Over
the years I’ve read many articles – usually backed by some form
of statistical analysis – that concluded that those companies who
maintain or grow marketing spend in the right way during a recession
come out of it in a stronger market position, ahead of competitors
who took the more traditional view that marketing as a soft cost
could be cut without materially damaging the business.
For
example, the PIMS (“Profit Impact of Market Strategy”)
statistical body of work studied nearly 1000 businesses across a wide
range of sectors and found that as the economic recovery phase began,
companies that increased marketing spend during a recession gained
market share three times faster than those who had cut budgets.
In
its analysis, PIMS distinguished between “good costs” and “bad
costs” during a recession. “Good costs” were found to be
those associated with marketing, R&D / product innovation and
product quality (for asset finance the term product includes some
elements of the service offering).
Unfortunately
for lessors, “bad costs” included fixed assets acquired to
improve competitiveness and productivity (since the benefits are
usually competed away to gain volume and fill capacity).
Below
are a few thoughts on how the marketing budget should be spent, and
why it’s so important.
Spend
smarter – focus on the right customers
Focus
on the right customers. You really can’t afford to be using scarce
marketing or sales resources on customers that have no value to the
organisation. With the appropriate analysis, within a couple of
weeks you could have real understanding and focus on your profitable
customers.
This
will drive difficult decisions but should lead to a switch in sales,
marketing and organisational effort. Customers offering marginal
return may be retained for scale economy reasons or as they offer
good future prospects, but a significant proportion of your customer
base should not necessarily be the focus of future sales or marketing
effort.
This
is true whether your customer base is end users, vendors, brokers or
dealers.
Customer
behaviours are changing (and fast!) – you can’t stay the same
It’s
time to really know your customers. As their business come under
pressure, so their buying behaviour will change. Asset buying
processes are likely to lengthen. Replacement cycles will extend,
not necessarily bad news for the incumbent lessor. Price pressures
on the asset and any related financing are likely to grow.
Manufacturers will be desperate to achieve equipment volumes, pushing
for high vendor finance acceptance rates. Focus is likely to shift
from “acquire for growth” to a survival mentality, with emphasis
on risk minimization, maintaining cashflow, reducing ownership costs,
and so on.
This
offers plenty of great messages for the asset finance sector, but
unless you understand this shifting dynamic, how it relates to your
specific customer base and the key elements of product and
communication that customers will value, it’ll be hard to provide a
value proposition that differentiates from desperate, margin-cutting
competitors chasing an ever-reducing volume of new business.
If
anything, now is the time to increase rather than cut research costs,
as your need to learn about customers increases. Attitudes and
behaviours can change fast so make sure ongoing customer feedback
gets to key decision-makers - for example encourage the CEO to attend
a monthly focus group of customers to stay on top of “live”
market demands.
Trust
+ cross-sell = lifetime profit
Even
in the good times, trust is a key requirement of any financial
institution. Right now, with high levels of customer pain and
uncertainty there’s a real need for you to stay true to brand
values, ensuring customers feel comfortable doing business with you
and that you’ll always support them. Cutting account
administration or driving shortened customer service call times may
be counter-productive.
The
approach should inform the way you sell and the people you employ (or
if you’re cutting back, who you retain). It should drive marketing
messages, including sales copywriting and imagery.
Importantly,
linked with appropriate customer contact strategies it should reduce
customer defections and increase the likelihood of successful
cross-sales of other financial products.
Mine
your existing customer base
Your
primary focus needs to be on retaining and expanding existing
customer relationships not acquiring new ones. New customers have no
track record with you so can’t trust you in the way a satisfied
customer can. Existing customers should be cheaper to sell to.
Customer insight metrics can help you focus targeted communications
that drive cross-sell, upsell and referrals.
Make
sure you know your customer demographics and buying patterns and find
ways to market to them effectively, including an event-based
marketing approach (events being everything from end of lease, end of
financial year, seasonal buying programmes etc). Also look at how
you can extend repayment periods (protecting customers’ cashflow
while increasing interest income, possibly with a small restructuring
fee) or offer sale and leaseback on long life assets.
Products
and promotions
Price
emphasis is likely to be strong with more emphasis on must-have than
nice-to-have product features. Bundled products can be expected to
come under scrutiny - contract hire and other asset management
organisations should consider that some segments would welcome an
unbundled, menu-driven offering with separated pricing (this may also
help trade people up from straight finance).
Asset
stocks are likely to grow. This provides a great opportunity to
offer stocking finance, either as a stand-alone item for creditworthy
dealers and/or to lock out competitors financing retail assets. In
the same way, vendor finance programmes and captives can lock out
competitor brands by with a strong stocking finance offer.
Customers
may also be more open to a working capital cross-sell on products
like invoice discounting.
Customer
buying cycles will lengthen, which will increase the period in which
customers may compare alternative financing offers. Inevitably this
can impact sales efficiencies and conversion rates, with increased
switching risk. Finance providers developing promotional offers with
vendors may wish to put a clear timescale on their offer. Another
tactic may be to reduce the valid length of the financing proposal,
especially when cost of funds uncertainty exists.
Marketing
suppliers tend to get hit hard during recessions. As a result, you
should be able to negotiate good deals across your supply base,
including advertising space, design and print.
Don’t
forget the future – invest in growth
Invest
in growing markets. Not all customer or asset segments will be
affected equally and some will continue to grow, for example
renewable energy assets. National markets will be affected in
different ways – while recent events have slowed emerging market
growth, many continue to expand and create financing opportunities at
an attractive rate.
It’s
marketing’s role to identify these segments and a market entry
strategy (or penetration strategy if you’re already in place) that
will quickly drive volume and payback.
Be
smarter than your competitors
Competitors
will be under pressure just like you. By understanding their
strengths and weaknesses, and make sure that market feedback is rapid
and well structured, you’ll be able to increase new business
volumes through the customers of poorly performing competitors or
those exiting the market. You may also be able to attract their best
staff.
Have
a powerful business case
At
a time when others in the organisation may be losing their jobs,
no-one is going to volunteer to offer the marketing department an
increased budget without a very good reason. Make sure you’ve
made the business rationale clear, can access the right blend of
strategic marketing skills and can justify to the CEO and CFO why
each item of spend is important. Link marketing to key business
imperatives. Maintain strong financial and marketing performance
metrics. Focus on projects with identifiable paybacks.
High
marketing spend in the current economic climate represents a bold
move for a CEO or CFO to sanction and all the money in the world
won’t matter if you don’t have a sound customer proposition. But
as the driver of future profitable growth and judiciously spent, it
could be the best investment you make.
To discuss how the effectiveness of your marketing spend can be maximised contact Peter Hunt on +44 (0)845 003 1000 or e-mail peter.hunt@invigors.com