Why you shouldn’t cut marketing when the going gets tough

Billions of dollars of shareholder value are destroyed each year by companies that respond to an economic downturn by cutting marketing budgets.That’s the finding of a top marketing professor from the Netherlands who’ll be speaking at a Waikato Management School seminar in Hamilton later this month.
Professor Marnik G. Dekimpe has looked at how the FCMG industry across a range of countries has responded to the global recession, and says the sector has lessons for all businesses.
“We studied the stock price performance of 26 global companies over a 25-year period and found that annual growth in shareholder value for companies that do not tie their advertising investments to the business cycle is 1.3% higher compared with companies that do let their advertising investments depend on the business cycle.”
Professor Dekimpe says firms need to be proactive to achieve increased brand success and shareholder value in difficult times.
“Having a solid marketing strategy before the recession hits is crucial to a company’s survival,” he says. “And it’s important to see marketing tools as strategic investments, rather than short-run costs that can easily be cut when the going gets tough.
“Our research shows that the common practice of cutting back on marketing support during a recession actually exacerbates the negative impact of the economic downturn, both during and after the recession itself.”
Professor Dekimpe cites the example of market research. “Your brand is your most valuable asset,” he says. “In bad economic times it’s more difficult to convince consumers to buy your higher-priced brand, and this is where market research can help, by optimally matching your brand with consumer needs. Yet for many companies market research is one of the first casualties of a recession."
Better, he says, to use the recession as an opportunity to pull ahead of short-sighted competitors by focussing on activities that keep your customers satisfied (and loyal).
Professor Dekimpe will be joined by another leading marketing researcher, Professor Wagner A. Kamakura of Duke University. His presentation will focus on the wider environment, looking at how household budget expenditure patterns change during economic contractions and expansions.
“Marketing strategies to make it through an economic recession” is part of the Excellence in Practice seminar series offered by Corporate and Executive Education at Waikato Management School. The free public seminar will be held at 1.30-3.00pm on Friday 30 March at the Gallagher Academy of Performing Arts, followed by drinks and nibbles until 4.00pm. Numbers are limited, to secure a place, contact Gina on [email protected].