Advertising is one of the first expenses cut when a recession hits, mainly because top management mostly people from the financial department does not believe in it; they accept it as a form of defensive insurance, not as a means of generating profits. Whenever revenue is expected to drop, they reduce marketing expenditures since the entire marketing budget is based on expected revenue.
It is illogical to set marketing expenditures based on revenue expectations. In order to determine expected revenue, one needs to set the marketing budget. The marketing budget determines what revenue will be generated, not what it affects. If you set a higher marketing budget, you will get a higher revenue.
When the recession hit, Kmart’s CEO cut the store’s marketing budget, resulting in losses greater than any savings Kmart had made. It is important for the CEO to appoint a multifunctional committee to propose ways of reducing costs when a recession appears imminent. In order to identify activities and expenses that can be safely reduced, the committee should examine a company’s promotion mix, channel mix, market segment mix, customer mix, and geographical mix. It is inevitable that every company loses or weakens promotions, channels, market segments, customers, and geographical areas. A recession calls for a housecleaning.
As a result of good times, companies develop a lot of organizational fat. When a recession strikes, they lay off many workers painfully. They buy excessively expensive furniture, pay for high-priced country club memberships, purchase company aircraft, and hire a lot of consultants.
It is possible for companies to save money by switching their salespeople to economy-class flights and hotels, renegotiating buying contracts, delaying specific long-term research and development projects, and delaying capital projects.It is possible for companies to save money by switching their salespeople to economy-class flights and hotels, renegotiating buying contracts, delaying specific long-term research and development projects, and delaying capital projects.
In times of recession, many companies attempt to cut costs. But whatever they do, they should follow two rules. First, don’t compromise on the value proposition you offer your customers. Customers expect product quality and service from you when they buy from you.