Glenn Parker

During lean times, companies often think they have cut unnecessary costs from their marketing budgets only to discover they have actually created false savings. Less emphasis on marketing equals fewer sales. Experience from previous slowdowns shows that too much focus on customer acquisition at the expense of customer retention equals increased churn.

The consumer spending backdrop

Asia is not immune to the financial crisis. Singapore, often considered Asia’s bell-weather economy, is firmly in the grip of a major economic downturn. Singapore’s gross domestic product (GDP) declined, on a seasonally-adjusted annualised quarter-on-quarter basis, by 16.4 per cent in the fourth quarter of 2008, following the 2.1 per cent contraction in the previous quarter (see 1 below). It is also the fourth consecutive quarterly declined.

Singapore’s labour market, in line with other countries, was slow across many different industries over the past year. The unemployment rate among Singapore’s resident labour force increased for the fourth consecutive quarter to 3.7% in December 2008 from 3.3% in September 2008 and 2.4% in December 2007 (see 2 below).

A number of negative influences still weigh on consumers’ minds; fragile confidence, subdued incomes and weak housing markets provide further downsides.

Singapore consumer prices fell by 0.5 per cent in February 2009 over the previous month. Retail turnover was also low, with retail sales and catering trade declined by 8.3 per cent and 2.2 percent respectively in January over December 2008 (see 3 below).

The growth outlook for Asian economies has deteriorated, with more economies now expected to register negative or flat growth in 2009. The Singapore government lowered its GDP forecast for 2009 to a range of -2.0 per cent to 1.0 per cent compared to its projection of the -1.0 per cent to 2.0 per cent range made in November 2008 (see 4 below).

So far, there is no hard evidence that Asian economies have started to accelerate. However, the effects of government stimulus packages, lower interest rates, and fading inflation should only begin to get traction in the second half of 2009.

We expect consumer spending to remain in a slow growth phase, or even to contract throughout most of 2009. The recovery, when it arrives, will likely be gradual, rather than swift, as was the case in past recessions.

What this means for marketers

Consumer confidence indicators in Singapore are weak. The October 2008 Nielsen Global Consumer Confidence survey showed that Singapore consumer confidence index fell a further 10 points to 92, bringing confidence to a record-low point from its peak of 114 one year ago.

Marketers are only too aware of the impact that media coverage about a marked slowdown in consumer spending can have. Apprehension about a downturn means that many marketers are finding funds reduced, or diverted, causing an immense challenge.

There are other signs of concern for marketers as some marketing budgets have been cut for the second quarter running; notably Direct Marketing and ‘Other’ which includes PR, event sponsorship and market research. This serves as a stark warning to marketers – many areas of the overall budget are under threat and, from experience it is not unwise to assume that these are normally the first casualty of a slowdown as costs are cut and ‘non-essential’ expenditure is axed.

However, arbitrarily slashing marketing spend will often be an ill-informed decision. The long-term risks of cutting marketing budgets in a slowdown often outweigh the short-term cost gains. If marketing is cut, how is a business going to sell? Where are sales and revenues going to come from? What are the longer-term repercussions of this as a company’s customer base shrinks and its brand awareness drops? Fundamentally, what state will a company who chose to batten down the hatches and sit out the storm find itself in when the market recovers? We argue that it’s better to strap on the cold-weather gear and go into battle.

Opportunities to drive growth

Although marketing seems counterintuitive, there is evidence that a slowdown is not necessarily bad news. Inertia in consumer spending does not have to mean failure for companies; it also can help them succeed. Opportunities exist where competitors have cut back on marketing, presenting another company with the chance for greater impact in a far less cluttered market. Companies that outmarket, outsell and outpromote the competition emerge from a tough economy with better long-term profitability.

As in the early 1990s, direct marketing is ideally placed to take advantage of a slowdown. The difference now is that it is clearly digital’s turn to lead – particularly when it is integrated with offline channels. For offline and online direct channels, the ability to use data and customer insight to drive measurable actions will enable companies to add significant value to the marketing mix.

Strategic marketing activities are well-positioned to deliver value to the business.

The common threads are customer insight, forensic marketing capability and precise execution. The following suggestions are crucial for marketers to produce customer-centric, cost-effective marketing campaigns.

Understand your customers

Marketers must look at their customers in a new light as they begin to tighten their belts. That means understanding what customers

expect and what is important to them in a slowdown. Don’t assume your previous customer insights hold true, as economic challenges can change consumer opinions dramatically. Focus research investments more on customer behaviour and tracking tools and less on branding. Create and disseminate engaging and relevant messages based on a solid understanding of each customer’s preferences, needs and behaviours.

Analyse and segment

Marketers increasingly will rely on customer intelligence and analytics as they realise that insight and targeting are leading to the success of their marketing programmes.

Customer profiling, clustering and value models are essential to identifying which customers spend the most, learning how to lift sales and detecting high-value customers showing signs of diminishing value. New behaviours are sure to emerge during a slowdown. Proactively assess and respond to them.

Marketers must focus on the improvement of customer profiling and segmentation – not just analytics and insights, but also the ability to deploy effective (i.e., targeted and relevant) one-to-one communications. This includes more sophisticated campaign planning, data management, creative execution and campaign management capabilities.

Exploit digital channels

Marketers who focus on online media are in a great position to deliver strong return on investment in a slowdown. The emphasis must be on measurement, targeting and one-to-one customer management. Those companies that integrate digital channels (e-mail, Web analytics and e-commerce) with their offline marketing channels (call center, direct mail and billing inserts) will have the best return. Search engine optimisation, performance-based search and website updates will increasingly become core marketing activities that attract and retain budgets.

Collect data sensibly

Focus on collecting actionable information. Ensuring that your data is relevant, high quality and regularly updated. Customer data sources continue to grow, providing more opportunities to create better insights and delver targeted, meaningful communications.

Collected and managed data needs to be actionable. This means avoiding the temptation to swamp databases with ‘interesting’ but irrelevant data. Integrating Web analytics into the e-mail marketing database can drive key insights around shopping cart abandons, pages visited, sites linked from, product last bought and time since last visit. Use customer touch-points to collect data and focus on maintaining key contact details and preferences.

Integrate your channels

Customers expect to be contacted through different media, and companies must understand these media links and weave online and offline messages that build compelling, engaging and personal experiences.

Integration of channels at different stages of the customer buying cycle will drive a more consistent and persistent message. Marketers should use their marketing platforms to create new fields in their databases to add relevance. This might mean using e-mail as an alert for a catalogue, a new product launch or an upcoming event. Follow-up e-mails can serve as reminders for non-responders or satisfaction surveys after an event.

Apply the science

Continually test and evaluate marketing effectiveness through closed-look marketing programmes that deliver real insights into the effectiveness of various activities. Using a single relational database to collect, manage, segment, execute, automate and integrate all marketing campaigns enables the evaluation of programmes across channels. This is particularly useful when the marketing budget comes under increased pressure. The evaluation and justification for retaining marketing programmes are simply more visible.

Marketers need to face the challenges of an economic slowdown head-on to ensure that their brand emerges strong and agile.

A slowdown can bring as many opportunities as a boom. Competitors that fail to maintain an aggressive customer-focused marketing strategy will be forced to leave the marketplace, and their business is available for the taking. By carefully managing the effect of a slowdown has on business performance, as opposed to just reacting to it, marketers give themselves the opportunity to survive and thrive during and after a slowdown by establishing their person as essential value generators for their companies.

1 Singapore’s Ministry of Trade and Industry

2 Singapore’s Ministry of Manpower

3 Singapore’s Ministry of Trade and Industry

4 Singapore’s Ministry of Trade and Industry