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Professor: Slashing spending in bad times not prudent
International marketing guru Prof David J Reibstein has told local business executives that running scared in a bad economy and slashing spending might not be the most prudent strategy for the sustainability and survival of their businesses.
“The natural thing to do is when the economy is down, everybody cuts spending. When you do that, that money falls right to the bottom.
“When others are cutting, you are not to cut, and there is some strong evidence to indicate that there is some rationale of when not to cut,” he said. Reibstein’s remarks came during a T&T Guardian interview at Friday’s Strategic Marketing and Brand Growth Summit 2012 titled, Competitive Marketing Strategy, Analytics and Brand Metrics, held at the Hyatt Regency Trinidad hotel, Port-of-Spain.
Reibstein spoke on the theme, Linking Marketing to Financial Performance at the conference, of which Guardian Media Ltd was the official media sponsor. “There are some banks here. They have been actually cutting some of their spending. The economy is down. All of your spending has some impact on a relative basis.
“There is some logic that when the economy is bad to cut back on your spending, but the real question is: at what point do you start reinvesting?” he asked. Reibstein added: “You want to reinvest before the economy has recovered. There are lots of companies that wait until the economy has recovered and wait until they have recouped some of what they think their losses are, and then they are going to start re-investing. That’s under-investment.”
He said while some companies could boast about efficiency, one direct result is a dramatic reduction in profitability. There is not enough being done in T&T to measure customer value, Reibstein said. Douglas Henderson, global brands director at the Carib Brewery Ltd, said after the first session that the idea of marketing as an investment rather than an expense was clear.
“I think when you go to overseas markets, much bigger markets: the United States, Europe, you really need to look at it as an investment and, most importantly, you need to measure the return on that investment. “If you go with a marketing expense into those markets, it’s usually too daunting. It would end up being too big an expense line item on the balance sheet,” Henderson said.
Henderson said the concept of marketing as an investment and measuring the return on investment allowed for the better positioning of products within new markets which required a higher level of marketing investment on the point of entry alone. On the issue of marketing in a recession, the beverage industry executive said that in retrospect, recessions weren’t bad things.
“It forces companies to become more efficient; it forces them to look at areas that they can improve,” Henderson said. “From a marketing aspect, it forces them even more to analyse the market they are going into, manage their expenses going into the market, (and) partner with the right people.
“When times are good and sales are good, there are no problems. No one asks any questions. When things are bad, we start to highlight these things and improve on them. As you come out of a bad point, if your company is not stronger for it, then you’ve really not taken advantage of that opportunity that the economic cycle gave you.”
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