Surviving another slump

Recessions don't only bring grief and bankruptcy. Bold and brilliant marketers have long known that slumps offer unlimited opportunities for growth even as the corporate world is being steadily decimated. Alicia Kan reports. Kevin McBarron just did what would be considered suicidal in these tough times: he opened a new bar. Recession or no recession, McBarron is betting Hong Kong people will find it hard to resist Caledonia, a Scottish bar and restaurant whose claim to fame is a wall of whisky reportedly containing more single malts than any bar in Asia. The managing director of a restaurant group that includes Devil's Advocate and The Chapel, McBarron sees opportunities in the downturn while the rest worry about bankruptcy and grief. "Recessions are continuously happening and this one is no different to any other. Poorly-run businesses will always suffer during these times - recessions are a form of natural selection." "In recessionary times, leisure is one area where people are reluctant to cut. If they normally go out to eat, they will continue to go out to eat," he says. "They might not go to the expensive restaurants they used to go to, but they still dine out." In the case of food and beverage, he says there are several market segments, each with its own criteria. And price is just one determinant. "Although price will never be the only factor in deciding the survival of a restaurant or bar in times of recession," he says, "it is more important to some segments than to others as in the case of very expensive restaurants where it becomes a more important factor." Knee-jerk reactions are not for marketers like McBarron who've survived the late 90s crisis, and have seen first-hand how their businesses performed in response to the coping mechanisms they employed. When it comes to cost-cutting, McBarron rules out across-the-board price cuts. Instead, he favours selective pricing with discounts offered in the form of weekly specials and special deals. "Promotions that add value to the customer at little cost can be effective but need to be well thought out," he says. When it comes to F&B advertising, McBarron's opinions are blunt: "If you slash your advertising then you slash your throat. You have to make people aware that you are still around - what has to happen is that it becomes more focused. In order to do this you really have to know who your target audience is, which means knowing your customers." Cathay Pacific is in an entirely different industry, but it too spent the last downturn focusing on finding out everything it could about its customers. "A lot of our revenue comes from a relatively small number of frequent travellers with whom we have a relationship," says Ron Mathison, general manager of Cathay's loyalty programmes. "There is more focus on retention of existing customers and maintaining customer loyalty." Mathison says there is a natural tendency for management horizons "to shorten in periods of acute downturn" and to focus on cost reduction in the context of a shrinking market. "CRM (customer relationship management) tends to get more management attention when times are hard," he notes. "CRM by definition is more targetted than traditional marketing communications like advertising and it is easier to demonstrate the return on investment." The airline is not exactly hunkering down and waiting for the storm to pass. "We are in the process of rolling out our new business class and our new inflight entertainment (video on demand and inflight email/internet)," he reports. "We are opening a new lounge at Hong Kong International Airport and introducing self-service kiosks." People may be thinking twice about splurging on holidays but ironically, Cathay's rewards programme, Asia Miles, continues to grow. It is even adding more partners. Mathison observes that the travel reward programme operates in a counter cyclical mode to the airline industry in that the asset that has been monetised is the remaining inventory. "The more empty seats the airline has, the more miles we can sell and the easier it is to get a redemption," he says. Richard Pinder, regional managing director of Leo Burnett, isn't surprised by all this. Gun-shy advertisers drastically reduce or even cancel budgets outright during a recession, but he argues that this is counter-productive. "McDonald's in 1998 did the McSnoopy promotion, which was wildly successful," he says. Pinder's description is an understatement - in Hong Kong and Singapore, customers queued around the block for the dolls and police were called in to break up occasional scuffles among Snoopy-mad collectors. "McDonald's hit on the right mechanic - collectibles - and it encouraged people to come to the stores," he says. "I agree that it's naive to spend more during lean times, but you don't just stop doing things - you focus on the things that matter." The big difference between this slump and the Asian crisis, says Pinder, is that "last time it wasn't a global recession." Many more clients are cutting back heavily this time, while reductions in 1997 to 1999 weren't as swingeing, he says. "But even when times are bad, basic human needs don't change," he says. "SKII (a skincare brand) did extraordinarily well in the last recession because customers knew that buying a luxury cream is a lot cheaper than decking yourself out in $30,000 worth of clothing. It's understanding what your consumers are going through. If you can get a believer in your brand during the downtimes, you'll retain them. There is a huge difference between a buyer and a believer." Chris Jaques of the UK-based Bigthinking group is adamant that "the fat years of the 1990s are over" and that marketers now have to concentrate on building market share, not growing markets. A concern of Jaques is that recession-wary customers could continue economising well after the economy rebounds simply because the frequency of slumps have shaken consumer confidence. "In the build-up to a recession, consumers start to economise by not replacing clothing and footwear. When the recession strikes, consumers stop spending on high-ticket items like consumer durables and household goods. "Recreation and entertainment expenses are immediately curtailed. Food costs and other essentials, however, are maintained until financial pressures are severe. Once recession recedes, consumers return to spending cautiously: expenditure gradually increases on food, clothing, footwear, tobacco and alcohol." The smart marketer, says Jaques, will recognise this behaviour and exploit the changes in consumer attitudes, behaviour and sentiment. Despite going back to basics and lengthening purchase cycles, he says, some luxuries will become necessities: "technology and telecommunications, cars and credit cards are essentials for today's middle class, even in recession. They will continue to pay for products/brands that make them feel good during this period: alcohol, tobacco, gambling, small indulgences". In the case of McDonald's, the small indulgence was getting a free plastic Snoopy along with a Value Meal. In his report 'Ten tips for surviving the slowdown', Jacques advises marketers to help consumers economise and to transform their brands into a necessity for customers. That may be a tall order for the Guccis of this world, but Jaques says "if you're not a necessity, justify the indulgence". "A luxury watch can never be justified as a family necessity; nor can a bottle of premium whisky; a mobile phone; a can of beer; a new cosmetic; the latest PC; or an impulse ice cream. Yet all these product categories showed strong sales in key markets at key periods of the last recession. Because, despite the slowdown, there was a fundamental consumer need which each of these categories satisfied," Jaques notes. Jean-Cristophe Babin, chief executive of luxury watchmaker Tag Heuer, knows this all too well. In the last recession, Babin was in consumer goods which, he says, are less sensitive to economic cycles because they are daily necessities. "Yet there are similar rules to become stronger out of this kind of crisis, and they do apply to a large extent. Work even closer with customers to make the brand even more desirable at point-of-sales; focus your advertising on fewer products but select those best emblematic of the brand's core values and equity; challenge and reduce investments not creating tangible short-term value, such as second class sponsored events, rather than operational expenses." Babin is one with the rest in saying that advertising or promotions should not be the first item that is slashed during a recession. "We always try to first reduce those expenses not directly creating value for the brand like operating expenses, from travelling (all Tag Heuer executives including Babin travel economy class worldwide for instance), but maintain as much as possible what really does makes the brand greater. "Obviously we can in certain conditions also challenge advertising or promotions, but very selectively and never to zero level." Babin says the company will concentrate on advertising which yields the best value. For instance, for prestigious watches like Tag Heuer Kirium Formula 1 or Monza Calibre 36,the company uses advertorials which combine enhanced packshots with explanations on product history and functions. Promotions are few in Tag Heuer's case since the company would rather spend its reduced resources on incentives to motivate sales associates and customer clerks to focus on Tag Heuer when it comes to convincing the smaller group of consumers in the stores that it really is the best choice. But this is done "not on a discounted price base", Babin is quick to point out, "but on an enhanced value brand proposition". Despite the gloom recessions bring, it's worth remembering that slumps also provide opportunities, which may be less apparent in boom cycles. Those who find the opportunities and exploit them are the true survivors. This is Babin's mantra. "Top class merchandising is a classical example," he says. "As long as consumers fight for your products you may pay less attention to the display lay-out in the point-of-sales. When you've got consumers looking around for deals, your brand's desirability in the display becomes a priority. (You're forced) to find excellent initiatives to create an environment to build stronger desire." Tag Heuer is working on this angle with new merchandising kits for its new Alter Ego campaign. In Jaques's report on slowdown survival skills, he quotes Kevin Roberts, chief executive of Saatchi & Saatchi, saying in July 1998: "I believe the success of visionaries comes from finding the inverse in every position. In challenges, find opportunities. In recession, look for growth." As Asia hunkers down for another slump, Jaques concludes - "a recession that offers unlimited opportunities for the bold and the brilliant." If there were more McBarrons, flying in the face of convention and fear, we could well be looking at a V rather than an L-shaped slump.

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