Down Economy? Up Marketing!
By Mark W. Sheffert
May 2001
It’s the end of a long day. You’re alone at your company after everyone else has gone
home. You’re exhausted and have a knot in your stomach.
To those on the outside, everything’s hunky-dorey. After all, you’ve achieved
your goal of starting your own business, then grew it into a thriving entity and are
approaching the retirement of your dreams. So why do you feel like everything you’ve
worked so hard for is crashing down around you?
It started several months ago when the economy began to slow down and sales
didn’t meet the budget. You had to make a few layoffs, and a sense of gloom descended
upon the entire company. Then the stock market fell further and your employees saw
their 401k plans shrivel. Your personal investments and retirement portfolio were hit,
too, which will put off those retirement plans.
To top it off, your company’s earnings are spiraling downward, so the bank is
squeezing down your revolving credit line. Cash flow projections are getting uglier and
if you don’t find some outside capital soon, well … the end may be near.
If this sounds familiar, you can either surrender to the death spiral or pull yourself
up by your bootstraps and fight.
A fair warning, however - surviving a down economy isn’t for the meek and
weak. It takes strength and courage. It takes innovation. And, it takes discipline to get
back to the basics that got you to where you were in the first place … it’s like giving
yourself and your company a self-imposed shock treatment.
Return to fundamentals
One of those basics is returning to the fundamentals of marketing. Back when I was in
college (just before the icebergs destroyed the dinosaurs) we were taught the four "P’s"
of marketing: product, price, promotion, and physical distribution or place. Nowadays,
marketing gurus also add a fifth "P"- portfolio.
Product is what you offer, whether it is a bundle of goods or services or both.
This includes the appearance, functionality, packaging, and support or non-tangibles the
customer receives. Carefully evaluate each of your products and services. Do they offer
unique competitive advantages? Is it clear why the customer would buy your product
versus the competition’s product? What benefits do you provide over theirs?
Next, determine where each of your products are in the product life cycle
(introduction, growth, maturity, and decline) and whether sales properly reflect its stage.
If the product was recently introduced, sales should be growing modestly along with
market acceptance and awareness.
If the product is in the growth stage, sales should be growing rapidly. During
growth, competitive pressures usually increase so it may be time to alter your marketing
strategies to maintain market position and leadership.
If product sales have peaked and are starting to decline, the product is in the
maturity stage. By now you should have implemented strategies to introduce new
products that extend the brand and lengthen product lines.
If sales are falling rapidly, your product is in the final decline stage. This may
be happening because of technology advancements, changing styles, or new trends.
Hopefully this is a planned death, with the product being replaced with a new product
offering improvements over the old one.
Price is how much you charge for your product or service. Considerations
include whether you will charge the same amount all of the time, or vary it in some way
according to geography, time, or volume. With services, pricing can vary according to
the level of service. Set prices carefully, for consumers consistently rank price as one of
the most important variables driving their purchasing decisions, especially during a
slowing economy.
Assess your sales, profit, and competitive objectives and whether your pricing
strategies complement these objectives. Sales growth is often pursued by reducing prices,
but without careful management growth in units sold can diminish profit. And, many
businesses consciously set their prices to meet or prevent competition, only to begin a
price war that can hurt profits for everyone in the market. You can see that setting
pricing without consideration of other objectives can quickly raise quite a stink.
Instead, think of price as resting on a tripod of costs, demand, and competition.
Costs represent the floor, the minimum that you can charge. Determine your total fixed
costs (the costs that do not change), which include things like plant and equipment
depreciation, property taxes, and employee health insurance premiums. Fixed costs per
unit decrease as the quantity produced increases.
Next, determine total variable costs (costs that fluctuate depending on the quantity
of output produced) such as raw materials, fuel, wages, packaging, sales commissions,
and freight. Then, add the fixed costs to the variable costs to get total costs, which will
determine the minimum pricing.
While costs set the pricing floor, demand establishes its ceiling. It is difficult to
estimate demand, and consumers are more sensitive to price changes for some products
than others. This sensitivity to price, called price elasticity of demand, is measured by
changes in quantity purchased relative to changes in price.
Don’t forget competition
Where you settle between the floor and ceiling is set by competitive factors, the third leg
of the pricing strategy. Your position in the market determines where you can set pricing
relative to the competition. For example, if you are the market leader with established
competitive advantages, you can demand higher prices than the competition. On the
other hand, if you don’t have much of a competitive advantage, perhaps you could be
the market’s low-cost producer (but make sure you can make enough margin to continue
to not only stay in business, but also gain a risk reward).
Promotion is the fun marketing stuff those liberal arts-types do: advertising, direct
marketing, personal selling, public relations, and Internet marketing.
Consider your positioning strategies in the marketplace and how you are
branding your products. Do you measure each activity to see if it’s accomplishing what
you want it to? If it’s not, are there other methods of promotion you could use that are
less costly but more effective?
Physical distribution, or place, is where and how your product is distributed
and sold. For example, you can sell products yourself directly or through a distributor.
Or you can run a retail store or sell only to retailers. If you provide a service, you can
deliver it in person, through the Internet, or by telephone.
For many businesses, intermediaries such as retailers and wholesalers make
the movement of their products more efficient and effective. Intermediaries become
experts in distribution, gain economies of scale, and can provide informal marketing
research, price setting, promotion, transportation, storage, financing, risk bearing, and
management services. If you utilize intermediaries, consider how big their market
coverage is, the level of control you need over your product, and the costs of distribution
(usually lower with longer distribution channels).
Portfolio is segmenting your products according to profit contribution, market
attractiveness, and maturity in the market to make informed product management
decisions. In other words, if you lump all products together in your financial statements,
when it comes time to make product management decisions, it’s as clear as mud. But if
you track the profitability of each product, it quickly becomes clear which ones are dogs
that need to be dumped and which ones are stars in which to invest.
We’ve only covered the tip of the marketing iceberg. In any event, the most
important thing is to know where you’re going and how you are going to get there.
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