David Court at The McKinsey Quarterly published a great article on what its going to take to market your way through this recession. The strategies you used in past downturns aren’t going to cut it this time around; too much has changed in the last 10 years. To manage through the downturn you’re going to reassess and reprioritize your sales and marketing efforts.
In the interest of economy of space and time, here are the key takeaways. If you have the time to read the full article I highly suggest you do so. Note: You’ll need to register (free) to read the article on McKinseyQuarterly.com.
- In this economy, you need to do more with less.
- If you follow the survival techniques of past slowdowns you risk betting on the wrong tactics.
- Don’t double-down on historically profitable customers/geographies/market segments.
- Focus on the emerging pockets of customer profitability.
- Focus on the Internet and social media, and less on traditional media.
- Do reexamine your value propositions, fine-tune products and pricing, and manage the cost of media agencies and vendors.
- Your goal for navigating this downturn is to identify new and profitable customers and markets and prioritize the most effective means for reaching them.
- You may miss the mark if you target the historically profitable geographic regions and customer groups.
- Reexamine your growth forecasts, even if they were conducted in 2008.
- Target micro-markets: even within sectors or geographies that seem down across the board, the rates at which customers grow or decline vary substantially in those sector’s subsets
- Example: even though the US manufacturing sectors has weakened considerably over the past several years, manufacturing revenues of the highest performing US counties rose by $97 billion, roughly two-thirds of China’s manufacturing growth over the same period.
- Case study: One beverage company recently conducted surveys that identified staggering differences in the potential profitability of customers within individual markets and micromarkets. The price sensitivity of the respondents varied by as much as a factor of 13 across regional markets, a factor of 5 across cities within them, and a factor of 3 across zip codes within individual cities (Exhibit 1). Armed with this level of detail, a company can maximize its profitability by focusing on micromarkets less sensitive to prices while also offering discounts or preferential pricing elsewhere to drive sales volumes.
- Reprioritize consumer segments: Certain segments (e.g. affluent young financial-services professionals and baby boomers) aren’t the sought-after and profitable customers they once were.
- You’ll need to target demographic segments with better growth prospects.
- Reprioritize B2B Opportunities: A fresh look at segments isn’t enough; reexamine your opportunities and risks on a customer-by-customer basis.
- Example: Many suppliers have long-standing agreements to offer volume-based rebates to their customers who are distributors. But the weak economy may cut the volumes of some distributors drastically, so that they no longer qualify.
- Case sutudy: For a leading manufacturer of industrial controls, such shifts have drastically affected margins, transforming what a year ago was one of its most profitable accounts into one of the least profitable today. In the past, this account rated preferential attention and service, flexible terms, and high levels of tech support. Now, it calls for aggressive corrective action—reining in costs to serve, renegotiating rebates, encouraging more efficient order quantities—of a kind that would have been unthinkable not long ago.
- Reassess your marketing and sales resources: In addition to investing resources in geographies and customers with the greatest profit potential, reassess the marketing and sales strategies most likely to deliver such profit.
- In the past that meant investing in proven advertising methods while cutting back on new ones with shorter track records.
- Things have changed. Online and social media advertising methods may be your key to success.
- Reprioritize advertising vehicles:
- New communications vehicles such as the Internet, social networking, and mobile devices are gaining scale and delivering effective results.
- Classic media such as television have become, at a minimum, much more costly.
- Try to meet your objectives cost-effectively by using a mix of traditional and new vehicles, with the latter typically accounting for 10 to 15 percent of spending.
- Maximize the accuracy of your quality assessments by combining a variety of information sources, such as quantitative customer surveys, post-event focus groups, and workshops where marketing managers and outside experts from advertising and media agencies piece together a collective point of view.
- Combine your quality assessment with analysis with data on the reach and cost of an advertising vehicle. This combination of reach, cost, and quality helps marketers compare the impact of different vehicles on an “apples to apples” basis—the key to effective prioritization.
- Reprioritize sales functions:
- In tough times companies try to improve their profits by reducing sales overheads while concentrating resources on the frontline sales force. But today’s sales teams use newer kinds of support that are too important to cut indiscriminately. An executive who slashes these support functions as part of a broad cost-cutting campaign risks severely damaging the sales force’s effectiveness.
- Rationalize sales programs without making across-the-board overhead cuts:
- Assess the current sales-coverage model to determine which selling and sales-support formulas are most effective for which types of customers and situations, then rebalance as needed.
Companies that follow the playbook from past recessions will probably chase markets and segments made less attractive by the present downturn and focus too many resources on traditional marketing vehicles and frontline salespeople. To avoid these costly mistakes, marketing and sales executives must dynamically reassess their geographic, customer, advertising, and sales force priorities, with constant attention to the ever-shifting economics of this downturn.
David Court is a director in McKinsey’s Dallas office.
The author gratefully acknowledges the contributions of Thomas Baumgartner, Jonathan Gordon, Maryanne Hancock, Dieter Kiewell, Mike Marn, and Jesko Perrey.
Photo credit: i am not perfext