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The Best Time to React to a Downturn is BEFORE it hits!

12/27/2016

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Issues outside of your control can hamper even the most effective marketing initiatives. While it’s a frustrating dynamic, it’s one that every marketer is likely to experience at some point.
 
External forces impact marketing efforts more frequently in cyclical industries. Businesses involved in sectors such as home furnishings, travel, energy, and durable goods like appliances all understand their success is often seasonally dependent. Even the best marketing initiatives will struggle in an off-season.

The auto industry is particularly familiar with these natural market ebbs and flows. In 2015, consumers purchased a record 17.5 million cars. Dealers rejoiced, believing the industry had finally bounced back from the 2008 recession. But record sales are rarely sustainable. Auto industry experts expect that next year’s sales will be lower than they have been in years past. And Honda’s representatives have publicly predicted that sales will drop to roughly 16 million in 2017.
 
Steven Szakaly, chief economist of the National Automobile Dealers Association, has warned that the industry will suffer from the effects of a sluggish economy, particularly in emerging markets. Macroeconomic issues, including rising inflation and a potential interest rate hike, could also have a significant impact on the industry.
 
The upside to these cycles is that smart marketers can prepare for downturns in advance. By cultivating a thorough understanding of their key business drivers, marketers can make the adjustments needed to have an impact when spending is slow.
 
The diamond company De Beers provides an instructive example. During the 2008 recession, De Beers adjusted its marketing, with tremendous success. At a time when most companies were slashing their marketing spend, De Beers actually doubled its Christmas advertising budget. Their move was based on market research showing that consumers saw diamonds as holding lasting value, despite otherwise difficult economic times. The De Beers brand urged customers to buy “fewer and fewer things” that season, because “a diamond is forever.” The takeaway –“here’s to less” – resulted in consumers spending on diamonds, even if they sacrificed other items.
 
Cars, like diamonds, are a major purchase with a lasting value. Dealers should consider taking a page out of the De Beers playbook by buying more advertising (at potentially advantageous prices) rather than less during market downturns. According to the Harvard Business Review, this strategy helps companies increase their market share at a lower cost than during boom times, when their competitors are spending more.
 
Smart marketers are picking up on this critical strategy. A recent survey conducted by the American Marketing Association found that 60 percent of marketers felt that their biggest mistake was pulling back on spending during a downturn. In the same survey, 63 percent of marketers said they would choose to increase spending on brand awareness initiatives to mitigate the effects of a downturn.
 
Car dealers concerned about a possible decline in sales should take these lessons to heart. Now – while sales are good – is the time to carefully consider your inventory and marketing spend to ensure you’re positioning yourself as strongly as possible for the time when sales may slump.
 
The key to maintaining stability in a downturn is to know where your business drivers are, and direct your dollars where you’ll see the most return. Some cars will sell themselves. But when consumer demand slows, dealers will need to focus additional marketing attention on models that may not sell as quickly as others. By directing marketing spend to key business drivers, car dealers – and marketers across all cyclical industries – can weather any seasonal storm.


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    Damon Balch

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