A rising tide lifts all boats. But a falling tide does the most damage to those boats that are poorly anchored.
In high-growth times, when things are going well, management ignores the marketing function. Why get involved when everything is upbeat?
When things are going bad, the first thing management does is to get involved in marketing activities. If sales are turning down, no CEO is going to ignore marketing.
This is the worst time for management to be involved in marketing. They don’t have the knowledge and experience to figure out what needs to be done.
In fact, their instincts are wrong. They know they need to increase sales in order to survive, so their first thought is to expand the brand.
That’s exactly the wrong approach. A downturn exposes the weakness of also-ran brands. In order to survive in a down economy, a company should narrow its focus in order to strengthen its brand, which ultimately can increase sales.
Great Wall Motor is a good example of this principle. In the year 2009, the company marketed trucks, passenger cars, minivans and SUVs, using nine different model names.
Then the company decided to focus their resources on a single model, Haval, using the strategy, “The most-economical SUV under 100,000 RMB.” (Roughly $13,000 at the time.)
Last year, Great Wall Motor sold more vehicles than any other Chinese automobile company. Furthermore, they made more net profits than the next four Chinese automobile companies combined.
The question is why does this happen? If you’re the CEO of a major corporation, chances are good you are a left brainer. Before you make a decision, you want to be supported by facts, figures, market data, consumer research. If you’ve a job in marketing, chances are good you are a right brainer. You often make decisions by “gut instinct” with little or no supporting evidence. It couldn’t be otherwise in a creative discipline like marketing.
A logical, analytical left-brainer generally won’t take a right-brainer seriously whether the economy is up or down. In China, for example, consumers saw passenger cars as “prestige” vehicles and trucks and SUVs as working vehicles for the lower class.
So if you are a logical thinker, you would want to focus on passenger cars. But a right-brainer is a holistic thinker. He or she sees the big picture. And the big picture in China back in 2009 was that every other automobile manufacturer was going to focus most of their resources on passenger cars. That’s why the better strategy for Great Wall was to do the opposite, focus on SUVs.
At the same time, low-growth times can actually benefit market leaders because it makes them relatively stronger than their weak competitors. Take the automobile industry in America. The recession of 2006 to 2008 bankrupted General Motors and severely damaged Ford. But it improved the position of imported brands like Toyota, Mercedes-Benz and BMW.
What should weaker competitors like General Motors have done? As a general principle, they should have narrowed the focus of their brands. General Motors’ leading brand, Chevrolet, has 18 different models. What’s a Chevrolet? It’s a large, small, cheap, expensive car or truck. That’s a weak position that can cause serious problems in low-growth times.
On the other hand, Toyota is the No.1 car brand in America. Mercedes-Benz is the “prestige” leader and BMW is the “driving” leader. They all did well in the downturn.
A weak brand may continue to exist in a rising economy. But not when the economy turns down. So marketing managers who manage a weak “also-ran” brand should “narrow the focus” of their brands in order to strengthen their positions.
As a starter, for example, Chevrolet should have divested itself of its truck business and concentrated on cars, preferably entry-level cars. General Motors has a truck brand called GMC that sells trucks only. That brand could be strengthened by the addition of the Chevrolet truck models as well as the Chevrolet model name for trucks, Silverado.
Look at the automobile market in Russia. Lada, the market leader, sells just six models yet has a market share of 17 percent. Chevrolet on the other hand markets 11 different models, but its market share is just 7 percent. Chevrolet’s leading model is Niva, an SUV made in Russia that has generated a lot of favorable interest. The model is often on back-order, with waits of two or three months.
If I were running Chevrolet in Russia, I would focus all my resources behind the Niva model, much like Volkswagen did with its Beetle model in the United States.
You are going to see the same things happen in smartphones. The rich will get richer (Samsung and Apple) and the poor will get poorer (BlackBerry, Motorola, Nokia and others) unless they do something dramatic like narrowing their focus to strengthen their brands.
Companies are like plants. Overtime, plants expand in every direction so a good gardener trims them back from time to time. Companies need to do the same. Keep cutting back on products and markets that are not performing well. Narrow the focus to both strengthen the core brands and increase their market share.
Look at the smartphone category. Apple basically markets one new model to replace an existing mode which is then discontinued. Yet the last time I checked, its competitor, BlackBerry, markets 15 different models. Which company is more successful?
But narrowing focus is easier said than done. Listen. Most CEOs we have dealt with take the position that they know what marketing strategies are best for their companies. They don’t want marketing managers to tell them what to do. They want marketing managers who will execute their strategies.
That’s why they seldom take the time to ask marketing managers for their advice and counsel. Most times, marketing managers have to force their way into boardrooms in order to present their ideas. I’ve been in those meetings. And it’s obvious that the chief executive and his or her staff has already made their minds up on what strategic directions to take. They just attend the meetings to placate marketing managers who often wind up frustrated.
Also, during low growth times, companies end up with metric madness. If you run a company by the numbers, you’ll eventually run the company into the ground. You might be successful in the short term, but never in the long term, as the financial crisis demonstrates.
The banking industry is a good example of an industry run by the numbers. And yet the banking industry was the one industry that did the worst in the recent recession. Left-brain managers are verbal, logical and analytical. Nothing wrong with that, as long as management also takes the remedy to counteract its overemphasis on mathematics.
Almost everything about marketing is the opposite of the typical manager’s approach to running a business. Marketing is illogical and definitely not analytical. Marketing is intuitive and holistic. We’re concerned, however, that this message is being ignored by the marketing community which seems to be drifting from right to left. From a right-brain approach to a left-brain approach. The hot topic among marketing managers today is ROI, return on investment.
Another mistake that some companies make during recessions or low-growth environment is that they introduce cheaper versions of their existing brands. Packard was the leading luxury car brand in America for many years. But during the depression in the 1930s, Packard started selling relatively inexpensive vehicles. Its major competitor, Cadillac, kept it prices relatively high, although selling far fewer vehicles than Packard. As a result, Packard is long gone and Cadillac is still alive.
I don’t know enough about Indian corporations to make specific suggestions, but as a general rule, if a company is losing market share or losing money, it needs to change its marketing strategy.
That runs counter to the normal thinking which is (1) The strategy is right, but (2) It’s the execution that is wrong. So chief executives tend to react to trouble by firing lower-level managers in charge of executing corporate strategy.
Then too, if a company changes its corporate strategy, it can reflect unfavourably on the chief executive. From an ego point of view, that’s a strong reason to focus on execution rather than strategy.
Also, there are few other things remembering. Does it make sense to launch new products in a low growth environment? Yes and no. Yes, it’s a good time to launch new markets for a market leader. Its competitors are weakened and are less likely to have a good response.
No. It’s a bad time to launch new products for a company that’s not a market leader. That drains resources from the company’s core business. Also, its worth remembering while launching new products that advertising today doesn’t have the credibility to launch new products. Only PR has that credibility. Regardless of the environment, companies should start with PR and then switch to advertising after the new product or brand has achieved some recognition among consumers. Our philosophy is: PR first, advertising second.
To conclude, the one message that marketers need to remember in times of low growth is to narrow your focus.
(Al Ries is a marketing consultant who coined the term “positioning” and is the author of such marketing classics (along with Jack Trout) as The 22 Immutable Laws of Marketing and Positioning: The Battle for Your Mind. He is also the co-founder and chairman of the Atlanta-based consulting firm Ries & Ries with his partner and daughter Laura Ries. Along with Laura he has written bestsellers like War in the Boardroom and The Origin of Branding)
The article originally appeared in Business Today in the edition dated January 19, 2014
(As told to Vivek Kaul)