don’t they just cut out all this crap and lower our prices 5%? Since Wal-Mart sales are over $400B we can call it Wal-Mart’s $20B Stimulus Package.

Steve

A graduate student contacted me looking for articles and insights into recession marketing. There’s no single answer to that question. David Jones, global CEO, Euro RSCG, said in Advertising Age, February 16, 2009, said it well:

“The reality today is that we are all driving in fog [great line], and no one really knows if the fog will lift in one year, two years or more.”

That said, the data is clear: eMarketer's latest surveys show a significant drop in spending for media and advertising and a survey from the Association of National Advertisers (ANA) indicates that 77% of US advertisers are cutting their media spending this year. Expenditures for search engine optimization (SEO), social media, mobile and lead generation are the exceptions, spending in these categories are up, which is more evidence that engagement marketing is replacing interruption marketing.

Back to the question, depending on your brand and value proposition, assuming you have one, there are multiple marketing paths available.

One path is WalMart's: They know their brand, listen to their audience and create messages to address (market to) their audience's needs. WalMart fills the "affordability" need and that is a compelling value proposition during a recession. In WalMart’s most recent ads they’ve focused on women’s cosmetics, which to many is both a large and, as it relates to price-point, discretionary expense.

A high-end or luxury brands need another path since they need to be more careful promoting "affordability," even in a recession, lest they undermine the prestige aspect of their brand permanently.

Nordstrom's has to be careful marketing affordability since they tend to serve more affluent clientele than WalMart. The reason is once the recession is over they may never get the prestige attribute of their brand back. They must work to keep their market position in the “Neiman-Marcus light” range and not drift into the “Target plus” range. Tactically that means they can discount sub-brands (Cole-Haan, Coach, etc.) one or two at a time and do more promotion of their private label, a lower cost option for a high quality product, but they can’t go all-in with everyday-low-pricing.

Nordstrom's best strategy is to focus; to hunker down (read: don't expect revenues to increase), and work on strategies and plans to take market share when the recovery begins, which is what they’re doing.

Here are some more examples of what companies are doing taken from Fortune, WSJ Online and www.a-moracle.com, a website we own that is dedicated to marketing and marketing research.

• Staples recently launched a group of high-quality private label products, such as leather portfolios. This was a channel strategy partially driven by the recession. They “went after customers who would buy those products in a mall setting – and won many of them,” according to CEO Ron Sargent.
• TD America CEO, Fred Tomczyk apparently likes recession-driven low pricing. He said, “Dislocation drives opportunity. In October we increased our marketing spend. We were able to get more share of voice for the same dollar because ad rates were dropping.”
• Partner and head of global customer strategy practice at Bain & Co., Rob Markey, made a great point: “Downturns are when the biggest shifts in market share happen. But don’t try to go after different types of customers. The companies that do this well focus on the customers that are at the core of their business.”
• NASCAR would seem to agree with the Bain approach. In August 2008 they announced that the "Southern 500" would return to the Darlington Raceway in Darlington, South Carolina in May 2009. Most of my hard-core NASCAR obsessed friends are excited about the return to, what they consider, a tradition. The first Southern 500 ran at Darlington in 1950 and was NASCAR’s first and only 500 mile race until the Daytona 500 debuted in 1959.They all seem to know this. Amazing.
• Christian Dior has decided to go more upscale by unveiling a $2,300 Trente bag as well as a line of Lady Dior bags that start at $1,400. “People are looking for value and asking for quality now more than ever,” says Claudia D’Arpizio, a Bain & Co. partner.
• Finally, Tiffany has taken another path; with holiday sales down 21% they reduced staff and marketing spending. In addition, for Valentine’s Day they began advertising gifts under $250 on their website (a lower cost channel than retail) to show that luxury can be more affordable. It will be interesting to see if there are any long-term affects on the brand.

In this entry I’ll share comments from industry insiders taken from recent emails and phone conversations on the industrial segment of our economy. Specifically, I’ve synthesized comments from one CEO, two company presidents, eight vice presidents and Ron Nicely, an economic forecaster.

The most common view is the rate of decline in the industrial segment is finally slowing and the segment will “bottom-out” in July or August. This will be followed by gradual increases in production, factory utilization and sales. The recovery will be so slow that it is likely sales levels in October/November of 2009 will be approximately where they are today, which is down anywhere from 20% to 50% and more, year-to-year. A few pointed to the recent gains in the stock market as confirmation that a recovery is expected in a 6- (to 9-) month time-frame. If you find that disturbing, wait until you read what Ron Nicely is reporting.

Ron, who reports on and forecasts the industrial segment, and metalworking in particular, each month in his Nicely Newsletter is concerned that the future may be more bleak. In this month’s report he wrote, “I looked back at the metalworking data for early 1982…The decline in the GDP at that time was -6.4% in the lowest quarter, compared to -6.2% in GDP in the 4th quarter of 2008. At that time there was a decline in the metalworking data of  -36.4% that occurred in the 16 months before a bottom was reached. If this one [recession] is the same, the bottom will occur late in 2009. From the bottom it took 4 years and 8 months to get back to the total sales that were being recorded before the decline [1982 recession] began. This would point to the 3rd quarter of Calendar 2014 when sales would equal the high point in 2008.”

Yikes!

Economic forecasting is an inexact science so Ron qualified his remarks and offered some advice: “Every recession is different and it is possible this one may be different; however you [manufacturers and distributors] need to plan for this scenario being similar [to 1982], at least to start, and see how it develops. We did not have the financial problems then that we have now, so this recession could be more stubborn before we see a recovery…The next 1 to 2 years will be difficult and working on new products and looking for new markets will be important to your own company’s recovery.”

Some companies are using this time to reorganize and not just trim "fat," but to structure the business around market segments, such as energy or healthcare, rather than around products. Market segmentation can provide a source of differentiation in the marketplace that a product-based structure often lacks.

Steve