Marketing
Issue No. 43 - October/November 2008
Marketing basics in a downturn
by Dr David Corkindale and Dr David Corkindale
Consumer confidence is lower than it was a year ago and business confidence is the lowest in 14 years, with that in SA being lower than any state in Australia. This means spending money on marketing may come under greater scrutiny as the usual logic is, ‘If our sales revenue reduces we cannot afford the same marketing budget as previously.’ How should marketing people respond? What should be the marketing strategy when flat or reduced revenues threaten?
Quality and innovation sells
All businesses are faced with increasing costs of supplies. A response is to reduce costs involved in producing your product or service. Be very careful about how this is done.
A similar set of economic circumstances existed in the early 1970s. In the UK, confectionery brand Rowntree marketed the Kit Kat chocolate bar. Rowntree believed it was important to keep the price of the chocolate bar constant to preserve sales volumes. As commodity costs escalated, much as food commodities are doing today, Rowntree reduced the amount of chocolate in Kit Kat to the extent that you could see the wafer through the coating.
Sales plummeted. Meanwhile, competitor Mars Inc took the opposite approach, maintaining the quality of the Mars bar and putting up its price to cover the cost; their sales increased.
The lesson is: know why people buy your product or service. Make sure you don’t harm that value in any costcutting you attempt. A useful strategy, if possible, is to offer three versions at three price levels. Most people will pick the middle one and you can set it so as to maintain your margins. If your competitors raise their prices it is safe to raise yours. Clients look at relative price, not just absolutes, but if you have been over-pricing in relation to your quality you will suffer in a downturn as people pay more attention to value. Be prepared to be innovative with pricing to help people buy. If they cannot pay for something all in one go, perhaps allow t...
