Business in a Tough Environment

The Economic Times

By: Vivek Bali


There is a sense of déjà vu as one reads the newspaper, surfs the internet or watches the news on television every day. The headlines and main stories are invariably about shrinking economies, slackening demand and headcount reduction.


It is no surprise that when demand drops, the standard response of most companies is to cut the spending budget (especially marketing spend). The irony is that these steps often exacerbate the situation by reducing the demand even further, leading to a relentless downward spiral.


A counter-intuitive approach: In an environment when most companies are following a similar path of cutting back investments to weather the financial turmoil, it could be advantageous to follow a counter-intuitive approach of actually increasing media weight or share of voice (SOV).


Your brand can become more noticeable in a category, leading to a significant growth in market share. This would not only improve short-term results, but even leave your company poised for much better growth when the situation finally improves (remember even the Great Depression eventually ended!).


What is being proposed might seem preposterous, but if handled astutely can result in big gains in the short run and the long run. What is even better is that the higher relative media weight need not necessarily come through higher budgets. There are four clear avenues of raising money to pay for becoming more visible.


i) Improving returns on spending: Sales revenue depends on spending on advertising, consumer/trade promotions, distribution and product superiority.


Mathematical modeling based on past data can identify the relationship between sales achieved and the various inputs like advertising and promotions. If a consumer or trade promotion has not worked in the past, there is no point in spending on it in the future.


Moreover, when money is limited you may as well choose campaigns that offer a higher return on investment. Analytics based on regression can help you to eliminate the weak programmes and choose more effective ones.


It is surprising that very few companies rigorously evaluate past spending programmes. By eliminating wasteful expenditure you can make the money work much harder.


ii) Optimising number of packs sold: Fast changing consumer needs give rise to proliferation of brands, variants, prices and sizes. The increased variety of packs adds complexity and cost to a company's operations. The marginal units increase cost of production and diffuse focus within the company.


The stronger selling packs invariably end up providing a hidden subsidy to weaker ones. While most companies try to rationalise from time to time, they still end up with a sub-optimal portfolio, because the process is not a continuous one.


A difficult business environment is the best time to evaluate the total portfolio of products and packs sold. While there will be ample reasons to reduce the number of packs, it can even throw up new opportunities that a company can capitalise on, for example, a 50-gm pack that bridges the gap between a smaller sachet and a 100-gm pack.


By optimising the number of packs you can improve production efficiency, concentrate on fast-moving items, and increase focus on bigger initiatives.


 

iii) Focusing on a few brand-pack-market combinations: If the company is operating across many countries in the world it can choose to focus on the top few brand-country combinations that have much higher inherent strengths and profitability.


If the company is operating mainly in India it can choose brand-pack-state combinations based on competitiveness, media rates and sales tax rates to sell profitable cases. For instance, if five brands have 20 distinct packs in 22 states the total combinations are 440.


From these you might choose two brands and within those six packs in six states (36 combinations or 8% of total combinations) to increase focus through higher support. The paradigm "less is more" works well most of the time.


iv) Negotiating lower rates: When overall advertising is going down for channels, a company with a substantial budget can get media rates that are far better than market rates.


Since TV time is a perishable commodity you can explore having a portion of the budget that uses last minute rates that could be drastically lower. Therefore, higher media weight need not mean higher spend levels if you negotiate shrewdly.


Similarly, in-store visibility rates can also come down when other companies are cutting back. Everything is open to a fresh round of negotiations when the situation is unusual.


The main purpose of this article is to show various ways in which companies can generate funds to pay for higher presence and visibility.


The 'gloom and doom' in the environment shouldnt overshadow some clear opportunities that also exist. There is more to smart management than re-sizing and cutting advertising budgets!



Written by Vivek Bali who is associated with ANV Consulting, Singapore



Originally published in "The Economic Times" dated March 20, 2009, Ahmedabad