Meltdown an Opportunity for Marketing

Even when the economy looks bad your marketing doesn’t have to suffer, says Dominique Hanssens, Bud Knapp Professor of Marketing and the Marketing Area Chair at UCLA’s Anderson School of Management. In fact, Hanssens, who recently served two years as the executive director of the Marketing Science Institute in Cambridge, Mass., and whose courses Andersen include Marketing Strategy & Planning and Research in Marketing Management, thinks a downturn is one of the best times for marketing to shine.

Jeremy Dann sat down with him recently to discuss the pressures marketing executives are under during scary economic conditions. Here’s what he said.

Dann: What’s different about marketing during a recessionary period?

Hanssens: The difference is the challenge on budgets, because many companies feel that marketing should be budgeted as a percentage of revenue, and therefore, if revenue does not look good because of the recession, marketing budgets are often the first to be cut. There’s a lack of understanding of the strategic value of good marketing, so if you work in the marketing function during a recession you get challenged more on your spending levels than other parts of the organization.

Dann: What can a manager do to fight this off internally and get the resources he or she needs?

Hanssens: The answer is to demonstrate the return on the marketing spending so that you don’t become a cost center where your budget is a percent of revenue, but rather a profit center where the allocations are seen as providing positive returns—especially in light of some recent findings that the impact of marketing can be stronger during recessions than during the good years.

Dann: What are some companies that have “upped the ante” during down times?

Hanssens: You can easily point to examples of companies who have done successful innovations—new products and so forth despite the fact that these were launched during a recessionary period. The big growth period for Microsoft in the 1990s, when they went from being big to being a giant, coincided with the early ‘90s recessionary years. They had a lot of new value to offer with their products and were not afraid to get behind them with very aggressive marketing. A current example, if you accept the premise we are currently in a recession, would be Apple, which has been very aggressive with its iPhones and is doing spectacularly well, despite some negative news about the overall economy.

Dann: Have you seen any impact of high food and energy prices and how they are changing consumer behavior?

Hanssens: It’s a good question, but it’s still really early to track the impact. You read about it a lot and I know a lot of companies who are extensively engaged in efforts to analyze the effects of price changes before they implement them. They’ve learned from past mistakes. Even if the cost pressures are there, the forces of competition tend to hold prices at a reasonable level. The companies watch each other; if they are forced to raise prices, they hope at least their relative prices won’t change because consumers often react more to relative price than absolute price changes.

Dann: What final advice would you give to marketers who are finding it tough to manage in the current economic environment?

Hanssens: It’s a wonderful opportunity to think through the mission of the business again and if business really is down, not just to chalk it all up to the recession. But think through the goals of the organization and look at all parts of the business, some of which are hurt more than others and ask yourself, “why?” You can get an indication of the true value being created by that part of the organization. It’s a good moment to sit down and reflect. In good times, that doesn’t happen because so much money is coming in and companies don’t challenge themselves.

You don’t have to wait for the good economic times to be successful; you can be very proactive.