Taking The Road Less Traveled BY.ppt

TakingTheRoadLessTraveledByHowtoincreaseyourprofitsinAsia,whentimesaretough,JamesChadwick,RegionalAccountPlannerO&MAsia/Pacific,O&MSingapore,Contents,Isthisarecession?HowconsumersbehaveinrecessionsThedecision:fightorflightLearningsfromhistoricalstudiesChoosingtofight5strategicopportunities,ToughTimesHeadlines,ToughtimesinAsia-thedebate,Isthisadisastrouscrashoramuch-needed“realitycheck”?WillthismakeAsiamoreeconomicallycompetitiveagain?orareweenteringadownwardspiral?,SpencerStuart,Pollofover400Asiancorporateleaders,May1998,CEOsPredictingRecoveryRates,ToughtimesinAsia-thedebate,Nobodyknowsforsurehowtoughitwillget,orhowlongitwilllast.Inthemeantime,itstimetodevelopacorporatestancetowardstherecession.,Howthemightyrespond.,Source:AWSJFeb5,98,DouglasIvester,ChairmanCoca-ColaCo.,andhowtherestplantocutback,SpencerStuartsurvey,400corporateleaders,May1998,Avgplanned%change,Isthisarecession?,Textbookdefinitions,“AdeclineinGNPfortwoconsecutivequarters.”TheUShassuffered28slumpssince1854,approximatelyoneeveryfourtofiveyears.”“Shorttermgrowthlagginglong-termgrowthinyourmarketbyatleast4percentagepoints”,Definition:StrategicPlanningInstitute,US,Isthisarecession?,TextbookdefinitionsOurdefinition,“AdeclineinGNPfortwoconsecutivequarters.”TheUShassuffered28slumpssince1854,approximatelyoneeveryfourtofiveyears.”“Shorttermgrowthlagginglong-termgrowthinyourmarketbyatleast4percentagepoints”,Iftheconsumerthinkssheisinarecession,thensheis.,Definition:StrategicPlanningInstitute,US,Consumermoodbycountry,China,Poland,UK,Mexico,US,Brazil,Japan,Germany,Italy,Thailand,S.Korea,WirthlinWorldwidereport,July-August1997,7,833interviewsQuestionasked:“Wouldyousaythingsinthiscountryaregoingintherightdirectionorthewrongdirection?”,WrongDirectionRightDirection,AngusReid/EconomistWorldPoll,May/Junefieldwork,1997/8,SatisfactionwithQualityofLifeIndex,AngusReid/EconomistWorldPollHopeIndex,May/Junefieldwork,1997/8,29countries,AsiansAreStillTheWorldsOptimists,*Compositescoreacross3“futureexpectations”items,5outof10oftheworldsmostoptimistic*countriesareAsian.ButtheJapanesearetheworldsleasthopefulaboutthefuture.,ConsumerConfidenceinSingapore,MasterIndexSurveyScore,March1998.,MasterIndexScore=42,ImpactofRecessiononAsianConsumerConfidence,MasterIndexSurveyScore,March1998.,ImpactofRecessiononAsianConsumerConfidence,MasterIndexSurveyScore,March1998.,SingaporeanConsumerConfidenceTrend,MasterIndexSurveyScore,March1998.,ChangingConfidenceofSingaporeConsumer,MasterIndexSurveyScore,March1998.,Howdoconsumersbehaveduringarecession?,Consumerspendingdoesnotalwaysdrop,InpreviousUSpostwarrecessions,realspendingcontinuedtoriseexcept73-74ConsumersstillneednecessitiesManyconsumersfindtheyhavemoredisposableincomeforeverydayitemsthanbeforereducedhigh-ticketpurchasinglesswastefulbehaviour,Recessionarybehaviouriscomplex,GrandMetlaunchedHaagen-DazswhenEuropewasinrecessionasuper-premium(+40%)brandthatcreatedanewcategoryofitsownUS$10msalesin1990toUS$130min1994Perhapsconsumersneed“littleluxury”feel-goodbrandsmorethaneverduringrecession,+Adaptation,-Withdrawal,Relationshipwithcategory,RelationshipwithBrand,Howbehaviourmaychangeduringrecession,Stopusingcategory,Abstainfrombenefitsofcategory,+Adaptation,-Withdrawal,Relationshipwithcategory,RelationshipwithBrand,Howbehaviourmaychangeduringrecession,Stopusingcategory,Abstainfrombenefitsofcategory,Useonfeweroccassions,Uselessquantity,Substitutewithdifferentproducts,Cutdownwaste,+Adaptation,-Withdrawal,Relationshipwithcategory,RelationshipwithBrand,Howbehaviourmaychangeduringrecession,Stopusingcategory,Abstainfrombenefitsofcategory,Useonfeweroccassions,Uselessquantity,Substitutewithdifferentproducts,Cutdownwaste,MoreloyaltofavouriteBrands,Switchloyaltytoeconomy/valueBrands,OccassionalytradeuptolittleluxuryBrands,+Adaptation,-Withdrawal,Relationshipwithcategory,RelationshipwithBrand,Howbehaviourmaychangeduringrecession,Stopusingcategory,Abstainfrombenefitsofcategory,Useonlygeneric/commodityproducts,Noloyalty:respondtoprice/promotions,Useonfeweroccassions,Uselessquantity,Substitutewithdifferentproducts,Cutdownwaste,MoreloyaltofavouriteBrands,Switchloyaltytoeconomy/valueBrands,OccassionalytradeuptolittleluxuryBrands,+Adaptation,-Withdrawal,Relationshipwithcategory,RelationshipwithBrand,Howbehaviourmaychangeduringrecession,Someinternationallearnings*,Basicnecessitiesholdup,orincreasebread,soup,preparationingredients,seasoningVicesincreasebeer,cigarettesHigh-ticketitemspostponedproperty,durables,holidaysSocialclassdifferencesUpper-classluxuriesholdupMiddle-classcomfortssuffer,*Sources:ACNielsen,WSJ,Admap,Thaishoppersleftcategoryinpastyear,duetorecession,O&MThailandListeningPoststudy,April1998.(206BangkokShoppers),Thaishoppersremainingloyaltobrands,pastyear,O&MThailandListeningPoststudy,April1998.(Shoppersstillusingeachcategory),Twopaths-fightorflight,FlightRecessionasThreat,AdvertisingtheeasiestbudgettoslashEconomicheadlinesaredisastrousCompetitorscuttingback-socanIConsumerswontbebuyinganything,Twopaths-fightorflight,FightRecessionasOpportunity,FlightRecessionasThreat,AdvertisingtheeasiestbudgettoslashEconomicheadlinesaredisastrousCompetitorscuttingback-socanI!Consumerswontbebuyinganything,DominatemediaReframebrandvaluesLaunchnewproducts,packagingUseportfoliosmartlyLeverageconsumerinsights,Studiessuggestfightnotflight,Anumberofacademicandbusinessorganisationshavestudiedthissubject“Isitworthadvertisingduringarecession?”AllstudieshavereachedsimilarconclusionsAstrongcorrelationexistsbetweeninvestmentduringrecessionandsubsequentsales/sharegrowthArecessionisatimeofopportunityforgrowthforlongtermplayersthatcanspend,Theeconomistsargument,UKeconomistC.OHerlihy,1980articleAdvertisingisavariablecostwithdirectimpactonsalesMeasuredtrade-offbetweenthecostofadvertising/contributiontosales&profits50brands,20categoriesCalculates100TVRpoints=1%salesgrowthinrecessionHypotheticalexample:recessionslashessalesvolume10%Profitsfallfasterthansales,duetofixedcostsConclusion:Slashingadinvestmentputsprofitsinjeopardy,US$000SalesFixedCostsMarginalCostsAdExpenditureProfitProfitMargin,BeforeRecession33,00010,00019,8007002,5007.6%,Dangerofslashing:Hypotheticalexample,US$000SalesFixedCostsMarginalCostsAdExpenditureProfitProfitMargin,BeforeRecession33,00010,00019,8007002,5007.6%,FianceDept.assumedimpactofadcut.(Onlyrecessionaffectssales)30,00010,00018,00002,0006.7%,Dangerofslashing:Hypotheticalexample,US$000SalesFixedCostsMarginalCostsAdExpenditureProfitProfitMargin,BeforeRecession33,00010,00019,8007002,5007.6%,FianceDept.assumedimpactofadcut.(Onlyrecessionaffectssales)30,00010,00018,00002,0006.7%,WhatactuallyoccursduringRecession(Impactoflossfromadcut)27,00010,00016,20008003.0%,Dangerofslashing:Hypotheticalexample,US$000SalesFixedCostsMarginalCostsAdExpenditureProfitProfitMargin,BeforeRecession33,00010,00019,8007002,5007.6%,FianceDept.assumedimpactofadcut.(Onlyrecessionaffectssales)30,00010,00018,00002,0006.7%,WhatactuallyoccursduringRecession(Impactoflossfromadcut)27,00010,00016,20008003.0%,ImpactduringRecessionifbudgethadbeenleftintact30,00010,00018,0007001,3004.3%,Dangerofslashing:Hypotheticalexample,Implicationofeconomistsargument,Advertisingcanberegardedasaninvestment,notjustacost.Duetofixedcosts,profitsslidefasterthansales.Howcanyouserviceyourfixedcostsbetter?Iffixedcostsareparticularlyhighinyourindustry,canyouaffordnottofight?,Study1:HarvardBusinessReview,1927,StudyandMethodologyHBRarticle,1927,AuthorRolandVaileStudyof200companiesandperformanceduringandafter1923recession,ConclusionsStrongpositivecorrelationbetweenadspendandsalesgrowth,Study2:LabforAdPerformance,80-85,StudyandMethodologyMcGraw-Hillsubsidiary,LaboratoryforAdvertisingPerformanceStudyof600companiesadvertisingspendandsalesperformance,1980-85,ConclusionsStrongpositivecorrelationbetweenadspendandsalesgrowthover5years.Averagesalesgrowthforthosewhoincreasedadspendwas275%,against19%forthosewhocutback,Adspendandsales,1981-2recession,SalesIndex(1980=100),Source:LaboratoryforAdvertisingPerformance,Study3:SPI/CRD,1990study,StudyandMethodologyStrategicPlanningInstitute/CentreforResearchandDevelopment,usingthePIMS(ProfitImpactofMarketStrategy)database,1990.PIMSdatabaseof749largeEuropean&UScompaniesexamined,allowingcorrelationofadpendwithsales/ROIresults339databaseobservationsofcompaniesduringrecessionsDividedinto3groups,byreactiontorecession:1.Cutadspend(average11%cut)2.Increasedspendingupto20%(average10%inc.)3.Increasedspendingover20%(average49%inc),Study3:SPI/CRD,1990study,ConclusionsAlmostallbusinessesearnreducedprofitsduringrecessionButbusinessesthatcutadexpenditure(group1)sufferROIreductionequaltothosethatincreaseadspendupto20%CompaniesincreasingadspendduringrecessiongaingreatermarketshareOpportunityofgainingsharethroughincreasedadspendisgreaterwhentotalmarketissoft,Study3:SPI/CRD,1990study,Note:Toputthesefiguresintoperspective,asinglesharepointintheUScarindustryisworthoverUS$2billion,Study4:DentsuInc,Japan1985-6,StudyandMethodologyInvestigationof874listedcompanies,withadspendoverUS$800,000Companiesdividedinto3groups:1.Cutadspend(320companies)2.Unchanged/moderateincrease(265companies)3.Increasedadspend(289companies),ConclusionsPositivecorrelationbeteweenadspendandgrowthinsales,marketshareandprofitsLong-termleadershipsustainedafterrecessionbythosethatspent,Affectsofadspendduringrecession,RecessionRecoveryExpansion,MarketShareGrowth%,Source:DentsuInc,Long-termadvantages,Studyresultssuggestlong-termadvantagesforthosewhosupportbrandsWhy?brandconsideredmorepermanentconsumerstrustthemvirtuouscircleofspendingcreatedmoresales,biggerbudget,etc.newhabitsformedduringrecessionsconsumersstickwithhabitduringrecovery,OurRecommendation:ChoosetoFight,FightRecessionasOpportunity,FlightRecessionasThreat,AdvertisingtheeasiestbudgettoslashEconomicheadlinesaredisastrousCompetitorscuttingback-socanI!Consumerswontbebuyinganything,DominatemediaReframebrandvaluesLaunchnewproducts,packagingUseportfoliosmartlyLeverageconsumerinsights,Choosingtofight-5opportunities,1.Managingabudgetpositively,ToughTimesCommunications,2.Reframingbrandvaluestonewcontext,3.FastMarketing,4.Usingbrandportfoliostrategically,5.Leveragingconsumerinsightsbettertosavecommunicationcosts,1.Managingabudgetpositively,Spendupfrontatstartofyeartostimulateavirtuouscircleofsalesavoidaviciouscircle,alwayschasingmoney,1.Managingabudgetpositively,Spendupfrontatstartofyeartostimulateavirtuouscircleofsalesavoidaviciouscircle,alwayschasingmoneyIncreaseshareofvoiceMediainflationtendstoslowTimidcompetitorscutbackCompanieswithstrongresourcescandominateshareofvoice,oftenforless,Whathappenswhencompetitorsstopspending?,1958intheUK,consumerschosebetweensofttoiletpaperAndrexDelseyOtherhardtoiletpaperandflatpackBy1963,mostconsumershadturnedtosofttoiletpaperincreasingretailpressure,morecompetitorspressuretocutadspend,shifttopromotions,UKtoiletpaper,adspendanalysis,343,410,516,476,465,454,596,362,295,205,160,146,UKSterling,000,Delseyreduced,thenstoppedadvertising,1963-66AndrexdominatedSOV,UKtoiletpaper,volumeshares,%,Andrexvolumesharesteadilygrewthroughperiod,Whathappenswhencompetitorsstopspending?,Andrexcontinuedtospeakdirectlytoconsumerswhenkeycompetitorstoppedrewardedwith30%volumeshareby1969strongerloyalty,abletochargeapremiumAndrexsattributeratingsfor“soft”and“strong”rosesteadily,asDelseysdeclinedAndrexleadsUKmarkettoday,MiloinMalaysianrecession,1985-89,During85-88,NestleincreasedMilosadspendfromRM2mtoRM3m,whilecompetitorscutbackorfluctuated,Miloincreasedadspendthroughrecession,RM000,MiloinMalaysianrecession,1985-89,During85-88,NestleincreasedMilosadspendfromRM2mtoRM3m,whilecompetitorscutbackorfluctuatedSOVincreasedfrom55%to70%Past3monthusageshareincreasedfrom65%to70%andnowstandsat80%Nestlenowmaintain80%shareusagewithonly55%SOV,1.Managingabudgetpositively,Spendupfrontatstartofyeartostimulateavirtuouscircleofsalesavoidaviciouscircle,alwayschasingmoneyIncreaseshareofvoiceMediainflationtendstoslowTimidcompetitorscutbackCompanieswithstrongresourcescandominateshareofvoice,oftenforlessEvaluatenewvehicles-cinema&print,Evaluatenewvehicles,DuringrecentAustralianrecessionprintreadershipincreasedcinemaattendanceincreased“Consumersneededabitofescapismduringthetoughtimes,andwehadtoreflectthatinourcreativeworkaswellasourmediabuying”PhilipBeck,MDofTheNetwork(NowMindshare),Aus/NZ,Choosingtofight-5opportunities,1.Managingabudgetpositively,ToughTimesCommunications,2.Reframingbrandvaluestonewcontext,2.Reframingbrandvaluestonewcontext,Fitnewmood&newhabitsHowcanIreframemybrandtoexploitthis?not“HowmustIchangedirection?”,BrandRecessionreframingMichelinChangedfrom“Expensive,butworthit”to“SurprisinglyAffordable”ZiplocEmphasizedAirtightfoodbagsforleftoversA-1SteakForhamburgers,notjustsirloinsteakSauceVolvo“Inafinancialcrash,keepyourvaluablesinasafeplace”,2.Reframingbrandvaluestonewcontext,NewContextReducedoutings,Reframingopportunity“Homeiswheretheheartis”,2.Reframingbrandvaluestonewcontext,NewContextReducedoutingsTighteningbelts,Reframingopportunity“Homeiswheretheheartis”“Treatyourselfalittle”,2.Reframingbrandvaluestonewcontext,NewContextReducedoutingsTighteningbeltsSelfishclimate,Reframingopportunity“Homeiswheretheheartis”“Treatyourselfalittle”“Abrandthatcares”,2.Reframingbrandvaluestonewcontext,NewContextReducedoutingsTighteningbeltsSelfishclimateNationalcrisis,Reframingopportunity“Homeiswheretheheartis”“Treatyourselfalittle”“Abrandthatcares”“Letsallpulltogether”,Choosingtofight-5opportunities,1.Managingabudgetpositively,ToughTimesCommunications,2.Reframingbrandvaluestonewcontext,3.FastMarketing,3.Fastmarketing,FastmarketingwaspopularinlastUKrecession(Cadburys,Schweppes)Basicpremise=Duringrecession.Makeuseofidlecapacity,spareworkforceLaunchfast,short-termroll-outlinesorvariantsincategorieswherenoveltysellsnewchocolatebar,ice-cream,shampoo,etc.Aimforfastpay-back(e.g.ayear)MakeuseofvacantspaceintradepipelineFocusadspendup-front,FastMarketing-gettingnovelpackaginginnovationsoutbeforecompetitors,Bigger“economy-size”packagingsavemoney,storeathomeSmaller“littleluxury”packagingConsumersstillneedlittleluxuries,perhapsevenmorethanever,butmaynotwanttospendthefullamount,Choosingtofight-5opportunities,1.Managingabudgetpositively,ToughTimesCommunications,2.Reframingbrandvaluestonewcontext,3.FastMarketing,4.Usingbrandportfoliostrategically,4.Usingabrandportfoliostrategically,Abroadbrandportfolioallowsflexibilitysupportstrongbrandswiththematicadvertisinguseothersastacticalfighti