Magazine article Marketing

Don't Mention Recession

Magazine article Marketing

Don't Mention Recession

Article excerpt

Despite negative forecasts, strong evidence exists that businesses investing in their brands can beat the recession.

There is a crisis in Asia, problems in South America and turbulent financial markets all around the world - indeed all the indicators are that something very nasty is happening to the world economy. But before companies start rashly slashing marketing budgets in preparation for the impending crisis, it is worth noting that there is little hard evidence to support the view that we are facing a serious economic crisis in the UK.

The evidence on which newspaper headlines have focused include the number of court actions taken by lenders against homeowners for mortgage arrears. According to figures released last week by the Lord Chancellor's office, they have 'rocketed' by a fifth in the past three months. At the same time Sainsbury's, Marks & Spencer, Whitbread, Allied Carpets, DFS and wallpaper maker Vymura all recorded disappointing financial results in 'increasingly difficult' trading conditions.

But while there is some evidence of rocky times, the gulf between the headlines and expert predictions is striking. Every month the Treasury publishes a comparison of independent forecasts for the UK economy. In the October edition, not one of the 24 learned academic and commercial bodies listed predicted that GDP will decline in the coming year.

Decline and fall

The average forecast is for economic growth of about 1%, with unemployment growing by 1.5%. In the 1979-80 and 1990-91 recessions, the economy declined by between 4% and 6%. Only the most pessimistic of predictions gets close to the technical definition of recession which is 'two consecutive quarters of negative growth'.

However, Kenneth Simmonds, professor of marketing and international business at the London Business School, argues that economic models are only useful for extrapolating what has gone before and cannot cope with radical changes.

"The biggest boom in history. lasted from 1991 to July this year. Basically there is global overcapacity and the world economy has to adjust. We are going to have the worst recession since the early 1900s," he says, predicting that the UK will be hit hard because it is much easier to close factories here than in other European countries.

Compare Simmonds' comments with those of Stephen Callender, chairman of The Marketing Society, and you can forgive the poor marketing director scratching his head in confusion. "When times are tough, the tough get spending. In past recessions, companies slashed marketing budgets and paid the price. In fact recession can create opportunities to increase market share for those that boost their marketing and promotional spends," he says.

But whatever the level of recession - be it a slump, a downturn or long-term depression - it is important for marketers to plan for the shifting economy while bearing in mind the differing effects on their own industry sector. While a recession may wreck the lives of individuals, its effect on companies is far from uniform and not always negative.

"Economic downturns have a useful function. In some companies and to a certain extent in the broader economy, they act like forest fires; they destroy deadwood and clear the ground for rejuvenation and growth by focusing management on areas of inefficiency and excess cost," argues Adrian Cooper, chief economist at Oxford Economic Forecasting.

It may sound trite, but the message is that difficult economic conditions over the next few months really do present an opportunity as well as a challenge. There will be winners as well as losers. How a company fares depends on where it is located, what industry it is in and how it reacts.

Forecasts suggest that there will be significant regional differences in economic performance. According to Cambridge Econometrics, which predicts average growth of 1. …

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