The Wall Street Journal | by Martin S. Roth & Richard Ettenson | Mar. 23, 2009
As Western companies struggle to navigate the worst economy in generations, here’s one piece of advice: Look at places where volatility is business as usual — emerging markets.
In these countries, companies have learned they can’t just hunker down when bad times strike. They have to go on the offensive. In Eastern Europe, South Africa and Latin America, managers look at tumultuous times as a chance to implement bold, creative ideas, outflank rivals and boost their business.
That means coming up with new ways to price their products. Or scrapping old marketing approaches. Or focusing on figuring out where the economy is heading next — and how to use that information to grab market share.
Here’s a closer look at the lessons companies might do well to follow, if they want to survive — and even thrive — in this crippling recession.
1. When the economy is down, get customers to trade up.
When times are tough, consumers focus on getting the best deal for their money. Often, this means trading down: Instead of buying, say, the “ultra” version of laundry detergent, people opt for the regular, cheaper variety. Even though these basic products have slimmer profit margins, companies figure some sales are better than none.
But in emerging markets, companies have learned that the opposite approach is often the smart one: They get customers to trade up to premium products — even though disposable income is much tighter.
How? They’re very careful about how they set prices on the different tiers of their products. Companies know that they can’t raise prices too much between basic and premium goods, or cash-strapped consumers will get turned off. So, the companies make the price increases much smaller and more consistent — which signals to buyers that premium products are a good value.
That means accepting a lower profit margin on premium products, lower than most Western companies accept. But buyers recognize that the brand is offering them higher value for the money, so they stick with it even in hard times. And they’re more willing to trade up to premium offerings.
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2. Increase product and service visibility.
The economic climate has already led to sharp cuts in marketing budgets, and more are inevitable. When figuring out the best way to allocate ever-scarcer resources, there’s one crucial principle to remember: Keeping customers you already have is a lot easier — and less expensive — than trying to land new ones.
We’ve seen this idea help top companies in Latin America cope with a range of crises. Whether they’re dealing with inflation, hyperinflation or recession, managers in these countries allocate shrinking resources with an unwavering focus on retaining customers. And it pays off.
For consumer-goods companies, this strategy often involves shifting away from traditional marketing such as television ads, which are usually geared toward informing potential customers about your brand. Instead, the companies focus on making their products more visible and available to customers who already know them — such as ensuring the goods are well placed on store shelves, or are advertised with in-store displays and other promotions.
As one manager told us, “Point of purchase becomes the ideal time to maintain the relationship, since it’s the only time when your product, your customer and that customer’s wallet are all in the same place.”
But this strategy doesn’t just involve paying for promotions. It also means maintaining sufficient sales and service staff. For instance, companies must have enough people in the field to stay on top of distributors and ensure their products end up in enough stores. What’s more, they must visit retailers frequently to negotiate for shelf space and provide support, such as facilitating orders.
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3. Rethink what customers value.
In some cases, rethinking a marketing or pricing strategy may not be enough. The continuing economic fallout in Western economies may mean that customers simply can’t afford certain products or services anymore — and marketers must change their whole business model to match the new reality.
Once again, Western companies could learn a lesson from their counterparts in emerging markets, which routinely are forced to rethink their business models to match market conditions. The most prominent example of this practice comes in mobile phones.
In Western markets, providers of mobile-phone services offer customers a wide range of high-tech products bundled with a dizzying array of service options. While the choices are vast, there is one constant: The lion’s share of revenue comes from locking customers in to long-term contracts. But that model may not be viable anymore as spending power shrinks.
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4. Look at new metrics.
In our experience, emerging-market companies that excel in turbulent times typically take a very broad view. They closely monitor economic data and then use the information to figure out where the market is headed. That helps them decide when it’s time to switch from one strategy to another — and thus outflank competitors.
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