Ramakant Khandelwal enlists how the company’s survival actions may be damaging its brand
Almost every indicator of economic growth and consumer confidence is churning out negative news. Even the most optimist of the pundits aren’t claiming any quick recovery. However, history tells us that only when things hit a bottom, do they start to improve.
In business and economy, too, the recent plummeting levels on growth indicators have invoked multiple actions like corporate tax rate cuts, RBI monetary policy action and support for the housing sector. I am not debating whether these will be effective or not. We will be back on track at some point and we need to be equally prepared for it. All I am concerned about is our preparedness once it ends — do we emerge stronger or weaker than today?
Why let customers suffer
Typically, any business has three stakeholders — shareholders, customers and employees. Slowdown generally means slower top line growth; hence the revenue line is hit. In response, businesses may choose to defend profits or take a hit on profits. Due to several compulsions, most choose the former and protect the shareholders. Now this means cost cuts, which must be tagged against customers and/ or employees. We find that most companies easily end up wielding the axe on customers. The first response during the slowdown is to cut customer benefits and cut the brand building expenses. These actions diminish the short-term value to the customers and damage the long-term emotional connect with their brand. So where would this lead to when the economy gets back on track? Well, the DNA of the brand shall be altered, and the core customers would be alienated.
I have observed that even successful brands need to resort to tweaking marketing costs. But they follow a different approach. They focus on cutting the long tail prevalent in almost any business, and never on cutting the core. They get down to ring-fencing loyal customers and focus on getting new customers efficiently.
There are several examples of brands such as HUL, Godrej, Dabur and Mondelez using pricing and affordability to come up with sachets priced at just `10, keeping the product intact. To beat the slowdown, they seem to have cut back on advertising, but not on the product proposition. Several luxury brands including Apple offer EMI schemes, thus making the product affordable without tinkering with the features of the core product.
Key to survival
Fortunately, in the digital world today, optimisation is quick and measurable. Digital marketing allows for more precise and targeted campaigns which lead to better results than traditional advertising campaigns. During a downturn, knowing exactly what return each marketing investment is providing and how, will be key to not just survival, but also to create a backbone ready for growth.
Key to survival during a slowdown is also the ability to retain customers. This is where loyalty programs play a big role. A well-rounded program not only acknowledges and rewards every transaction, but it also increases the frequency and value of purchases.
While an economic slowdown is a transient event, loyalty built through delivering consistent rational and emotional benefits to the customers stands the test of time. A slowdown can be wasted in worrying about today or crafting the strategy for the future; I am sure we all know what ‘winning’ businesses will do.
— The author is CMO, Payback India