Frugality as fashion: Another post-money meltdown reality.

Recently we hosted an all-agency webcast, attended by over 50 of our employees, with some of the best minds at the media company Barron’s.

This conversation came about when our innovation group was looking for ways to get VIA to think smarter about how to best help our clients in the current climate, and one of our strategists, Dan O’Donnell, pitched the idea over a beer to an old friend at Barron’s.

We are always looking for creative ways to stimulate new ideas, and with all the financial turmoil we’re in, there are no better people to do this with than the folks at Barron’s.

And it made sense in this economic turmoil to meet via WebEx, saving our friends the airfare and travel time to Portland (unlike the auto execs who flew private jets into Washington to plead for money). Barron’s shared insights on the consumer mindset and issues facing our clients in particular business sectors.

I must admit I believe that much of the current doom and gloom is a self-fulfilling prophecy fueled by media and news organizations, whose business is always bolstered by chaos and uncertainty.

That’s not to say the issues we’re dealing with aren’t real, but it’s like we’ve sprinkled MSG all over them to exaggerate their importance. I believe many healthy companies with decent prospects are being prudent, perhaps to the extreme, in making cuts to be ready for any downturn. A smart move individually maybe, but collectively it’s worsening our situation.

So what’s a smart marketer to do?

The reality is that the consumer’s mindset is overwhelmed by anxiety and the unknown. People are angry because trusted institutions–from financial giants to the government–have let them down.

They’ve lost trust in those who promised to be trustworthy. People are confused, even dazed, by the relentless, unfathomable news coming from people who just four months ago assured them that everything was fine. Beyond this dazed state, they’re experiencing feelings of letdown and sadness. But this is America, and our stock and trade can be found on the brighter side.

We believe in hope (as illustrated by the most recent elections), and we are resilient and resourceful to the extreme. So as the dust settles, some, I believe, will see new ideas, new opportunities that will fuel our enthusiasm.

And once again we will regain momentum. But timing is everything. As we communicate with our customers, we must keep in mind where we are, and I think for a while we will continue to find ourselves communicating with people who are skeptical and tired of false promises and hype.

In this climate my counsel would be to favor activities and communications that speak directly and honestly to the “what’s in it for me” mentality. Be transparent about the good and bad things happening (the twitter feed from the CEO at Zappos is a good example), and don’t be afraid to be clear about value-for-money offers.

Frugality may become the next megatrend, and with it as always, there will be opportunities for those who listen carefully and for those who are bold in the ways they embrace change.

To cut or spend in a recession: Brand-defining moment for marketers

Last week's front page headline in The Wall Street Journal—"Battered Consumers Turn Glummer"—was just the latest in a massive pileup of "year low" declarations telling us consumers are feeling worse than they’ve felt in a long time. “Consumer confidence levels are at a 16-year low” – CBS MarketWatch “Steepest annual decline in home prices since 1988” – New York Times “Job losses worst in five years” – CNN Money “Small Business Optimism Index Hits 28-year Low” – Bloomberg “S&P 500 index fell to an almost 5-year low” – Forbes While The Journal’s above-the-fold A1 placement added some gravitas to the news, it really wasn’t news. As consumers, we know we’re glum. We have friends with the glums. Everyone’s glumming about this recent “lifestyle downscaling opportunity” brought on the by “the ugly, stupid cousin of robust growth” (using Letterman’s Top 10 Government Euphemisms for a Recession’). What is news—and much more revealing in recent headlines—is how marketers are responding to this heightened level of glumness. Unlike consumers, whose belt-tightening, brand-swapping and indulgence-spurning behavioral changes are being deployed with swiftness and precision (researchers say they’ve “never seen such a profound or sudden shift in shopping behavior”—Business Week), marketers are scrambling and often reaching for very different playbooks. Consider two headlines from last week:   "Consumer Loyalty Lifts General Mills to Strong Quarter" 6/18/2008   "The results signaled that ad spending is helping keep General Mills from losing shoppers to lower-cost brands. Spending increased 13% in the fiscal third quarter from a year earlier." "Pier 1 Shares Plunge After Retailer Misses Forecast" 6/19/2008   "... missed its first-quarter earnings expectations as customer traffic fell off. President and CEO Alex W. Smith said marketing spending was 40 percent less than in the first quarter of last year ..."   What's a marketer to do during a downturn? Cut spending? Maintain spending? Increase spending? General Mills and Pier 1 are just the latest examples of companies who have responded differently to these brand-defining questions. Yet their results are consistent with what other cutters and spenders have experienced during prior slowdowns. Many studies. Same conclusion. If there’s one thing marketers can be thankful for these days, it's having at least 80 years of well-documented research on this critical question of marketing during a recession. Cycle after cycle since 1923, many big brains have examined the periodic evidence and reached the same conclusion: In both b-to-b and b-to-c categories, companies that invest in marketing during a down economy come out ahead. Whether it's sales, profits, market share, return on capital or market value, the spenders end up better off than the cutters. Author Findings 2008 Professor John A. Quelch, Harvard Business School "It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve return on investment and market share at lower cost than during good economic times." 2002 McKinsey & Company "… one of the most significant differences between winners and losers was with respect to their spending on marketing and advertising during the recession period. Far from battening down the hatches when the economy turned down, the best performers [measured by market to book value ratios] actually increased spending in these areas, not just relative to their competitors but also compared to their own spending in better times." 1998 Profit Impact of Marketing Strategy (PIMS) "... companies that increased marketing spend during the last recession achieved an average return on capital employed of 4.3%, compared to 0.6% for those that maintained marketing spend and -0.8% for those that cut." "This study proves conclusively that increasing communication during recession will yield long-term dividend in terms of profitability and market shares—the two key indicators of brand building." 1990 Center for Research & Development "... aggressive recessionary advertisers nabbed fully 4.5 times the market share gain of their more timid competitors." 1987 McGraw-Hill Research Its study of 600 industrial companies "found that business-to-business firms that maintained or increased their advertising expenditures during the recession grew their sales 275% from 1980-1985. Sales of those that cut their ad spending averaged only 19% growthduring the same period." 1982 Strategic Planning Institute "... businesses that are aggressive media spenders can increase their shares of market more than the average business during market downturns." 1979 ABP/Meldrum & Fewsmith "Companies which did not cut advertising expenditures during the 1974-75 recession, experienced higher sales and net income (during those two years and the two years following) than those companies which cut in either or both recession years." 1947 Buchen Advertising "... correlating spending to sales trends before, during or after the recessions of 1949 and 1954 … it found that sales and profits dropped off almost without exception at companies that cut back on advertising, and these lags continued even after the recession ended." 1927 Professor Roland S. Vaile in Harvard Business Review "Vaile tracked some 200 companies through the recession of 1923. In his article in HBR, he concluded that companies with the biggest sales increases during this period were those that advertised the most." Risk rewarded Looking back at such compelling and time-tested proof points makes it all seem pretty simple. It’s not. It’s hard. Academic studies of how others have spent and performed in the past mask the in-the-moment pressures and realities when it’s your business, your career and your call. For management teams trying to navigate their way through the economic turbulence, it’s anything but academic. As the quarterly demands of anxious boards and bankers intensify with every revised forecast, the stakes get higher, risk tolerances go lower and visions become shorter. The interconnected intricacies of managing a business become even more complex, as do the agonizing cutbacks and trade-offs that need to be made across many dimensions. Marketing and research expenditures—often questioned and second-guessed in the best of times—are an organizational sitting duck in the face of quarterly bottom-line pressures. It’s an easy but ill-fated knee-jerk reaction for many companies. At a time of heightened consumer disruption, the cutters spend less, they end up knowing less, and they become less visible and increasingly less relevant to anxious consumers seeking reassurance from familiar brands they trust and value. As Millward Brown’s Chief Global Analyst Nigel Hollis recently wrote on his blog: “Without doubt, the biggest barrier to action during tough economic times (apart from the size of your budget) is the mindset of a company’s senior management. The need to prepare quarterly financial reports for investors will keep them focused on the bottom line. When innovation and marketing budgets are scaled back, little appears to be lost in the short term even though the evidence suggests that many brands will suffer as a result.” Make no mistake, compared with cutting back, figuring out how to adapt versus abandon your marketing commitment is hard. Strategies need to be recalibrated to align with the shift in consumer behavior. Media plans should be refocused to target current customers and high-yield prospects. Your messaging may need to emphasize rational proof points for risk-averse buyers. Promotional plans should be adjusted in light of shifting price-sensitivity curves. And then there’s the internal battle over scarce resources. Yes, it’s hard. But that’s why the payoffs are so high. Savvy marketers take advantage These opportunities to create a competitive advantage out of economic adversity are not available to everyone. Researchers at Penn State’s Smeal College of Business found that proactive marketing during a recession favors well-positioned companies “with a strategic emphasis on marketing [that] have already put in place the programs that help them derive value from their marketing activities (e.g., well-recognized brands, differentiated products, targeted communications, good support and service).” Conversely, “firms without … strategic marketing traits are unlikely to derive economic benefits from a proactive marketing response during a recession. Such companies are better served by not increasing marketing spending until conditions improve.” Judging from recent headlines, well-positioned companies with strong brands are sensing an opportunity and acting accordingly. "Kohl’s Displaces Penney as Investors’ Next Target" – Bloomberg, 5/28/2008 “Even after earnings declined 27 percent in the first quarter—about half as much as JCPenney’s—Kohl’s is boosting its spending on marketing to win a disproportionate share of the money 130 million U.S. households will receive in tax rebate checks between April and July.” "Heinz Sales Rise After 15% Marketing Boost" – BrandWeek, 5/29/2008 "Heinz increased its marketing spend by 15% and watched its sales jump 12% in its latest fiscal year, the company reported today." "How Nortel Networks is getting its groove back" – IT Business, 6/4/2008 "Nortel's strategy now is to maintain its customer focus and increase its marketing investments to maintain customers' confidence levels and its momentum in the marketplace...." "Hershey to meet Mars challenge with marketing" – BusinessWeek, 6/17/2008 "Faced with competing against a combined Mars-Wrigley, Hershey Co. said Tuesday it will pour money into marketing its biggest brands to invigorate stagnant sales in the slow-growing U.S. market." "Red Hat revenue jumps 32 percent in Q1" – c|net, 6/26/2008 "Red Hat continues to impress with strong financial performance, delivering an impressive Q1 2009. ... sales and marketing expenses jumped to $59.3 million, an increase of 28 percent." "No cut in marketing budgets, say Unilever and P&G" – Food Business Review, 6/23/2008 Simon Rothon, senior vice president of global marketing services at Unilever: "Overall we are sustaining levels of total support. It’s marketing wisdom that the advertisers that sustain advertising at the optimum level in a downturn are the ones who emerge with a much more sprightly step when they come out of that recession." Yes, these are hard times. Headline-making and brand-defining times. And for General Mills, Kohl’s, Heinz and other opportunistic students of history, these may prove to be very rewarding times.