Effects of the 2007 2009 Recession on Strategic Marketing Management Practices - Essay Example

Effects of the 2007 – 2009 Recession on Strategic Marketing Management Practices Introduction The dynamic nature of all typesof markets in the modern world has raised the need for organizations to acknowledge the importance of strategic marketing management. A marketing strategy considered cost-effective today may not be relevant tomorrow. A strategic market management plan entails a system designed by an organization to facilitate management’s efforts to create a new marketing strategy, retain an old one, and create strategic visions. Strategic vision refers to a projection of a strategy to be used in future. A strategic marketing management plan aims to generate marketing strategies which will enable a business to accomplish its marketing goals cost-effectively. It involves decisions which have significant impact on the long-term success of an organization (Parry, 2005, 56). Impacts of the 2007 – 2009 Financial and Economic Crisis on Businesses Even a winning marketing strategy generated through strategic market management practices may not succeed if a country or region undergoes rapid business decline. In this case, decline in consumer income forces them to adjust their spending patterns (Kaar, 2009, 134). Consumers usually decide to temporarily abandon some of the products and services, which only satisfy needs and wants that rank low in their hierarchy of needs. They may simply have to do without many non-essential products and services and even some essential ones. The financial crisis of 2007–2009 resulted in a damaging economic recession that radically altered the market landscape across the globe. This period saw numerous businesses adjust their strategic marketing management practices to counter the drop in sales volume that resulted due to a drastic decline in consumer spending in most industries. Furthermore, the economy recovery that followed the recession not only brought new opportunities for businesses, but also challenges and risks that have forced them to adapt new strategies (Wysocki & Wirth, 2012, n.p). “The age of thrift”, which is the phrase now commonly used to refer to the market situation that followed the financial crisis, is characterized by public skepticism and a general lack of trust in the operations of businesses and their marketing offers. The impact of the economic downturn has redrawn the competitive structure of markets and created new and often unfamiliar situations for suppliers. One of the contributing factors for this “new normal” has been growing international protectionism and reduced access to finances that has circumscribed growth options in recovery (Muller, 2010, 67). In the wake of this challenging market situation, many businesses have managed to overcome market-place challenges and maximize opportunities by conducting strategic consumer and competitor analysis, and shifting their strategies accordingly. With this regard, this generally involves changing the target market and/or adapting the business’ marketing mix. However, the response that the recession elicited from marketing managers depended on their perceptive of its meaning and the impact it had on their businesses (Muller, 2010, 244). The Case of Revlon, Inc One organization that had to alter its strategic marketing management practices to overcome the marketing challenges of the 2007 – 2009 economic recession is Revlon, Inc. Revlon is an American multinational corporation that specializes in the provision of beauty products. Its line of business involves cosmetics, skincare, personal care and fragrance products. The company’s portfolio brands include: Revlon® color cosmetics, Revlon® beauty tools, Revlon Colorsilk® hair color, Almay® color cosmetics, Charlie® fragrances, Ultima II® skin care, Mitchum® anti-perspirant deodorants, and Gatineau® skin care. The US has a relatively large market for color cosmetics, accounting for more than 18% of the world’s market for color cosmetics. Revlon has a massive market share considering that it commands about 20% of the US color cosmetics market. Notably, anti-cellulite skin care products and anti-aging creams have a high demand in developed countries, most of which have aging populations. In particular, the US, Japan, and Western Europe have aging populations that form prime markets for products of the global skin care industry. Revlon’s is headquartered in New York, US, but its operations are also spread internationally in Canada, South America, Europe, South Africa, Middle East and Australia. Therefore, the company has an extensive global presence and its performance is heavily reliable on the state of the global economy, a factor that became apparent during the economic recession (Revlon, 2013, n.p). Revlon supplies its customers with products through drugstores and large-scale retailers, especially Wal-Mart, which accounts for about 23% of Revlon’s total sales. In 2009, Revlon registered sales with a value of $1.3 billion and a net income of $821.20 million, representing a decline of 4.4% and 2.9% respectively from the previous financial year. The company attributed this decline to the weak global economy (Wikinvest, 2013, n.p). The beauty and skincare market had a worth of $43.6 billion in 2007 and had a yearly growth rate of 7.1%. However, the market suffered a massive setback with the onset of the 2007–2009 financial crisis resulting in a serious economic downturn. As the recession resulted in a drastic decline in consumer disposable income, the growth rate in market value fell to 6.6% by mid-2008, and by the end of 2009 had dropped to a low of -3.3%. The consumption per user growth rate of the industry dropped to 0.7% in 2008 from 1.4% in 2007, and continued to drop steadily throughout half of the following year. In addition, the average per unit price declined significantly in the course of the recession period as consumers switched to low-priced brands due to reduced disposable income (Glamface, 2013, n.p). The marketing challenges that Revlon faced during and after the recent recession were not only caused by the reduced consumer spending, but also due to strong competition from the major players in the industry. According to Glamface (2013), Revlon is only a middle-level player in the cosmetics industry and is not able to invest as large amounts in research and development as the larger players such as L’oreal (LRLCY) and Proctor & Gamble. In addition, competition from smaller competitors than Revlon such as Avon and Estee Lauder Companies increased. Revlon competes with several larger competitors that are able to invest much larger amounts in research and development. Over past decade, Revlon's constant accrual of losses has left the company with insufficient finances to invest heavily in research and development. In 2009, Revlon spent only 1.8% of net sales ($23.9 million) on R&D.[6]In order to cope in the difficult business environment, the management at Revlon had to return to the drawing board and review the company’s strategic marketing management practices. A SWOT analysis was conducted since it plays a crucial role in the determination of the level of the current competitiveness of the company, and consequently, the necessary adjustments to the organization’s strategic marketing management practices (Aaker, 1995, 154). SWOT Analysis of Revlon Strengths Weaknesses Opportunities Threats Good public image since the company has been supporting a number of health programs for women in the US. The company has a weak financial position as a result of heavy debts and net losses. Strong research and development Strong competition. Well managed distribution channel ensures high customer accessibility to products. Marketing is weak other than in the area of advertising. Reduced advertising by competitors. Reduced consumer purchasing power due to a weak economy. High inflation leading to increased business expenses. Table 1: SWOT Analysis of Revlon on September 13 2009 (Wikinvest, 2013) Revlon’s marketing team arrived at the conclusion that the company would have to adjust its strategic marketing management practices so as to counter increased competition and reduced sales volume. The customers were giving up the company’s products in favour9 of cheaper ones provided by competitors. Although Revlon’s strategic marketing management practices previously tended to focus on long-term solutions, the management decided to alter the marketing strategy to focus on short-term solutions which would enable the company to eliminate some of its weaknesses. Revlon decided to cut prices in order to meet consumer preferences for low-priced products. This helped the company to counter stiff competition in the industry and boost sales. The improved finances helped the company to finance adjusted advertising and promotion strategies meant to increase the company’s market share and, therefore, compensate for the reduced sales volume. However, Revlon only employed this move as a temporary strategy meant to generate urgently required finances for the company. This is because such price cut-cuts would have to be reversed when a market upturn finally ensues, signaling to customers that the business views them as easy prey for discounting and, consequently, harming the business image (Lehmann & Russell, 1994, 68). Consequently, price-cuts would harm Revlon’s business image in the long-run. Therefore, Revlon abandoned the price-oriented strategy as soon as it had achieved its purpose, and adapted strategic marketing management practices that are beneficial to the business in the long run. In adapting its strategic marketing management practices to the existing conditions, Revlon reviewed its target market in order to determine the most appropriate and cost-effective marketing mix of approaching the new market situation. The management at Revlon realized that it would be unwise to cut back on promotions and advertising due to limited finances brought about by the effects of the recession. According to Thompson and Strickland (2001, 176), a recession provides a good opportunity to take advantage of superior promotions and advertising since most competitors are reducing advertising. This enables them to increase market share and improve return on investment at a lower cost than would be possible during the boom part of the business cycle. Revlon understood that its customers would naturally be uncertain about the company’s products since they would want value for their money. Therefore, the marketing team undertook the initiative to reassure existing customers of maintained high quality of existing brands. Value-driven advertising would yield larger mass media audiences at a much reduced cost per thousand impressions (Brown & Media, 2012, 78). Revlon’s newly acquired financial muscle from the first part of its strategic marketing plan for the recession that involved price-cuts enabled it to negotiate competitive advertising rates with marketing agencies and, furthermore, maintain these favourable rates for several years to come. However, Revlon did cut back a bit on advertising to achieve a favourable return on capital, but did so in strategic manner meant to maintain the company’s presence in major markets. With this regard, the length of television advertisements was reduced, but their frequency was maintained. For example, 30-second TV adverts were reduced to 15 seconds, and radio was substituted for television advertising. In addition, the company increased the use of direct marketing as a communication tool, engaging a larger portion of its customer base through personal selling. Consumer Analysis Revlon undertook a customer analysis to determine the prevailing market dynamics. The customer analysis involved the examination of market segmentation, unmet needs, and customer motivation. Market segmentation was carried out to determine the business’ potential and current customers. The demographics indicated that Revlon depends on a decidedly female market. The analysis determined that this was the only common factor among the company’s largely female customer base. The company’s female customers are very diverse, and range from girls as young as fifteen to women as old as seventy. The younger customers generally went for color cosmetics and fragrance products whereas the older customers mostly went for the skincare products. Therefore, Revlon decided against venturing into the male market, a possibility the marketing team was considering at the time. Market segmentation was crucial as it enabled the company to determine that focusing on its loyal and most valuable existing customers would yield better results than finding new customers (Lester, 2004, 36 – 41). In addition, it is easier to up-sell and cross-sell to existing customers and obtain word-of-mouth referrals than would be possible from new customers. Moreover, market segmentation enabled Revlon to determine weak segments which lack significant value for Competitive Unique Selling Propositions (CUSPs), and target existing segments that it can dominate with its CUSPs during the recession and for some period after. Revlon’s market segmentation was based on demographic, geographic, psychographic and behavioral factors. In this respect, market segmentation enabled Revlon to fulfill its strategic marketing management goals by designing and initiating a marketing plan that is cost-effective in the long run. Determination of customer characteristics was the second step of the customer analysis process. Revlon determined that customers attached a tangible experience to product purchases (Strategyn, 2013, n.p). Therefore, they would be reluctant to purchase shades of cosmetics they are unable to view firsthand or fragrances they are not able to smell. This revelation signified to the market team that Revlon should focus less on online marketing techniques and instead, primarily emphasize offline marketing tools. Finally, the determination of unmet needs enabled Revlon to determine marketing strategies for dislodging entrenched competitors. The marketing team approached this activity firstly by identifying the crucial consumer marketing needs. They include: ease of accessibility, constant availability, assurance of value, convenience, and adequate information about a product. The team also established that Revlon’s customers have no qualms about the availability of the company’s products whenever they required them, the ease of accessing these products, and convenience in using them. The consumers’ unmet needs lay in assurance of product value and quality, and acquisition of sufficient information and details regarding the products before purchasing them. Obviously, decline in disposable incomes had left consumers hard pressed for cash to use in purchasing non-essential products and services. Therefore, customers would naturally become selective when seeking products and services provided by the beauty industry due to narrowed customer preferences (Belch & Belch, 2001, 213). Most of them would seek to obtain high quality goods of established value at the lowest prices possible. As most players in the beauty industry were cutting back on their expenses in promotions and advertising, consumers were now receiving less information about the various products in the industry than they used to before the economic recession began. As a result, Revlon identified an unmet consumer need other competitors were overlooking (Parry, 2005, 156). The marketing team then embarked on designing an integrated marketing communication plan that would enable the company not only to gain a stranglehold in its existing customers, but also to increase its market share. Revlon’s Adapted Marketing Strategy during the Recession The marketing team set about putting together a marketing mix that would provide the customer with abundant information about the company’s products and an all-rounded marketing experience that would assure them that Revlon values them tremendously. This would achieve the purpose of convincing them that the company’s products have a higher value than those of competitors and will satisfy their beauty and skincare needs. Such a technique enables a business to gain a marketing advantage over competitors, although the reality of the situation would probably be that the company’s products have a roughly equal value to that of competitors or even less. Revlon designed a marketing mix that employed an integrated marketing communication approach, coordinating various offline and online communication tools to achieve excellent consumer relations, boost sales and increase market share. An integrated marketing communication approach enables a business to achieve a high level of cost-effectiveness in the use of its marketing strategies (Kitchen & Pelsmacker, 2004, 113). The offline marketing strategies that Revlon used as a communication tools to reach customers include: Advertising The company recognized that mass media is still the most effective means of reaching large portions of the target audience in as little time as possible (Nijssen & Frambach, 2001, 301). In this respect, Revlon retained the use of its oldest preferred method of advertising, featuring various celebrities in its adverts to attract the attention of the public to its adverts. Although expensive, this method has a high rate of success since it is effective and uses figures familiar to the target audience to attract their attention. In addition, this method appeals to some of the innermost feelings of belonging of the audience, who would seek to obtain the product since it would provide a sense of association with the celebrity featured in the advertisement (Doole & Lowe, 2008, 87). Revlon switched from the use of models in its adverts to movie stars. Among the famous actresses that Revlon used in its adverts from 2008 to 2011 include Halle Berry, Melanie Griffith, Susan Sarandon, Eva Mendes, Jennifer Connelly, Jessica Biel and Emma Stone. The company also employed the use of billboards strategically located along major highways to display adverts featuring celebrities. The aim of the mass media advertisements was not to provide product information to the target market but simply to increase brand awareness, which may make consumers more responsive to subsequent promotional activities aimed at providing product information (Fill, 2002, 167 – 168). To achieve an integrated marketing communications plan, the mass media and billboard adverts indicated Revlon websites where customers would be able to obtain further information regarding products they were interested in. Public Relations Revlon also resolved to adapt the use of various sales promotions activities as tools of conveying sufficient information to consumers about the company’s products. This specifically entailed the use of trade fairs and sampling to stimulate customer interest in the company’s products. Revlon participated in trade fairs mostly in the US, but also in the UK and other European countries, Middle East, and Australia. Sampling was undertaken in the early parts of introducing products that came out of Revlon’s research and development pipeline during and after the economic recession. Among the new products that Revlon introduced into the market by offering consumers free samples include Revlon Colorburst Lip Butter, Revlon Photo-Ready Hairbrush Mousse and Revlon Photo-Ready Primers, Personal Selling Personal selling is an effective way of conveying detailed product information to customers and forging positive customer relationships. With this regard, Revlon employed the use of sales presentations and incentive programmes. The company set up promotional stations in major retail outlets, especially Wal-Mart, where sales representatives engaged potential customers in one-on-one conversations on the benefits of using Revlon’s products. Incentive programmes that Revlon initiated from 2008 to 2011 include buy four-get-one-free incentives and discounts for bulk purchases. Conclusion Revlon’s performance in the beauty industry has improved significantly since the initiation of its adapted strategic marketing management practices to cope with the effects of the 2007 – 2009 financial and economic crises. Revenue and Market share have increased significantly, indicating that adjustment of marketing practices are crucial for businesses to overcome the challenges of recession. Consumer analysis is important in order to determine unmet consumer needs that could be satisfied through marketing practices, and help the business to obtain an edge over competitors. References Wysocki A F & Wirth F 2012 Strategic marketing management: building a foundation for your future. EDIS. Retrieved May 6 2013 from http://edis.ifas.ufl.edu/pdffiles/FE/FE29900.pdf Aaker D A 1995 Strategic Market Management, Fourth Edition. New York, NY: John Wiley & Sons, Inc Lehmann D R & Russell S W 1994 Analysis for Marketing Planning, Third Edition. Burr Ridge, IL: Richard D. Irwin, Inc. 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Retrieved May 7 2013 from http://www.glamface.co.uk/cosmetics-industry/ Wikinvest. Wiki analysis. Revlon. Retrieved May 7 2013 from http://www.wikinvest.com/stock/Revlon_(REV) Revlon 2013 Revlon home. Retrieved May 7 2013 from http://www.revlon.com/   Read More