Taking Advantage of a Downturn

With many companies currently developing their 2009 plans, its important to remember that there are many opportunities to take share, drive revenue and improve profitability in this marketplace.

In fact, history shows that companies that take a prudent, aggressive, stance in R-economies fare much better.

The keys are investing in revenue generation initiatives (sales and marketing); controlling overhead expenses (having the right operational processes); and managing your assets (inventory and cash). To help distributors with ideas in each of these areas, we are in the process of developing a webinar to share some ideas (if you are interested in attending, email us and we’ll advise you of next month’s dates).

Regarding investments in revenue generation activities, especially marketing, consider these research studies:

• 1970 Recession: An American Business Press and Meldrum & Fewsmith study showed that “sales and profits can be maintained and increased in recession years and immediately following by those who are willing to maintain an aggressive marketing posture, while others adopt the philosophy of cutting back on promotional efforts when sales appear to be harder to get.”
• 1974-1975 Recession: ABP/Meldurm & Fewsmith 1979 study covering the 1974/1975 recession found that “Companies which did not cut marketing expenditures experienced higher sales and net income during those two years and the two years following than those companies which cut in either or both recession years.”
• 1981-1982 Recession: McGraw-Hill Research’s Laboratory of Advertising Performance studied the 1981-1982 recession and analyzed the performance of 600 industrial companies. It found that “business-to-business firms that maintained or increased their marketing expenditures during the 1981-1982 recession averaged significantly higher sales growth both during the recession and for the following three years than those which eliminated or decreased marketing.
• 1990-1991 Recession: Management Review asked AMA members about spending during the 1990-1991 recession. “Fortune follows the brave,” it announced, noting that the data showed that most firms that raised their marketing budgets enjoyed gains in market share.
• The effect on profits. The Harvard Business Review discussed the effect of cutting advertising (marketing) on the bottom line. “The rationale that a company can afford a cutback in advertising because everybody else is cutting back [is fallacious]. Rather than wait for business to return to normal, top executives should cash in on the opportunity that the rival companies are creating for them. The company courageous enough to stay in the fight when everyone else is playing safe can bring about a dramatic change in market position.” In addition, the article points out “Advertising should be regarded not as a drain on profits but as a contributor to profits, not as an unavoidable expense but as a means of achieving objectives. Ad budgets should be related to the company’s goals instead of to last year’s sales or to next year’s promises.”

In every market there are opportunities. Distributors who have long-term perspectives and are willing to invest will prosper during this time period and be better positioned in the next couple of years.

The same is true for manufacturers, albeit they should identify which distributors will invest to prosper (and partner with them); identify there revenue generation opportunities (versus cutting their sales expenses, which many are currently doing); and consider investing in their business to grow it rather than seeking profit solely through operations, cost containment and reduced manufacturing costs. If manufacturers don’t add value, and price becomes the deciding factor, manufacturers may end up losing out to companies that compete solely on price (i.e. generic / off-brand manufacturers.)

So the question becomes, are you planning to prosper or trying to survive? Remember, if you want to participate in our webinar, email us.