In 2007, the world entered the biggest economic crisis since the Wall Street Crash in 1929. John A. Quelch and Katherine E. Jocz's case study "How to Market in a Downturn" is therefore more relevant than ever.
The case study looks at the impact of a receding economy on a company and investigates marketing issues from a consumer, product and business point of view. Strategies for effective marketing are identified, as well as preparations for the economic recovery period. Jocz and Quelch suggest that during a recession, consumers will be forced to become more price-sensitive and reduce spending. They will also be forced to have stricter priorities, thus making them less brand loyal.Analysis of Case StudyNevertheless, this is a general outlook.
Normally, consumers are segmented according to demographics or lifestyle (Quelch ; Jocz 2009). During the recession period, there are four segments which are identified with respect to the "consumers' emotional reactions to the economic environment" (Quelch ; Jocz, 2009). These include the 'Slam-on-the brakes' consumers who cut down on all forms of spending. 'Pained-but-patient' are optimistic for the long-term, but cut down on their consumption in the short term. There are those that will be 'comfortable well-off' because they are financially stable but will selectively purchase in the long run.
Finally, the 'live for today' consumers will continue purchasing and spending as usual (Quelch ; Jocz 2009).Companies should be cautious, in order to not confuse their loyal customers when planning on changing their targeted segment. Loyal customers are most important to many businesses during an economic downturn. The case study mentions that companies reduce their marketing spending first, when cutting costs, which can reduce customer loyalty. Quelch and Jocz see marketing as an essential tool, which is used to build and maintain a strong brand that the consumer can recognise and trust, especially during a recession. Marketing budgets should therefore not be reduced as it is so often done.
Commonly a company can reap certain benefits a recession offers, such as cheaper advertisement (Quelch ; Jocz 2009) allowing them to capture market share from their competitors. Direct marketing, such as online advertising, is one of the sectors that grows most during an economic downturn because it produces more measurable results and helps to reinforce brand loyalty. This is important, as the idiom "out of sight, out of mind" describes consumers who go for substitutes if they forget about a brand (Oakes, 2010).It is also argued that market research is vital during the downturn because it enables organizations to identify new customers emerging out of the recession. It also assists in recognising where to innovate by the time the economy recovers. Consumers will have priorities according to their position in the earlier mentioned four segments and their financial situation.
Marketers identify these four spending classes as: essentials, postponables, treats and expendables.As investigated by Quelch and Jocz, three main strategies identified are: improvement of affordability, creation and building of trust and streamlining the product portfolio.During a mild economic downturn, it is often sufficient for companies to adjust production quantities only, without having to change prices or the product line. However, in deep recessions, the company should analyse the market demand and its product portfolio in order to "reduce excessive complexity in product lines" (Quelch ; Jocz, 2009). This is due to large product lines incurring greater marketing costs, thereby tying resources to an inventory that moves slowly. Consequently, this leads to an eventual decrease in revenue.
Companies should put more focus on improving affordability. Moreover, to sustain long-term profitability, companies should not move their premium brands down-market. Instead, they should introduce "fighter brands", lower priced alternatives backed by minimal advertising thus targeting more customers. Price cuts of the original products could confuse consumer's perception of normal prices.
If their perceptions are too low, businesses may have trouble resetting prices after the recession.Finally, businesses should bolster trust by using "reassuring messages that reinforce an emotional connection with the brand" (Quelch & Jocz, 2009). Well-known brands are often perceived as the safe and satisfying choice.Quelch and Jocz advise companies to position themselves for recovery. Marketers should examine whether the behaviour of a consumer will return back to normal and brace themselves for "possible long term shifts in consumer values and attitudes" (Quelch & Jocz, 2009).Heineken OverviewHeineken A.
Gerard was founded Heineken in 1864 in Holland. Heineken is a family controlled brewing business and has become "the world's most valuable international premium beer brand" (International, 2010). It has a large network that spans across several continents with around 100 breweries, which are located in more than 50 countries. Heineken beer was crafted by people who had one goal in mind: to pursue craftsmanship and achieve the highest quality in brewing (Datamonitor, 2009). Today, the world still drinks the original Heineken's recipe, which has allowed the company to attract so many customers over the years.
The Heineken Company owns many subsidiary brands of beer in several countries such as Tiger, Cruzcampo, Morreti, Amstel and Murphy among others.At present, Heineken's "earnings before interest, tax (EBIT), and one-offs rose by 14 percent on a like-for-like basis to 2.095 billion Euros (1.84 billion pounds) in 2009" (Blenkinsop, 2010) although net profit had decreased in 2008.
This increase in EBI in 2009 came "despite a 5.4% fall in underlying consolidated beer volume" because of their cost cutting and improvement in pricing and sales mix (Blenkinsop, 2010).Heineken is involved in sponsoring various events, to increase its worldwide presence. These include the Heineken cup (rugby event), the Oxegen music festival or the Heineken Open (ATP tennis tournament).
This is a marketing strategy that enabled Heineken to improve its positive image and stay dominant within different areas of interest.A SWOT analysis will extend our examination of Heineken giving us information and data of the company (Datamonitor, 2009). A SWOT analysis "is a tool for auditing an organization and its environment" (Marketing Teacher, 2010). This analysis illustrates the main internal factors (strength and weakness) and external factors (opportunities and threats) that the company is facing:It is also useful to look at Porter's work, which provides a "framework that models an industry as being influenced by five forces". Here is how each force can be defined for Heineken:Heineken in a Downturn EconomyIn the economic recession, consumer behaviour often changes. The companies that understand the psychology of the consumers during a recession and adapt their marketing strategies accordingly are believed to have a greater chance at success.
Heineken needs to spend on market research to understand "what customers really want and not what [they] think they want" (Perner, 2004). Heinekens marketers should therefore look into developing a product that can help in connecting with the emotional appeal of the consumer. For example, the Heineken Mardi Gras can was a unique way for consumers to make Heineken a part of their Mardi Gras celebrations (Business Journals, 2001).The Heineken Company needs to look at the four categories of consumers during the economic downturn. There is also a need to look into how each category spends on essentials, postponables, essentials and expendables.The 'slam-on-the-breaks' customers will lower overall purchases, go for substitutes with a lower price and spend for key needs like groceries.
The low-income customers are likely to fall in this segment. They reduce spending to the essentials and cut off buying expendables. To target this group, Heineken needs to offer a product that is new and costs less. Heineken needs to use its revered international household name to market its product in order to use the least money to advertise on the product so that they can increase on their profitability.
Nevertheless, they should be careful of not damaging their brand image of a premium beer producer by introducing a lower quality product using their brand image and name.For the 'pained-but-patient' class, the company needs to sustain advertising to them so that they do not forget about the brand. This group of consumers are very resilient on economic recovery prospects and their ability to sustain their living standards. Therefore, in order to attain this segment of the market, Heineken needs to increase direct marketing. This can be achieved through emails, for example.
This type of approach ensures that loyal customers are retained, hoping "to offset the impact of slowing consumption and 'downtrading' in many countries" (Warc, 2010).There is also a need to continue advertising for the 'comfortably well-off' individuals. They believe in getting out of the current economic crisis 'well off'. This is why decreasing prices is not advised, as this can change consumer's price perception in the long-term (Quelch & Jocz, 2009). This also applies to the segment of consumers that 'live-for today' because these consumers consume their favourite brands irrespective of the price and economic situation. In order to keep the premium brand image, Heineken has, in fact, increased prices to uphold sales revenue while sales volume decreased during the recession.
Heineken has the chance to be perceived as a premium brand among its customers. It should therefore "push messages about being global, as consumers attached to such brands" (Roberts, 2009). Moreover, a research conducted by Marketing Week has shown that both premium and food/beverage brand had the highest degree of attachment compared to other sectors or price positioning (Roberts, 2009). Heineken should therefore use it to their advantage.
With regards to Heineken's loyal customer, it is essential for the company to take care of them in the recession period, as they are the ones who ensure a reliable supply of cash flow. During difficult time, Heineken "should focus on the values their customers trust" (Roberts, 2009). This will allow them to keep up the reputation as a powerful beer brand, which consumers can recognise easily and eventually help them reduce the advertising cost and lower the business risk in the long term.To increase short-term sales, market research can reveal emerging trends and demand shifts. Health risks associated with drinking, for example, and the increasing awareness of these risks, call for a brand that is 'healthy'.
Therefore, the connections between the brand and the customer's emotions have to be reinforced. This can be addressed by introducing innovative products such as a free calorie beer.The company should not try to change its positioning. This may affect its sales because in doing so it may attract intense competition from competitors who go for the down-market. Although the change of the positioning strategy can enable the company to gain new customers, it may lose a great deal after recession ends due to loss of loyal customers.
They should instead analyse and focus on their product portfolio and the targeted market.The company should work on a 'clean up' of its product lines early, rather than being forced to do so (Quelch & Jocz, 2009). The attempt to streamline its product portfolios should be done early enough to adjust to the imminent decline of the demand for their products. Heineken should be able to cut down on their intricate product lines (Lake, 2009). The company should also look at the innovation opportunity (McGrath & Michael, 2000). This can help to capture the attention of more consumers and in the long run motivate purchases.
The keg, introduced by Heineken in 2004, is a good example of an innovative product, which can increase sales revenue during the time of a recession.In order to satisfy both, the 'slam-on-the-brakes' customers who will go on the simple product lines and the 'pained but patient' who will go for models that are known to have a good value, Heineken should find a way of offering the best possible deal for both groups. Price cuts, nonetheless, should be avoided, as it could lead to price wars between competitors. Instead cash-back offers or coupon promotions can be more suitable alternatives, which improve affordability (Brassington & Pettitt, 2007, Lake, 2009).
In fact, Heineken did not adjust their prices downwards, but offered 1$ discounts.To facilitate demand shifts, like the shrinking average age of beer consumers, Heineken can introduce so-called 'fighter brands' like 'luxury light beer' for the young and carefree that fall into the 'live-for-today' spenders. This can aid to boost sales to the young population though it is prohibited by the law in several countries (Barnet 2001). This 'fighter brand' could be completely pulled out of the market when the downturn period ends or it could be left in the market if it proves to supply a sufficient portion of the market.
ConclusionThroughout the course of this analytical study, marketing tools have been identified, explored and applied to a case study. It can be concluded that with the supporting evidence in hand, marketing tools can be of paramount importance. They permit a company to effectively identify and target relevant potential and loyal customers. Furthermore, in a period of a receding economy, the importance of marketing is elevated due to its capability of capturing and sustaining a market segment. Thus marketing is a tool to create and sustain attractive profitability rates and as stated in Marketwatch, "[H]istorically, PR, Marketing and Advertising budgets are the first to be cut; however, that could be one of the first mistakes a business makes in an economic crisis." -WSJ.
