Marketing in a downturn

Vinay Kamath

In New Delhi, Carlo Donati, Chairman & Managing Director of Nestle India Ltd, is a bit apprehensive when he says that the persisting lack of buoyancy in the economy continues to be of great concern. Calling a spade a spade, he says that the domestic and international market environment, coupled with the seasonality factor, will affect Nestles performance in the fourth quarter.

In Chennai, Satish Kumar, Managing Director of consumer products company Henkel SPIC Ltd, is worried too about the degrowth and downtrading that hes been witnessing for the past nine months in toilet soaps. The seven per cent drop in a category that has over 90 per cent penetration is huge. The slowdown, he says, has an impact on companies like Henkel. The panic reaction to go in for consumer offers and get a larger share of the pie is affecting the health of brands, he moans.

At Maraimalai Nagar, 30-odd km from Chennai, Randy Shockley, Vice-President, Marketing & Sales, Ford India Ltd, says the company saw the slowdown coming and rescaled its business plans, emphasising a stronger export programme as the volumes in the domestic market taper off. Says he succinctly, The thing about marketing in a down market is that you can never find the bottom of it. If you enter a discount war with your competition, you only escalate your market costs and put pressure on your organisation.

DISPARATE thoughts, but the downturn is the leitmotif as marketers grapple with the new realities x poor market conditions and a recalcitrant consumer, both presenting a real challenge to marketing professionals. Theres an anecdote that a battle-scarred marketer loves to give. That marketers must always work as if the economy was perpetually in a downturn. It, he says, always brings out the best in them x they cut the flab, work costs to the bone, cut down on inventories, innovate on pricing and packaging, attack new markets and are always hungry for their next customer. It puts them on high alert so that when the good times come along, there are rich pickings to be had. Says Percy Siganporia, Deputy Managing Director, Tata Tea Ltd, A slowdown brings to the fore innovation to derive value and definitely forces you to focus on wastage and costs and sometimes it can throw up some brilliant solutions in creating value for you and the consumer.

So, is the slowdown for real? Definitely, if you look at different categories in fast moving consumer goods and in consumer durables. Research agency ORGs figures for January-August 2001 over a similar period in 2000 speak for themselves. Toilet soaps have seen a seven per cent fall after an almost six per cent growth last year, detergents a 5.5 per cent fall, tea has seen a six per cent dip while toothpaste as a category has grown only 4.6 per cent after a 10 per cent growth last year. Production figures of consumer durables trotted out by the Centre for Monitoring Indian Economy for April-September 2001 show a dip in categories such as washing machines and air-conditioners with marginal increases only in televisions and refrigerators. The declines are sharper if the figures are compared to the previous year, 1999-2000. Says Henkels Satish Kumar, With poor sentiments and uncertainty, the immediate reaction of people is to save and postpone purchases. This first gets reflected in consumer durables and then it hits FMCGs. In 1999-00, there was a steady increase in the premium segments of FMCG categories, but that has come down which means consumers have begun to downtrade to cheaper products.

With a tight-fisted, value-conscious consumer confronting them, marketers have to increasingly look for innovative ways to make them loosen their purse strings while protecting their brands and boosting bottomlines. Says Dabur India Ltd Chairman, V.C. Burman, Its difficult to frame marketing strategies in such times. Companies have to choose between short-term tactical moves and long-term investments to gain strategic advantage. Given the prickly market conditions, several marketers are experimenting with different methods to pull in that elusive consumer. The Catalyst team spoke to a cross-section of marketers across the country in consumer durables and FMCGs to glean first-hand their strategies for marketing in a downturn.

Recognise the reality of a slowdown

Thats to begin at the beginning. If marketers fail to recognise the reality of a slowdown, it would only mean pouring more resources into a market thats not buying, putting more pressure on the organisation eventually. Its a tough call to take, but has to be done. Says Ford Indias Randy Shockley, Industry forecast drives your business plan; if you see industry is weakening, you have to come up with the right industry focus. My experience has been that most people who see industry going down fail to recognise it. The important thing is to recognise when industry is going down and use that honest industry forecast to rescale your business plan and all your initiatives in line with that forecast because that will be the basis of all your future decisions.

In Fords case, it made the call in May when it felt the market was going soft, a feeling confirmed by July. While it didnt cut back on the Ikons production, it re-adjusted production schedules and expects to maintain its market share of 24 per cent in its segment. The advantage it had was a strong export programme to balance out the local markets vicissitudes. We could have sat around optimistically thinking the market would get better, but we had to make the right industry call because if you dont do that then youre putting your organisation under a lot of pressure, as youre going to be offloading all that stock to your dealers. Once dealers find themselves under pressure the first thing they want to do is liquidate stocks as quickly as possible and resort to discount and distress marketing. Both the company and the dealer take a hit.

This can also undermine your brand because when dealers start discounting, youre going to be impacting the value of the Ikon for the existing customers, says Shockley. The danger too, of pushing stocks to dealers, is of high inventory. Car buyers dont like to buy shop-worn stock.

Pepsi Foods too got the inkling of an impending slowdown in the middle of the last year itself, says Vibha Rishi, Executive Director (Marketing). Sensing the trend, Pepsi quickly unveiled promotions such as the hugely successful Mera number kab ayega promo a year-and-a-half ago followed by the Hai koi jawab promo. Value promos came in quick succession. Being in the category that it is, Pepsi has to keep the excitement running high, slowdown or not.

New products, exciting stuff

Putting on offer some smart new products might just attract the attention of a jaded consumer and may get him to loosen those purse strings. Marketers avow that even in a down market those new products have got to keep coming out, perhaps with a muted launch to reduce costs. Timex Watches decided to stick to that well-trodden path. During the current year, Timex launched nearly 200 styles in the Rs 1,000-Rs 5,000 range giving fashion-conscious consumers international looks and performance. Says Kapil Kapoor, CEO, Timexs strategy to counter the downturn has been to give it consumers technology, reliability and unbeatable prices. This year the organised Indian watch market is estimated to grow at about five per cent while Timex should see its own growth leapfrog by 30 per cent. Dabur too believes that new products can offer fresh growth avenues. As Chairman Burman explains, In the current depressed market sentiments, it may not be possible to increase the pace of growth, hence it becomes important to explore fresh growth avenues in the form of new products.

The company has come out with a clutch of products which it hopes will stimulate demand. This year, Dabur launched Binaca toothpowder and Amla Lite x nationally after test marketing. Back-aid ointment and Boro Glow antiseptic cream were also rolled out countrywide and yet another new product, Dabur Baby Olive Oil, is undergoing a phased national launch. These products should provide additional revenue, adds Burman.

Nestle India too has leveraged its consumer insights and launched several innovative products that have reported successful trials. In chocolates and confectionery, where Nestle brands have been consolidated to a large extent, the company has just unrolled what could be a blockbuster brand for it. Chocostick, a liquid chocolate, priced at an aggressive Rs 2 was recently rolled out in the southern markets. Says a Nestle spokesperson, The minimum price point operating in the chocolate category is Rs 5, and the next available price point available belongs to sugar confectionery that operates at a maximum of one rupee. An entire price point was available to be exploited and with the Indian consumers high price-sensitivity, and the largest consuming base of children having minimal disposable incomes, Chocostik offers the taste of chocolate at the price of sugar confectionery. This products needs no refrigeration and will drive distribution. When reports last came in, Chocostick is said to have raised a storm in the Tamil Nadu market.

Keep up the ads, but sensibly

The commonest question -- should you advertise and push demand or simply cut back and ride the storm? Tough call, that. Textbook theory, of course, tells you to keep up those spends, so that when the sun comes out shining brightly, your brand will be right there topping mindshare and recall. On-ground realities are different. As Vasant Nangia, CEO of jewellery brand Oyzterbay, says, One thing is clear; no single player can generally afford to spend to raise visibility and actually reverse market sentiment, a trap that many market leaders sometimes fall into. But, recessionary conditions give companies with adequate cash reserves an opportunity to raise the stakes, actually increase promotions and gain market share at the expense of the weakest player. But this is a high-cost strategic option and incremental advertising may not yield real growth in the short term, he adds.

For brands like Pepsi which need salience, cutting down on spends is heresy. Says Pepsis Vibha Rishi, Top-of-mind recall is absolutely necessary in our category. Even during off-seasons we have not stopped advertising. A cola brand needs a basic level of presence in the electronic media and in an impulse-driven category like ours, off-season advertising pushes up sales.

Also, growing companies have little choice but to keep advertising, down market or not. Says Henkels Satish Kumar, Companies like us have a very high percentage of advertising spend to net sales -- almost 20-25 per cent, while for well-established companies it could be 10-12 per cent.

However, this year has turned topsy-turvy the break-up of Henkels ad spend x and it could be the case for many other companies also. Typically, Henkel would spend 60 per cent on media and 30 per cent on below-the-line promotions and the rest on other activities. But, in a scenario this past year, where consumer goods companies went overboard with the freebies the reverse has happened - 30 per cent of the spend has been on media and the rest on below-the-line.

Media is expensive, but so are consumer promotions; for media you reach a much larger target audience than you would in a promo, says Kumar. Henkel, which spent Rs 55 crore on advertising and promotion in 2000, actually hiked it to Rs 65 crore for 2001.

Confirms Nanda Kumar, President, Marketing, of the Chennai-based Cavinkare Ltd, Our ad spend hasnt come down; well continue to keep it up, buying more efficiently has given us better receptiveness. As a growing company, we are still under-represented on the electronic media which gives us good visibility.

Daburs Burman also believes that spends have to be adequate to support brand-building, though ad spends have gone up by a percentage point only this year to parlay the new brands it has launched. This would help in building brand equity and stand us in good stead when market conditions improve, he adds.

Its hard, but dont discount

Its a tough choice to make when the herds slashing prices or offering discounts. Ford Indias Shockley believes its better to offer more value and features in your product than yield to discounts as they ultimately undermine the brand itself. My personal preference is to continue to focus on brand-building exercises and stay away from tactical exercises. Its a difficult decision in a market like this, but if you dont keep your product aspirational and get into discount activities, its not good for your product, elaborates Shockley.

The other aspect, which has especially dominated FMCG sales this year, is the phenomenon of freebies which is tantamount to a discount. While on the one hand you may block the entry of a rival brand into a household with a freebie of the same product, youre also postponing purchase by that consumer of your own brand. Says Henkels Kumar, Freebies and offers can easily be replicated by everybody; together everybody is trying to kill their brands. Also, the consumer thinks that the company was making undue profits earlier. Brand loyalties too can get impacted. If theres a choice, whoever offers the best freebie, consumers will go for it. Oyzterbays Nangia offers an interesting counter-point to this argument. Large scale brand-building, he believes, is a luxury in recessionary times. Tactical advertising, co-promotionsall these work far better in the short turn. Better that than planning too much for the long run, when you may be dead!

Keep the promos coming, don't overdo it

Consumers love promos. In fact, as a Chennai-based retailer explains, today there is a lot of pressure both from consumers as well as manufacturers themselves for the retail trade to do more promos. Promos, in fact, have become a necessity to keep up the excitement of new products as well as be a draw for consumers. No other category has dished out promos the way the colour television industry has. Samsung unveiled its Phod ke Dekho offer for the festival season. It worked as Samsung achieved its highest-ever turnover this year in November with sales of Rs 150 crore, says R. Zutshi, Vice-President (Sales). The strong consumer acceptance of our offer, the high visibility that our advertising and ground-level promos generated and the product line-up all enabled us to achieve a growth of 35 per cent in sales this October-November over the same period last year, he says

According to Rajeev Karwal, Senior Vice-President (Consumer Electronics), Philips India, the objective of every industry during a recession is to increase consumer confidence and consumer spending. The television industry did that by spending more on above-the-line media as well as a host of promos. The players have been really aggressive this year and helped create buoyancy in the market by generating consumer pull with innovative consumer promos and zero per cent finance schemes, he adds. Not to be left behind in the promo sweepstakes, Philips too had its Diwali Dhamaka scratch n win offer for its CTV range where over one lakh prizes were on offer. These initiatives resulted in an over 30 per cent growth in the volume of CTVs and audios over the previous months for Philips. CTVs as a category is expected to grow by at least 10 per cent this year.

Talk about cool promos and Indus League Clothing Ltd had them coming. Says Fazle Naqvi, Director, Marketing, Its important to spend funds wisely during a downturn by investing in promos that excite customers and increase their involvement in the brand rather than mere discount-centric promos. Its brand Scullers had promos like Height of Sale and Fat Luck where women were allowed to walk away with Scullers merchandise discounted equivalent to their height while Fat Luck discounts were equivalent to waist sizes. Both these promos created a great deal of buzz and excitement amongst customers, adds Naqvi.

Touch the consumer at unexpected times

Marketers look to touch consumers at unexpected moments during the course of their day or when they are shopping to increase brand association and involvement. These methods come to the fore especially in a downturn when the consumer is not spending enough. To promote its microwave ovens, Samsung India set up call centres in nine cities throughout the country to give customers information on microwave ovens and answer queries. To take the initiative forward, it also organised cooking classes in different cities to educate customers on everyday cooking with a microwave. To make it holistic, it also created a Samsung Everyday Wheel Meal as an insert in Femina. This carried recipes of Indian dishes that can be cooked on a microwave.

Indigo Nation ran a Scullers womenswear designer search contest which allowed women a chance to step inside the shoes of a fashion designer and design a garment of her choice; the best one would hit the shelves. Kiosks were set up in high-traffic commercial areas in some cities. It drew enormous response from customers, resulted in immediate sales and brought the customer close to the Scullers brand and generated tremendous word of mouth publicity for the brand, explains Naqvi.

Experiment with value packs, price points

What better time than a downturn to experiment with value packs, especially when consumers are chary of spending. The past year has been significant for the cola players who experimented with bottle sizes to bring it to a price point that would fit the purse of any consumer. Says Sanjiv Gupta, Senior Vice-President, Coca-Cola India Ltd, In such an underdeveloped category such as ours, we cannot afford to increase consumer prices, we go after volumes. Coke is planning a nationwide roll-out of 200 ml glass bottles across all its brands in its portfolio. The company is now putting renewed distribution muscle behind the 200 ml glass bottle across brands and across the country. We expect that the exercise will mark a major shift in volumes in the next one year, adds Gupta. Against the 300 ml bottles prices at Rs 10, the 200 ml bottles carry price points of either Rs 6 or Rs 7. Another Coke move to counter the recession has been to lower the prices of its two litre and 1.5 litre PET bottles to boost in-home consumption

Even Henkel SPIC has looked at value packs in detergents which are not conventional stock-keeping units like 200 gm packs. There are price points which consumers are comfortable with and we try and fit the grammage in our packs to suit that point, says Henkels Satish Kumar. The next year will be witness to whether all these tactics have proven successful or not for marketers. But, they will need to keep trying to lure the elusive consumer. Needless to say the first no-brain decision that companies do in such tight conditions is to prune costs and conserve cash. Its happening across the board x in travel, telephones, electricity, capital expenses, recruitment. While companies look internally to squeeze costs they will spare no effort to keep the consumers coming and the tills ringing.

(Reporter associates: Boby Kurian, Purvita Chatterjee, Neha Kaushik and Ratna Bhushan)