Business owners often find themselves wanting to cut expenses when revenue slows. Studies show that an investment in marketing will improve your business position more and faster than companies that cut their marketing budgets.
I confess, I'm a real geek for business news. I read case studies for fun. I'm fascinated by the decisions some businesses make and how it effects their growth and profit.
It amazes me when retail stores won't let customers use their restrooms. When you gotta go, you gotta go and if you leave a store to use someone else's toilet there is little chance you're going back to the store you just left. No-restroom – no sale and it happens more than once a day. Add up those missed sales and there could be enough profit in a year to buy the owner a vacation home in Florida.
Other missed opportunities include not strengthening your position during a wobbly economy. The study "Managing Value in a Downturn," by Interbrand, March 2003 goes back to previous recessions and takes a look at how some companies managed their business in a down or recessionary market.
Revlon and Phillip Morris gained market share from their competitors in the 1970s. Taco Bell and Pizza Hut took market share away from powerhouse McDonald's during 1990-1991. During the same time period Nike propelled away from Reebok to dominate the athletic apparel market. What made the difference?
"Companies that increased marketing spending during the last recession achieved an average return on capital of 4.3% as compared to 0.6% for those that maintained marketing spending and -0.8% for those that cut." To put that statement into context, suppose all companies had prior net income of $10,000: Company A took the advice and invested in additional marketing. They earned $430.
Company B didn't invest any additional money and earned $60
Company C cut their marketing budget and lost $80 in revenue.
Moral of the example: Use a slow economy to market your business and strengthen your share of the local market.
Some steps the report suggests we should all take include:
1) Learn more about your customers. Understand what your customers are looking for in terms of innovation and trends and be ready to address those needs.
2) Cut out unnecessary or underperforming products or brands
3) Build on your strengths
4) Don't cut back on product quality or service to save a few dollars
5) Don't discount. It will cost much more to reverse the negative impression of the deep discount once the economy turns around versus what revenue is brought to your business in the short term.
6) Keep communicating with your customers.
The entire report can be found at http://www.brandchannel.com/images/papers/Interbrand_WP_Recession03.pdf
Chesapeake Family magazine serves parents and families in Annapolis, Anne Arundel County, Baltimore, Bowie, Crofton, Calvert and Prince George's counties and the Eastern Shore of Maryland.
Publisher Donna Jefferson has an accounting degree from the University of North Carolina Wilmington and has served as a financial advisor for many fellow publishers and businesses.