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.
