Aligned Marketing Blog

Golf is my favorite game. You learn a lot about yourself and your friends on the course. There are a few life-lessons to be had as well. One of my favorites is, “You have to play the ball where it lies.”

Right now our economy is in the rough. That’s the bad news. The good news is there’s more golf to play and you have a business to run.

The recession has no doubt taught you a lot about your core competencies, operational inefficiencies, customer relationships and people. You probably have more control over your budgets, cash flow, pricing and product portfolio as well. Those are all positives. What now?

Recessions end and, while we’re not out of the woods yet, there are several indicators pointing to a brighter future. However minor, most businesses are shifting from cost cutting to planning and investment decisions. How are you approaching your marketing investments? How aggressive should your next shot be?

Looking back may help us look forward. Every company adjusts expenses to revenues but successful companies never stop investing in critical competencies, be they product development, infrastructure or general marketing, most of which is digital now.

The recession of 2001, which was brought on by 9/11, was studied by Bain & Company. They evaluated 2500+ companies and concluded:

About 24 percent more firms moved from the back of the pack to the front in the 2001 recession compared with the subsequent period of economic calm (in terms of) net profit margins and sales growth.

Southwest Airlines is a good example. With a strong balance sheet and some cost advantages, Southwest grew sales and market share, while the other airlines, their larger competitors, cut personnel and capacity, Southwest grew and took share by increasing their marketing investments, lowering fares and retaining all their employees, a move that kept their labor force motivated and and loyal for years.

The results were astounding. Southwest increased its fleet 51 percent in the following six years and is still the only airline to be profitable since its inception. Wal-Mart offers another example of investing during a recession. They used the 2001 recession to launch their “Everyday Day Low Prices” slogan. It proved was such as success that they’re doing something similar today, you could say it's their recession-based marketing strategy. 

This time Wal-Mart is using the current downturn, as well as the demise of Circuit City, to enter consumer electronics and, potentially, challenge Best Buy. In addition, they are remodeling their stores to make them more open and consumer-friendly, more like Target’s. These are big investments. Does Wal-Mart know something most companies don’t? Does their success allow them to do what others can’t? Or are they successful because they had the knowledge and courage to act on their goals and aspirations while their competitors responded to their fears?

On Wednesday's post, The Shot, we’ll discuss tactics.

Steve

On Tuesday a friend told me about two contractors that will likely shut their doors even though both have backlogs of work. Their problem is their backlogs are filled, as are many contractors, with low margin business secured through bidding.

On Wednesday a real estate broker told me he’s trying to close on a $6.0M piece of development land in California. He said, "Since I'm selling to the government, it's almost impossible to get anyone to make a decision."

Later that day a contractor came to our house to repair our air conditioner. His business is booming. However, he said, “The majority of my business is as a sub-contractor to (name withheld, it’s a national home warranty company).” As such, it is low margin business.

Finally, a local printer told me that he was busy but every job becomes a rush job. He said, “The requirements always change, the edits seem endless but the deadlines stay the same. So we end up shifting our production schedule and paying overtime, and that kills our margins.”

Is there common thread? Yes, a need for better customers. Customers who will pay fair value for your services and respect mutually agreed to deadlines.

Don’t get me wrong; I’m sympathetic. I run a small business myself, and the temptation to think any order is better than no order is strong. I’m also not saying fire all your marginally profitable customers.

What I am saying is we all need to take decisive action to balance marginally profitable customers with highly profitable customers. To actively seek good customers because we already know the marginal customers will find us.

Your customers are similar to a portfolio of stocks in that both represent future income, at least in theory. If a customer consistently insists on the lowest price, then that customer needs to be replaced or subsidized, just as you would an under-performing stock. This can mean raising their prices or balance them out with a higher margin account. If a customer can’t make a decision and the back-and-forth time costs you money, then that time needs to be factored into the original price. 

I asked each of these people what they were doing to correct their situation, to secure better customers? Only one said, “I need to do more marketing.” Guess which one?

Steve