Just found another article with an interesting slant on what to do when the going gets tough, courtesy of an American marketing guru – Jim Novo.
His take on how to act in a downturn is rather unique, suggesting that customers “use this downturn to prepare for the next one.” Investigate, learn and understand what happens this time, so you know what to do next time. In terms of action items, he comes up with a few suggestions, which focus on the customer. Much of this thinking is not new and when we are advising our clients as Marketing Consultants we always start by helping them to develop a real understanding of their customers using many of the same principles articulated by Jim Novo, the difference being perhaps that the economic downturn throws the need to do this into an even sharper relief. Anyway, here are some of his ideas:
- Analyse your customer base, understand the source of your customer value. Who are the best customers, where do they come from? Which media, sales persons, product lines, services, geographies, etc. create the “best customers” for your business?
- Analyse these best customers and understand their behaviour. Identify any warning signs that these best customers - who are probably responsible for the lion’s share of your profits - are cracking into the downturn. Look out for a slowdown in orders per month, average order size, number of contracts etc.
- Track a handful of these customer metrics and see how they change as the economy slows. These metrics will be a map for predicting actual trouble the next time - predicting trouble even before everyone is already talking about “a downturn”. This gives you the extraordinary advantage of lead time over your competition in reacting to the downturn in business.
- Complete the same 3 steps above for medium value customers and low value customers, if you have the resources.
- Now, fully understanding what you have to work with (perhaps for the 1st time?), what is the strategy for a downturn? Generally, it would consist of a reallocation of resources away from lower productivity to higher productivity activity, in order of importance:
a. For best customers, how do we keep them?
b. For mid value customers, how do we grow them?
c. For low value customers, how do we reduce costs to acquire or service them?
For each group, have a specific (and probably different) strategy and set of tactics. For example, we know that marketing spend generally softens in a downturn. Companies cut back on marketing, they cancel or don’t buy advertising, they fire salespeople. This is the wrong move. Buying more marketing into a downturn to “grab share” can also be the wrong move, though has some “accidental” positive effects.
The company should invest in more marketing, but not across the board. They should buy the right marketing, the marketing that generates the best quality customers.
They should reallocate marketing resources away from generating “c” customers towards generating “a” customers. If you know trade shows generate leads which turn into “a ” customers and online ads generate leads that turn into “c” customers, you take the money you spend online and book more trade shows. You let go of salespeople that generate “c” customers and use that salary to bonus salespeople generating “a” customers.
Of course, this analysis and planning is an exercise that should be done all the time, not just into a downturn. A business should always be trying to understand where customer value comes from and how it is created. But unfortunately, this issue most often comes up going into a downturn.