The tragic irony of cutting marketing in a recession

June 4, 2009

Do you ever have one of those days when it seems that the things you read and the conversations you have revolve around a particular theme?  I am having one of those days.  The theme is the tragic irony of companies cutting marketing spending during a recession.

 This theme surfaced this morning in a conversation I had about the unfortunate tendency of not for profits eliminating marketing spending during a recession, and then again when I was reading an article in AdAge warning CMOs about the dangers of cutting marketing resources

I call this theme a tragic irony because it really is about a company’s well intentioned actions bringing about a fatal result.  A company might decide to cut investment in marketing in an attempt to save money, but in doing so, it cuts off its ability to drive revenue. 

 What you are really cutting

At its most basic level, marketing is all about communicating with your consumer to understand what he needs and then to help him satisfy those needs.  You can satisfy his needs by either showing/telling him how your product or service helps him or by developing new products or services that better meet his evolving needs.  If a company decides to stop or reduce marketing in a recession (when consumers are reviewing every purchase with more scrutiny than ever before), how can it expect to keep its current consumers and revenue streams, let alone appeal to new ones?  More importantly, if a company decides to stop or reduce marketing, but its competitor continues marketing, it is likely to lose consumers to the competitor who is better engaging them.

 Consider reallocation before cutting

With all of that said, I definitely understand and recommend the idea of directing marketing investment towards the most efficient and effective marketing tools in a recession.  A recession isn’t necessarily the time to get overly ‘experimental’ with marketing tools to see what works.  Investing in the tools that are proven to work with your consumer is a strong strategy when money is tight and the future is uncertain.  The key is that a company continues to invest in marketing, and perhaps just chooses the very best tools.  This is about a reallocation of dollars within a marketing budget, not a reduction of the marketing budget.

To companies out there who are currently considering making cuts to their marketing investments, I urge you to reconsider.  You are taking a treacherous path.  Marketing is your way to keep your relationship going with your consumer.  Cutting off or reducing that relationship will cut off or reduce your revenue, and that seems tragically ironic.

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Q. Why isn’t anyone buying? A. Check the value (Part 2)

May 21, 2009

Last week, I started to address a two-post topic about first checking the value proposition of a product or service when no one is buying.  Generally, people are motivated to buy when they will capture value from a product or service.

VALUE = Consumer Perceived Benefits – Consumer Perceived Costs

I used the case of nohome.org to illustrate some factors that should be considered when trying to increase the consumer perceived benefits of the value proposition.  In this post, I will continue to use nohome.org as my case study to address the second part of value:  the consumer perceived costs.

The case of nohome.org:

Jerome Greene is the CEO of nohome.org, a service that offers ‘humanitarian web hosting’.  For every dollar earned, one dollar will be used to build homes for refugees entering Indiana each year.  nohome.org offers 3 plans, the lowest starting at $19.95 per month.  A week ago, Jerome asked the question:  Why isn’t anyone buying?

Part 2 of the analysis:

To help Jerome and nohome.org minimize the consumer perceived costs, I asked a couple more questions.

Question 1:  How does the price of $19.95 per month compare to the best web hosting alternatives out there?

I will be the first to admit that I don’t have a lot of experience with web hosting services, but in doing a quick search of other offerings, it seems that there are lower priced alternatives available.  These alternatives do not offer the humanitarian benefit that nohome.org provides, but they do set a reference point for consumers for web hosting without humanitarian benefits.  This reference point is important because it impacts the consumer perceived price.  With a little subtraction, consumers can figure out what nohome.org is suggesting the value of the added humanitarian benefit is.  If they don’t agree with this suggested value, then there is a problem.  Either the price is too high, or they don’t fully understand the added benefit.  Lowering price is always an action of last resort, so I suggest Jerome first revisit how he can amplify his benefit.  Alternatively, he might consider suggesting to consumers a different alternative that they use for their reference point.  I used godaddy.com as my reference point — but maybe that was not the right one.  Perhaps Jerome could tell consumers, “Compare nohome.org to XYZ” and suggest an alternative that will be a better reference point and lower the perceived price of nohome.org.

Before I move off this question, I would like to add that the issue of reference points might be a larger factor in the consumer perceived cost today than it was a few years ago.  It is my hypothesis that in the tough economic climate, consumers are making an extra effort to search for alternatives to find the best value, and so they have more reference points.  This may be further impacting the perceived price of nohome.org.  It might also be impacting how much a humanitarian benefit is worth to consumers.  So a price of $19.95 for services from nohome.org might have been acceptable for consumers three years ago, but it might not be at this point in time.

Question 2:  Is there a way to further minimize the risk cost of buying from nohome.org?

Perceived price is only one component to the total perceived cost to consumers.  The others are risk cost, transaction cost (cost to consumers of transacting), and production cost (the cost to consumers of producing the benefits).  I assume that the production and transaction costs for nohome.org are low (but Jerome should verify this).  However, I do think that the risk cost could be high.  If nohome.org is a relatively new brand and service, consumers might be questioning its reliability and performance.  This means that nohome.org might appear to be a riskier choice, and therefore have higher consumer perceived costs.  Jerome should try to find ways to increase nohome.org’s credibility to reduce risk.  He might consider doing this by posting a list of his current clients on his website.  He could include their testimonials.  He might also find a spokesperson or endorser.  Anything he can do to increase consumer confidence in his service and reduce risk will increase his overall value proposition.

In conclusion…

The question of “Why isn’t anyone buying” is a critical question that many of us have faced.  I don’t want to present this two-part blog as the complete answer as to how to fix this problem.  My goal with this series of posts is only to help identify some of the factors that might be contributing to the problem.  Think of these questions as seeds to help the value proposition grow as big as it can be.  If anyone has any other suggestions of factors to consider when it comes to the value proposition, please submit a comment!  I would love to hear it.