The Hidden Cost to Cost Cutting!

        A recession can be devastating, but it can also be one of the greatest opportunities to learn and grow that has ever presented itself to business. While this may be your first recession, they are not new, we have had them before. In the 1930's, the 1970's, in the 1980's, in the 1990's and even in 2002, following the 9/11 tragedy. And that recession was not caused by economic factors, but it still happened.

        While recessions can be hard, they don’t necessarily have to be, especially to those who have done their marketing homework and know where opportunities exist and what the dangers are of taking the wrong steps during the recession. Remember that we have always recovered from a recession, and we will this time, so the difference is, where do you want to be when the recovery happens.

        Almost everyone is going to lose some business when times are bad, but you don’t have to settle for a smaller share of the pie. You can and should take all actions possible to increase your market share when everyone else is losing theirs. By doing so, you will emerge with a much greater and more profitable company.

        Businesses are run by people. Business people are subject to the same foibles and mis-steps that can befall the rest of society. When some see a fire, many will turn and run from the flames. But others will take a second, look at the fire and make a decision as to whether it can be extinguished safely and easily, before real damage is done. Some people in business will cut cost at the first sign of declining income, while others will look at the flames and see what can be done to put them out or lessen their effect, if not profit from them completely.

        Let’s look at a couple of real examples and see what some have done to do exactly that.

        When 9/11 happened, airline passengers were in short supply. Between the grounding of the airlines and the extreme fear of many passengers who did not want to be the next terrorist victim, the airlines were hard pressed to find a paying customer. Many air carriers started cutting cost, by closing gates, cutting routes, reducing flight schedules, cancelling meals and laying off staff. One airline however did the opposite.

        Continental Airlines expanded service. Offered free in-flight movies, snacks and limited meals, increased customer service and opened new vistas. What they did, of course, was not only pick up the business other airlines were rapidly abandoning, but they were also positioning themselves to be first in line when the mass of passengers came back, as they surely did. Did it work? Of course it did. Continental found themselves in a most enviable place in the airline industry within just a few months. In the words of Continental’s CEO Gordon Bethune, "Now is not the time to take the cheese off the pizza."

        Remember you can not change a declining market, but you can change your market share. And while you are remembering that statement, remember this also, you can never increase market share by cutting cost.

What do the following have in common?

        On the surface, they don’t seem to have much in common. They are not even competing companies or products. But they do have something very significant in common.

        They all have a higher cost of content than their competitors. Which means they don’t lessen their product at any time - for any reason. And that results in higher profits for them. When times are tough, don’t cheapen your products or services in order to save a few cents. Look at it this way, the ice cream truck doesn’t drive less miles when sales are slow, rather he plays the music louder.

        Want another example of what I’m talking about? Look at the meteoric rise in new American made automobile warranty claims and the subsequent loss of market share. The result of the ‘buy at the cheapest price’ mentality of American automakers as we all know has been a substantially higher overall cost to doing business. When you buy at the cheapest price, you will pay at the other end. It is a rule as sure as the sun will come up tomorrow.

        Publications of decade long studies by such prestigious firms as: Strategic Planning Institute; The Association of Business Publishers: McGraw - Hill; Conner’s; and Nielsen, all show that marketing investments are more critical during down or recession times than at any other juncture. And a Mercer Company study showed that companies that cut marketing during recession resulted in a loss of business that did not recover for over 5 years.

        When times are tough, you must out promote, out advertise, and out sell your competitors. You do not cut quality. Always remember that the hidden cost of cost cutting - is lost customers.

ADDITIONAL MARKETING RESOURCE LINKS:

Assignment for Success Business Articles

Assignment for Success Marketing Newsletter Archive

Little Known Facts
Business Radio