If the U.S. economy is about to take a dirt nap for a quarter or four, time to cut marketing budget, right? Not necessarily, according to a 2005 report out of Penn State’s Smeal College of Business, “Turning adversity into advantage: Does proactive marketing during a recession pay off?” I talked for a few minutes with Dr. Gary Lilien, one of the authors of the study and all-around marketing hoss.
The report surveyed 154 senior marketing execs, looking to see why certain firms shoot the moon during a recession, seeing the downturn as an opportunity and upping their marketing spending. The paper cites firms that have done this quite successfully in the past, and they aren’t maverick contrarians either – it’s Proctor & Gamble pushing Ivory soap during the Great Depression, Intel launching “Intel Inside” during the 1990-1991 recession, or Wal-Mart smothering competitors with Every Day Low Prices during the 2000-2001 post-bubble slowdown.
“We used in the paper a sort of sports analogy,” says Dr. Lilien. “If you think about a distance runner — if the distance runner is really strong, when the runner hits a hill, the runner is gonna speed up. What happens? The runner has the capacity, but he also has the strategy and the nerve to do it.”
So is your company ready to try to take a run up the hill looming over the coming year? “If firms blatantly go out and increase their spending on marketing,” warns Dr. Lilien, “a lot of them are going to fail. You need three characteristics.”
- Your firm needs to already value marketing. “You need a marketing emphasis,” says Dr. Lilien. “You can’t all of the sudden start focusing on marketing, bad idea. But if you know how to do it, if you had a marketing emphasis before, that’s one characteristic, but you need all three.”
- You need a culture that’s nervy enough to increase marketing. “You need the will to do it, which we is characterized in our research by an entrepreneurial culture, a willingness to say, ‘Things are getting bad, should we push harder?’ Firms with entrepreneurial culture are used to doing that.”
- You need the have the capital. “The technical term is slack resources, in other words, having the budget to do it. Even if you have the first two, a marketing emphasis and an entrepreneurial culture, it’s risky. Make sure you’ve got the resources to do it.”
It’s rare to find a firm that has historically valued marketing, features a corporate culture that rewards risk taking, and has more than little spare change laying around. “The firms that had all three characteristics did very well in a recession. But firms that are missing any one of them, they’re in trouble. Frankly, most firms in our analysis cut their [marketing] budget in a recession.”
Looking forward, what companies are primed to advantage when and if a recession hits? “Companies that run their business on customer intelligence. Amazon is the first that comes to mind. They understand their customers, they experiment with everything, and they’ve got resources. Companies like Amazon – I don’t think they’re going to cut back at all. This is a good opportunity for them to knock off some flies and probably pick up some relatively inexpensive acquisitions along the way. Companies that have been looking at marketing as an investment, and not an expense, and have been running their business through customer knowledge are the ones that are going to come out of this [recession] really, really well.”
