Leadership Advice

A challenge for every small business is how to generate new business given the economic downturn. Although it’s tempting to slash the marketing budget and cut prices to try to keep the show on the road, this can be a huge mistake.

Instead, a better approach, says Luke Matthews, CEO of business consultancy Sustainable Operations Management, is to tweak your marketing program to cope with the economic conditions and to ensure your marketing program is only focused on niche markets.

“We often talk about a rifle or a shotgun approach in marketing, and in the current economic climate, it’s much better to take a rifle approach and deliver messages deep into small, targeted areas, rather than use a scattergun approach.”

Matthews says in a downturn, consumers usually turn to brands they can trust. As a small business, this means it’s crucial to keep investing in your brand because “if your brand is trusted, you’ll get the business”.

Cement Your Value Proposition

A related idea is to maintain your customers’ perception of the value your products or services offers. “It’s a very competitive environment; everyone is after the same sale, which means perception of value is critical. Many businesses look to increase their value proposition in a downturn to help generate sales”, says Matthews.

One way to do this is to bundle complementary products together. “The big telcos are doing this very effectively at the moment. You see Foxtel, for example, offering free installation and dropping their contract terms to 12 months from 24 months to win business”, says Matthews.

Matthews says services businesses can also add features to the services they provide to increase their value proposition in the minds of customers. So if you are an accountant, you might be able to offer a review of clients’ insurances as an add-on service when preparing annual tax returns.

Targeting the Right Customers

A key part of any new business program in a downturn is appropriate segmentation of the target market — so you are only targeting customers who actually have money to spend. Although focusing the marketing program on high net worth customers might seem a sensible approach in a downturn, Matthews says anecdotal evidence suggests this is the wrong strategy.

“The top end are usually classified as cash poor and asset rich. But over the past year, the global financial crisis has reduced the assets of this group by 45 per cent, so this group isn’t really spending and probably shouldn’t be a target”, says Matthews.

“From what I see, the people who are spending are at the lower end. But anyone who is insecure about their job, for example, people working in the automotive or aviation industries, is not spending. The idea is to understand your market and target the segments that have money to spend”, he says.

Directing the Marketing Spending

The worst possible move in a downturn when it comes to driving revenue is to reduce the marketing budget. Instead of taking this approach, Matthews says a better idea is to “spend money on promotional activities that offer good value”.

One example, says Matthews, is direct mail. “Things like leaflets, inserts into publications and even targeted e-mail campaigns can work well and don’t cost a lot”, he says.

Online advertising is another cost-effective option for small businesses that want to use marketing to drive sales. “Google, Facebook and YouTube all have great deals and packages and can offer targeted marketing to niche groups”, Matthews advises.

The Price is Right

Although it’s tempting to drop prices in a bid to maintain market share in a downturn, Matthews says this approach will damage the business in the longer term. “Discounting can be a big mistake”, he says.

It’s also a good idea to develop very conservative revenue targets with a short-term time horizon. “In good times you can project out three to five years, but in a downturn, it’s better to focus on short-term planning. Projecting revenue six to 12 months into the future is about as far as you can go”, Matthews says.

To determine revenue projections in a rocky business climate, Matthews’ advice is to draw on statistics published by the Australian Bureau of Statistics and the Reserve Bank of Australia.

“Many industry bodies and associations also have great information about what’s happening, and a phone call to one of these bodies will give you a good indication about conditions in your industry sector”, he says.

Although times are tough, Matthews says it’s important to “remain focused on existing and new customers. You need to ensure your existing customers still think you offer a good service, while also focusing on new revenue opportunities”.

Get this balance right, and it’s likely your business will emerge from the current downturn in better shape than when the economy was booming.