R I O

March 2010

EM P O The Niche Newsletter @ IIMA

Rea
Und d eve da
o ph y an h,
Wh ersta ry w a p h ilo s
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e n o have en ti
mes afley
,
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ter &
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est the raise says.
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g prod to posi
as ‘aff ucts a tion
ordabl nd ser
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s
d t h e benefit
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th ma hig nich
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[1]
 MARKETING LUXURY IN DIFFICULT TIMES
AYSHWARYA R VIKRAM & TOSHE PRASAD

To try and market premium products in difficult times is a Thus the best way out is to position existing products and
tough task, and requires two questions to be answered right services as ‘affordable luxuries’. This would encourage
at the outset. One, what is the change in spending habits of spending by giving the perception that you are delivering
consumers in the new economy and two, what segment is much more value than what is being charged.
your product catering to.
A good example would be that of DeBeers whose recent
To answer the first question, consumers change their advertisements are aimed at convincing consumers that
spending habits significantly during the bad times. expensive diamonds are not luxuries but thoughtful
Consumers tend to balance the household budget by investments. Changing their mantra from the familiar “A
spending on daily necessities and cutting down on luxuries Diamond Is Forever", their new advertisements played the
like chocolates, biscuits etc. Even within luxury items, tune of "Here Today. Here Tomorrow. In times like these,
consumers tend not to refrain from luxury items altogether. it's perhaps wise to reflect on the things that last rather than
Instead, the decision becomes much more priority based the things that come and go." To emphasize the longevity of
and more thought goes into the process. Thus, the the investment a diamond could be, DeBeers added
buying decision is dependent on the value the “A diamond has outlasted all that history can
product offers and the need that exists for the throw at it, from the formation of
product. continents to the turmoil of markets.
The best way out is to Across the generations, in a thousand
T h e s e c o n d q u e s t i o n w a r r a n t s position existing products and years' time, a diamond will still be here.
segmentation of the high-end market into services as ‘affordable luxuries’ Just like love."
high net-worth buyers, must-have buyers
and luxury wannabes. High net-worth buyers There are other aspects also which could
are generally less impacted by the recession and
tend to continue the same lifestyle. Must-have buyers also be kept in mind when marketing luxury
are considerably affected by the downturn and have a products during a downturn. The first is to offer enhanced
tendency to downgrade, yet consider quality and brand value to the consumer by means of green credentials,
image as their primary concern. Hence, this segment might ethical sourcing etc. However, care has to be taken to not
need discounts or exclusive buying options to induce dilute the brand. The second aspect is to continue to invest
buying. The last segment does not possess the innate in marketing, even if the means of promotion is changed.
capacity to consume luxury products and hence would be
The third aspect is to engage with customers deeply, thus
downgrading to lower price point substitutes.
encouraging word-of-mouth promotion. The fourth is to
So this brings us to the question of what can be done to focus on in-home luxuries since people tend to spend more
market such premium products during difficult times. The on making their stay at home as entertaining and enjoyable
only solace is that consumers traditionally seek solace in as possible during difficult times.
lower-cost treats during hard times to indulge themselves.

[2]
 EASING IT
SASHANK R& SAURAB V NAIR

As the dust of recession settles, some companies emerge variations of iPods which was partly a reason for the
stronger than others in their respective industries. The case company’s strong performance.
is no different for the tech giants, which have weathered the Any talk about innovation in marketing would be
recession. Success during recession has been synonymous incomplete without a dash of viral marketing. HP
with innovation. successfully exploited the benefits of word of mouth
The economic downturn was characterised by increased marketing through its “31 Days of the Dragon” campaign.
R&D spending for these companies. "We were never more HP provided 31 of its $5000 HDX Dragon systems to 31
aggressive than we were last year, during one of influential bloggers and asked them to give
the worst economic crises we have ever seen. away the laptop to lucky readers on their
HP successfully exploited
You never want to waste a good crisis." said the benefits of word of mouth
sites. The result was that there was an
John Chambers, CEO, in an interview with marketing through its “31 Days of 84% increase in sales of the HDX
USA TODAY. Cisco is one of the tech the Dragon” campaign Dragon and 10% increase in overall PC
giants that has used the recessionary times to sales of HP on HPshopping.com.
spend on R&D and laid the foundation for the Innovation percolated even to the distribution
future. It launched a new smart-grid strategy. The global channels of some of the companies. Dell tweaked its well
market for this kind of technology is expected to be worth known direct business model to add a new intermediary,
up to $171 billion by 2014. “twitter”. In June 2009, the sales via “Dell Outlet” on
Standing tall in the ruins was Apple which reported record twitter surpassed $2 million.
sales and profits in the heights of recession. A reiteration of This was just a small peek into the way various companies
the fact that product innovation results in gains no matter have tried to use the recession to their advantage. And that
what the economic state is. The company rolled out endless has caused a lot of difference!

[3]
 STRATEGIC MARKETING DURING RECESSION
AJAY SAMPATH & ARNAB SAHA

Marketing during recession has always been seen as a luxury
on the part of a firm – primarily because advertisement and
marketing have mostly been labeled as ‘discretionary costs’
or ‘expenditures’ and not as ‘investments’ by a firm. But
contrary to the popular perception and also taking a dig at
the way most firms operate, we are trying to argue for the
case that maintaining or increasing marketing spend during
recession is a sound way to strengthen a brand and derive
substantial long term strategic benefits.
marketing investment as the price of advertising goes down
significantly during recession due to reduced demand, which
effectively translates into higher reach for the firm.
Moreover, during recessionary times consumers tend to
contemplate on higher value addition from the products
used by them. Thus, the switching potential of the
consumers at this time is pretty high, which makes the case
for increasing or maintaining marketing expenditure during
recession even stronger.

Firms, during recession focus entirely on Not just from an argumentative standpoint,
conserving their cash flows and thus to net Several studies of marketing but also this claim is backed by a strong and
higher profits they resort to a cost cutting over the ten recessions of 20 th consistent body of historical data. Several
spree, marketing being one of the century have concluded that the sales studies of marketing over the ten
liabilities. On the other hand, firms tend and profits of firms that cut back on recessions of 20th century have concluded
marketing declined significantly
to increase marketing spend during good during recession
that the sales and profits of firms that cut
times, which does not yield proportionally back on marketing declined significantly
significant benefits because all competitors do during recession and continued to lag even
the same and thus on a relative level you have not after economic recovery. On the other hand, firms
increased your proportion of the total marketing spend in that continue to invest in marketing during recession reaped
the industry. significant profits not only during recession but also for a
few years after the recovery because as has been mentioned
Probably this is where the opportunity lies. During earlier, during recession a consumer doesn’t vanish, he just
recession firms in general cut down marketing expenditure. becomes marginally discretional in his purchases and seeks a
Therefore, a firm that increases or even maintains its higher value for his money. Companies that have conveyed
marketing budget has a significant advantage as it can this value through strong marketing have done well in the
capture greater share of mind from the customer, because rough waters of recession, and also beyond. The following
the competitive advertisement levels are reduced cases are examples in that direction only.
significantly. Also the firms get a better return on their

[4]
 STRATEGIC MARKETING DURING RECESSION

Procter and Gamble

P&G's philosophy of spending during economic downturns the height of the 1990-1992 recessions, that Dell chose to
dates back to the Great Depression. Radio took Procter & make its most aggressive marketing move up to that time,
Gamble's message into more homes than ever. Then a and take on the established computer giants. The campaign
variety of products such as Camay, Ivory and Lava Soap coincided with the introduction of its first notebook
were promoted on product-oriented shows, almost like computer. In 1991, advertising in the entire computer
infomercials. In 1933, in the heart of the Great Depression, hardware category was down by 17.5% over the previous
Procter literally invented the daytime “soap operas” through year. Apple, Digital, IBM and Tandy - some of the
radio networks, an advertising model that still exists. category's leading spenders - all made significant
Looking ahead some 60 years to the recession spending cuts in the range of (-25%) to (-40%).
of 1990-1992, P&G's strategy of marketing At the same time, Dell increased their
fortitude once again prevailed. Procter & marketing dollars 346% to $6 million, up
Gamble was the only marketer among “”We have a philosophy and a strategy. from just half a million in 1989 and $1.4
the five biggest U.S. advertisers to When times are tough, you build, share." - million in 1990. While Dell was still not
increase spending in 1991. P&G AG Lafley, CEO, Procter & Gamble spending in the amount of the computer
managed to increase sales and earnings giants, its message - eliminating the
during this period (the late 1980s to early middleman while offering superior
1990s) and company sales surpassed the $30 customer service - seemed to hit home with
billion mark in 1993. consumers. Perhaps the marketing cut backs by its
competitors offered the opportunity that Dell needed to
Dell Computers break into the consciousness of the mainstream American
consumer. The following year, Dell was included for the
Dell Computers founded in 1984 was based on the direct-
first time in the Fortune 500 roster of the world's largest
to-consumer model, which eliminated the retailer, allowing
companies. By 1993, the company was among the top 5
for price discounts and continuous customer feedback. In
computer system makers worldwide, and in 2001, Dell
1988, spurred by growing investor interest in technology
became No. 1 in global market share.
stocks, the company went public. But it wasn't until 1991,

[5]
 CONSUMER SPENDING IN RECESSIONARY TIMES
RAHUL ANAND

Economies cannot always grow. Every period of boom in the A monetarily tightened Dove soap consumer will use it more
economy is eventually followed by a slowdown. Such a economically, but is very unlikely to shift to Lux. Such brand
downturn acts as a checkpoint for the economy and rings loyalty and inertia driven behaviour is more common in the
alarm bells for investors. If this downturn makes the luxury goods segment. Analysis of consumer spending done
economy's GDP growth negative for two or more consecutive by Booz & Company in September, 2008 showed some
quarters, the economy is said to be in recession. A country's interesting results.
GDP(Y) is a function of consumption, net exports,
investment and government spending. 1. In a period of 6 months between April to September 2008,
35% more US consumers stayed at home.
Y= C+I+G+X 2. Level one spending like vacation, dining out, frugal
shopping etc. have reduced remarkably more than Level two
When an economy faces a slowdown, a fear of recession grips spending like clothes, coffee, salons etc.
the market. Hence, instead of spending more to increase
GDP by increasing consumption, consumers start
This research shows that during recession,
cutting on spending. This leads to a vicious Brand
consumers cut down spending on luxury goods
cycle of less consumer-spending taking the and services and not much on necessity
loyalty and inertia driven
economy further down into recession. goods. In necessity goods segment, the
behaviour is more common in the consumers become more conscious of where
Consumers now defer purchase of "long
luxury goods segment they spend and hence brand loyalty and quality
term" goods like washing machines, furniture of products drive purchases. Hence companies
etc. They usually understand that the economy should take recession as a period to build and
will recover in the months to come and hence wait for
strengthen brands. They should not compromise on quality or
the recovery, rather than buying these long term utility goods
brand building by axing them by cost cutting measures.
from alternative lower priced sellers. Hence, a recessionary History has shown time and again that recession weeds out
period does not necessarily imply higher sales for lower priced weak brands and hails the stronger ones.
brands in the long time utility segment. Rather, people who
buy these goods during this period are more conscious about
Hence, companies should take up recession as a check point
quality and value for money and being too decisive about to verify and consolidate their strategic and operational
spending their bucks, they tend to go for reputed brands. policies, for once they successfully fight through recession,
Further consumers who are very loyal to their brands stick to
they emerge as stronger market players.
them even when their pockets are tighter. They might reduce
the frequency of usage, but the product used seldom changes.

[6]
 A MARKETER’S GUIDE TO SUCCESS DURING A DOWNTURN
MANOJ MOTTIANI & RACHIT KUMAR

1. Focus on your competition Internal branding to convince the workers about the strengths
of the brand is essential during an economic downturn.
Experts believe that during a recession it is always a good idea
to focus more on competition using annual reports, feedback
from customers, sales force intelligence and information from 3. Focus on your customers
the media. If all the competitors cut back on spending it
might be a good idea to maintain your company’s level of
investment to gain a slight edge. For instance, in 2002
Kimberly-Clarke reduced the number of diapers in pack of The existing customer base of a brand is its biggest asset
Huggies in order to improve their margins. Procter & Gamble during an economic recession. Feedback from the sales force
could have done something on similar lines, but they decided is essential to keep track of changing customer needs. Brands
not to change the size of the Pampers pack. Instead they should focus on customer segments that offer the best
added the word “Compare” to the label. They were able to returns. A more profitable segment can be targeted through a
counter the price advantage offered by Huggies by offering shift in positioning. This technique was adopted by Unilever in
more discount coupons and improving the display of their Turkey during the 2001 recession for its Dove brand wherein
product stores. the target segment was shifted from upper class women to
women belonging to the middle class. This was
achieved by crafting a new value-orientation
2. Focus on your brand “Internal branding to appeal for the middle income group which
convince the workers about was “Dove both cleans and moisturizes the
During a downturn when resources are the strengths of the brand is skin.”
essential during an
not freely available it is a good idea to
economic downturn.”
focus on core brands rather than 4.Focus on your communication
introducing product variants. Brands that
are strong offer value proposition that justifies
charging a price premium even during tough times. People
prefer to buy reputed brands as this gives them a sense of It makes sense to reallocate the marketing budget during a
security. During a downturn companies should focus their recession. For instance, it might be advisable to switch from
attention on trying to make their brands more accessible. For Television commercials to less expensive forms of advertising
instance, during the 2002 Argentinean economic crisis, like print or outdoor media. In-store marketing of brands
Unilever introduced small packs of Skip detergent which were
available for a small unit price. Also there might be a tendency thrives during downturns because the association of
on the part of manufacturers to cut back on quality to save consumers with brands does not die out all of a sudden so
costs. The consumers might not notice this for a while but this point-of-sale promotion of the brand is generally a good idea.
would provide competitors with the opportunity to promote
their brands as better quality brands in the long run. Also,

[7]
 PROF. SPEAK
A
three
member
Niche
team
consis0ng
of
Ayshwarya,
Toshe
and
Srikant
had
a
free‐wheeling
talk
with
Prof.
A.K.
Jaiswal

about
the
 changes
 in
the
 marke0ng
world
during
the
 downturn
with
respect
to
both
consumers
 and
companies
 and

what
companies
could
do
to
baBle
the
effects
of
the
recession.
The
following
is
a
summary
of
his
views
on
the
topic.

On the topic of marketing expenditure promotions should appeal to the rationality of the consumer
by focusing on the functional benefits of the product.
Marketing expenditure is considered a non-core expense in the Promotions should be centered on the core benefit being
view of the company and therefore the obvious choice during offered.
difficult times is cut down on this expenditure. However this is
not desirable since this will affect the health of the brand in On the topic of how different product categories are affected
the long term, especially for categories like indulgence
products, which need top of the mind recall. Marketing Since consumers turn value-conscious, value for money
expenditure can be primarily divided into two – promotional products of good quality tend to sell more in most segments.
expenditure and market research expenditure. Promotional Consumers tend to downgrade even for daily necessities. For
expenditure (mostly advertising spend) may have a limited example, the soap segment experienced negative growth in
budget in such times and hence the focus must be to improve value terms, not because of volume reductions but because
the returns/productivity. There can be several ways to do this. consumers moved to products at lower price points. Intuitively
One could be to focus on low cost advertising mediums – the it can be said that luxury products like watches, jewelry and
use of regional media rather than national media, use of branded apparel may sell less, especially those targeted at
advertising in vernacular print media instead of English print middle and upper middle class segments. Well-off consumers
media, use of radio etc. Another could be to keep the may not be affected as much by the recession and hence,
frequency of exposure constant, but to reduce the duration of extremely luxurious product sales may not be affected. Hence
each exposure, say with a shorter 30 sec commercial instead of the product’s target segment is a huge factor in
a 2 minute commercial. understanding the changes it shall undergo during the
recession. In-store private labels may increase in popularity
An opposing view is to increase the marketing spend during a due to their perception as better value for money products.
recession since the return on advertising exposure may be
more due to less clutter and higher chances of standing out. On the topic of the internal changes in companies
The benefits of this expenditure can be reaped in the longer
Companies become more conscious about the returns on any
term. However this might not be a practical option. Hence it
expenditure they make at this time. New initiatives are
is recommended not to drastically reduce the marketing spend
evaluated very closely in terms of cost-benefit analysis. A
during difficult times. There is a need to use the promotion
widespread reluctance to introduce new products is observed.
budget creatively and effectively, in order to not affect the
long term prospects of the brand. Product Rationalization is another widespread practice.
That is, companies selectively promote their key products,
The second type of expenditure is marketing research
probably brands that enjoy good consumer appeal and high
expenditure. This may assume primary importance during a
market share. Niche products may be sidelined at this time,
recession since consumers undergo behavioral changes - the
since they would not be a primary revenue-generating
way they look at products and the factors they consider when
segment.
buying a product tend to change. Thus, companies should
continue spending on market research since it shall help them Long-term relationships with consumers insulate you from
to understand consumers better and sustain market share. changes. As B-to-B customers tend to have long-term
relationships with their suppliers, one possible move is to
On the focus promotions should have
ensure that you maintain a good relationship with B-to-B
There are two types of benefits, which are promoted in a customers. Buyers tend to expect more from you during
product - functional and hedonic. Functional benefits are recession but the stable relationship will help keep your sales
those, which refer to the attributes of a product, and hedonic up.
benefits are indirect benefits, which might accrue from the
brand or image of the product. During a recession, consumers
tend to be more value conscious/price conscious. Hence

[8]
In India recently, P&G, which had entered the country in the
premium segment, decided to move towards capturing the
middle and low-income groups as well. This coincided with
the recession, which helped them gain market share. Similarly,
rural initiatives such as those initiated by HUL also help
establish a connect with the customer, which serves the firm
in good regard during periods of recession.
One technique used by marketing firms to ensure sales during
periods of recession is playing around with the pack sizes.
Necessity products are sold in larger packs, as then reduction
in costs due to economies of scale can be passed along to the
consumers in the form of discounts. Similarly, for products,
which are commonly used but not necessities reducing the
pack, size works well. This techniques was used by HUL in
Argentina. Another technique used more effectively during
this period is bundling. Santoor used this technique very well
last year. This, however, requires support from the retailers as
well.
Impulse products are not affected by recession due to the
unplanned nature of the purchase. Further, impulse products
usually have lower values per unit and this also helped keep
the sales up for impulse products. FMCG segments are not
affected in terms of units of sales. However, FMCG segments
experiences a reduction in size in terms of value, as people
usually tend to buy lower value products without reducing
their consumption.

TRIVIA
• In
1947,
Buchen
Advertising
tracked
the
annual
advertising
expenditures
for
a
large
number
of

companies,
correlating
spending
to
sales
trends
before,
during
or
after
the
recessions
of
1949
and

1954,
as
well
as
sales
and
proAits
trends
surrounding
the
recessions
of
1958
and
1961.
It
found
that

sales
and
proAits
dropped
off
almost
without
exception
at
companies
that
cut
back
on
advertising,
and

these
lags
continued
even
after
the
recession
ended.

• McGraw‐Hill
Research
analyzed
468
industrial
companies
during
the
1974
recession
and
600

industrial
companies
in
16
different
industries
for
the
1981‐82
recession.
sales
of
companies
that

maintained
or
increased
advertising
during
the
1974
recession
showed
132%
sales
growth
by
1978,

while
those
who
cut
advertising
were
ahead
by
79%.


• McGraw‐Hill
analyzed
600
companies
from
1980
to
1985.
The
results
showed
that
B2B
Airms
that

maintained
or
increased
their
advertising
during
the
1981‐1982
recession
averaged
signiAicantly

higher
sales
growth—both
during
the
recession
and
for
three
years
following—than
those
that

eliminated
or
decreased
advertising.
By
1985,
sales
for
companies
that
were
aggressive
recession

advertisers
had
risen
256
percent
over
companies
that
did
not
maintain
their
advertising
(“US

Recession”,
McGraw‐Hill,
1988).

• A
study
of
1,000
Airms
during
recessions
between
1982
and
1999,
the
best
performers

(market‐to‐
book
ratios
)
had
increased
their
marketing
and
advertising
spending
not
just
relative
to
their

competitors,
but
also
compared
to
their
own
spending
in
better
times.
(“Learning
to
love
recessions,”

Richard
F.
Dobbs,
Tomas
Karakolev
and
Francis
Malige,
McKinsey
&
Co.,
2002).

[9]
 CROSSWORD

Across:
1.Dividing a Metazoan body into several semi-repetitive sections (12)
4.The property possessed by a slope or surface that descends, maybe that of a stock (9)
5. Does the market seem Greek to you? (8)
7. Cisco used it to ease it. (9)
8. Comes from Middle French, means ,vaguely, to nest; Also an exedra which has been shrunk

Down
2. When guys don't get jobs. (10)
3. An estimate maybe, where games are played? (8)
6. New product strategy indeed. (5)

Editorial Team

Mehak Gulati
Saurab Vivek Nair
Srikanteaswaran T K

[10]