People all over the world are aware of the global economic crisis. I don’t have to update you on what’s happening. In my last post “Budget Cuts Are Coming: What are you going to do about it?” , I talked about how to handle the budget cuts.

A VC friend of mine said something I liked (he often does). He said that trillions of dollars have spilled out of the global economic gas tank, and they’re gone. The engine doesn’t stop running, however, it just runs with fewer of those dollars in it. It will be harder for us all, and things will take longer, but things will continue to progress – they always have and they always will.

Now, we need to focus on getting back to work and getting our marketing done in a down economy. This translates to two fundamentals:

• Finish the focus on the cost-cutting. Get it done and move on.
• Focus now, more than ever on the fundamentals.

A quick story about fundamentals. One of the greatest football coaches ever was Vince Lombardi of the Green Bay Packers. Once, after the team suffered a loss, he insisted they were going back to learning the fundamentals. He was really mad at the team, and stood up in front of them, held up a football and said “Gentlemen, this is a football”. Team comedian Max McGee broke the ice of that tense moment by saying “Slow down coach, you’re going too fast!”

Separate from that story, Vince also said “Excellence is achieved by the mastery of the fundamentals.” I couldn’t agree more.

What do I mean by the fundamentals?

• Narrow your focus on the market segments where you know you can win. Ensure everyone on your team understands these market segments better than your competitors and as if they lived and breathed only those market segments. Get inside the heads of the buyers and influencers in your target segments like never before.
• Refine, improve, simplify, incrementally change, and continually update the value proposition you have for those market segments. You value proposition can always be improved, especially when the market is shifting so dynamically as it is now.
• Watch your competitors closely. Make sure your value proposition is a step ahead of theirs and clearly differentiated from theirs. They are fighting for the same dollars you are.
• Do the same thing for your channel partners. Create loyalty by treating them as well as your customers.
• Develop simple, quickly addressable plans for matching your value proposition to the target markets to create awareness, demand and a compelling reason for them to buy from you now.
• Finally, focus on executing your plan, and let your competitors focus on where else they can cut their budget just a little more here and a little more there.

Your focus on the fundamentals is your opportunity to win the business that is there. The engine is still running, and those that execute against the fundamentals have the best chance of winning the fight.

What do you think are some of the key fundamentals we should get back to now?

If your CEO hasn’t yet told you that your budget is cut…they will. Regardless of whether it’s because they’re being cautious, or they’re seeing a drop in orders, it will happen. So as a marketing executive, what should you do?

The bravest souls, the strongest CMOs, the most strategic marketing leaders, will argue against making cuts (see Recession Marketing: What the Best Companies Do).

However, most of you, for one reason or another, will need to deal with the cut. So, let’s assume that’s the situation you’re facing. And so, here are some ways to proceed:

1. Freeze hiring: Hiring is a big commitment. If you hire now and you have to reduce headcount later, you’ll seriously regret the hire you just made

2. Let your questionable performers go now: If you were thinking they might need to go, they probably should

3. Monitor and understand your competitors’ moves: see Responding Competitively during a Recession

4. Consider contractors: Contractors give you the ultimate flexibility. You can use them part-time. You can use them on a project and let them go once they’re done. You can always let them go at any time for any reason, and the termination process doesn’t cost you anything

5. Cut back on your areas of biggest spending: (after headcount) For you, it could be advertising, tradeshows, reseller programs or something else. The simple point is that your greatest dollars exist in certain categories. You can make relatively small percentage changes in those categories without changing your overall strategy, or your overall marketing mix

6. Automate some of your marketing activities: The options available can be overwhelming, but there are many excellent solutions out there. (More on marketing automation to come at a later date)

7. Ask your team the hard questions about what’s giving you value: It’s absolutely the case that a lot of marketing is very difficult to measure. That will always be the case. But just because it’s hard to do doesn’t mean you shouldn’t make decisions based on the information you can gather 8. Get smarter about your markets: Let’s face it. Very few of you know what you should know about the markets you serve and the markets you are attempting to serve (the new markets). There are lots of ways to make this happen, and I’ll bet you’ve under-invested in this area

This list could go on forever…What do you think is the best way to proceed in this climate?

In a McKinsey article (subscription required), they talk about pricing in a downturn. I’ve summarized some of their thinking and modified it for the marketing audience.

(I really like McKinsey. We often follow them within our clients after they’ve completed their work – not because they didn’t do good work, but rather because there is so much work to do after they leave.)

Pricing is always a challenge, and more so in a downturn. Demand decreases, price sensitivity increases, competitive pricing often declines and the cost of sales increases, ultimately lowering margins. So, rather than just lower your prices, what can you do?

1. Watch for shifts in price structure: It can be easy to watch the sales organization create unique deals to make sales happen, which have an impact on changing the way pricing is done. Sometimes this is acceptable. But it should be done in the context of understanding the long-term impact, not just on a per-deal basis. For example, it’s possible that a change in price structure for one deal will open up opportunities in other accounts as well, if approached from a corporate-wide perspective.
2. Monitor customer-level profitability: As prices decline, you may find that some customers become unprofitable. Others become less profitable and should be approached differently than those with higher profitability.
3. Adjust to changing customer needs: Through market research and direct contact, you can determine how economics are changing for customers. The question to ask is – how can we restructure our pricing to address the changes our customers are facing?
4. Update price sensitivity research – often: Your customers are facing cost-management challenges. Your competitors are making pricing changes. The research you completed a short while ago may already be out of date.

However, a key point missing from the McKinsey work is related to understanding the needs of non-customers and how that can impact your pricing strategy in a downturn. To learn more about this critical step, see What’s Your Market IQ?

What do you see as important steps to take in pricing in this economic climate?

A recent Global Survey by McKinsey, How Companies Respond to Competitors (subscription required) has some interesting observations. In the following, I highlight some of the key findings and provide commentary on how this relates to technology companies operating in a downturn.

The study looked at two key competitive moves — lowering of prices and innovation. Both if these are highly relevant to technology companies. (See Compete Better, Use Your Competitors’ Products)

Key finding: Most executives gather information from news reports, industry groups, annual reports, market share data, and pricing data. Very few obtain information from reverse engineering and mystery shopping. This is not because they don’t understand the impact of the competitive threat – they do. It’s my contention that they simply don’t focus sufficient energy and resources on understanding their competition to address potential competitive threats.

Key finding: Executives don’t spend time on an exhaustive analysis of the options for responding to a competitor’s move. And, their response tends to be slow. Why is this? I believe it’s because they have not been methodical in tracking their competitors to date, and being comprehensive regarding a response isn’t really possible if they haven’t been closely tracking their competitors to date. The result – I believe - is that their competitive responses are amateurish and done intuitively rather than based on sound analysis. Not a good thing.

Finally, a word on competitive response in a recession. When customers lower their spending, it rarely means that they’re no longer spending, it just means they’re spending less. The pie is smaller. To me, that means that competitive analysis, and competitive response is extremely critical in a recession. To maintain market share, and/or margins and/or revenue, a company needs to take something away from the competition.

This study shows that companies aren’t very good at the competitive game, especially in a recession (See Recession Marketing: What the Best Companies Do). To that end, not competing is a serious mistake.

We are experts in marketing. We work with the best technology marketers in the world. And, we’ve see two differing responses to marketing in a recession.

The first is the most familiar: marketing is discretionary and so, marketing gets cut. Marketing doesn’t immediately impact sales, therefore it gets cut. Investigating new market opportunities takes time, so that work gets cut. Developing new strategies don’t impact sales this quarter, so they don’t get done. Companies might keep their investment in lead gen, but that’s about it.

The second is the best practice for companies that are not afraid of their immediate future and are are willing to invest beyond a “quarterly” mentality. Start-ups don’t do this nor do second-tier players. Companies that have a long-term investment philosophy do this… they INCREASE their marketing investments in a recession.

And, why is that?

1) Competitors are cutting back. Every dollar spent now is a dollar that has a greater impact than during robust times when you have to spend just to keep up. There is less noise in the markets, so your message stands out now.

2) Marketing takes time. Hello. If you believe that marketing is about this quarter, then no wonder you cut back. Marketing is about creating a long-term sustainable advantage. Sure, marketing has a role in lead generation, but that is a relatively minor role. If you ensure that marketing is making investments in the future, then you will enjoy a robust future.

3) New opportunities will present themselves, but only if you are investing money in looking for them. If you cut back, then you’re just doing more of the same. If you continue to invest, you will see things that didn’t exist before. Many companies change their strategy in down times because they are have continued to investigate new market opportunities.

4) Your channel partners need your help. In a time when everyone is cutting back, your partners are suffering. However, if you step in to work with them when they need it the most, if you train them on your products and help them market your products more effectively - not only will you take market share, but you create loyalty.

5) Since your customers are cutting back their buying, you often have to change your messaging to reflect this. You need to understand how the decision-making process is changing. Doing this right requires some work to develop the right messages to the right buyers.

6) Finally, what kind of marketing organization are you? I have spoken about what role the CMO should play in CMOs as True Leaders. Are you the tail of the dog, or is your marketing organization driving the strategic direction of the company? If you cut back, then you are the tail.

BEWARE: The tail can get cut off.

In a recent discussion with a client, we were talking about how well their recent strategic shift was going towards a new market segment. They told me that at first blush, it looked pretty good. Sales of the product were robust, so SVP of Sales was quite happy.

Since we focus on marketing, we asked the SVP Marketing, why this product was successful. Upon further analysis, the marketing leader revealed that the new products were selling to the existing customer base, not the new market, as was intended. So, we started to drill more deeply.

The products were actually designed for a new market, not the existing one. They were designed by looking at the needs of the new market (bravo). But, there were several things not taken into consideration when creating the product market fit:

1. Did their existing market have a need for this new product?
2. Were they willing to potentially cannibalize sales of old product for sales of this new product, especially when the new product has lower margins?
3. How could they get channel partners to sell to the new market?

Let’s look at each of these issues briefly:

1. Existing market needs. On the one hand, our client didn’t even consider the needs of their installed base when designing this product. Clearly they should have. On the other hand, being opportunistic, they have discovered market demand for their product.
2. Cannibalization. I feel very, very strongly about this point. Either our client is going to cannibalize sales into their installed base with lower margin products or the competition is going to take that business. It is a strategic imperative to ensure you get those revenues, and not pretend that your customers aren’t going to buy the new products anyway. Companies must cannibalize to survive.
3. Channel Partners. Our client admitted two errors. First, they expected their current channel partners to sell to the new market. Ummmm, channel partners will sell where they already know how to sell, not where you want them to. Second, they didn’t recruit new channel partners – the ones who were already selling to their target market for this new product. (for more info on a solution-based approach to channel sales, see “The New Solution-Selling Paradigm” by Allan Adler and Dylan Charles)

How might you have handled this situation differently than our client?

A recent McKinsey article entitled “Getting More From Prepaid Mobile Services” (subscription required) highlights some lessons from a consumer offering that has applicability to many other offerings – microsegment promotions and experimentation. In this article, the authors talk about how mobile operators are creating microsegments of users to test promotions with the objective of creating renewals and increased (profitable) usage.

Segmentation is a well-known discipline. What is different about microsegmentation is the ability to continually experiment with promotions that are likely to be highly relevant to the microsegment, without jeopardizing revenues. If you experiment with promotions in a segment that is too large, you carry two risks:

1. People will ignore the promotion, and begin the cycle of ignoring your future communications because they lack relevance,
2. People who would have done what you offered anyway, take advantage of the promotion and cut into your margins. (For example, you might be a heavy text-message user and receive a promotion for free text-messaging.)

However, if you experiment in microsegments, you are much more likely to provide a promotion that will be relevant to that microsegment, that will be adopted by them and that will result in increased revenue (and profit). The article acknowledges that running microsegment promotional experiments is not simple, but it is effective. The team will need to be cross-functional, to include marketing, IT specialists and financial analysts. And naturally, it assumes excellence in data mining. However, when designed and executed well, this approach will create more value from existing customers and may help you get more customers as well.

Have you experimented with microsegmentation? How do you think it could impact your revenue and profits?

A recent Harvard Business Review article entitled “In E-Commerce, More is More”, provides valuable insight into what customers are looking for from vendors. Two professors, one from London’s Imperial College Business School and the other from Munich’s School of Management, conducted research into two critical items:

• What increases the likelihood of customers revisiting a site and,
• What causes customers to feel engaged with that company’s products

Engagement in this context means things like that customers are more “involved” and “connected” with, and feel a stronger “overall attraction” to the company’s core offerings.

At Crimson, we have spoken before about Engagement (see #2, Rethink the Basics) as a critical component in marketing. The HBR article talks about what causes customers to be engaged with a vendor. While research was conducted on e-commerce sites, I believe the lessons are applicable to all sites, for all types of customers.

The professors looked at five major factors that impact the likelihood of revisiting the site and the sense of engagement they had with the company’s offerings. These factors are ranked from low to high:

1. Order tracking
2. Clear categorization
3. Personalized shopping
4. In-depth information on product or service

… and the winner, by a substantial margin is …

5. Information on related products and services.

What does “information on related products and services” mean? Some examples:

• Ralph Lauren provides content on fashion, art, sports, healthy diets and business.
• Online auto shoppers show great interest in travel, sports, apparel and finance and an exceptional auto shopping site would provide that content.
• Another example is what Cisco does for its SMB customers via BizWize TV. This broadcast medium provides a variety of valuable information for small businesses (not just Cisco information), giving them a lot of reasons to continue revisiting the site and creating a stronger “overall attraction” to the Cisco’s core offerings. (Full disclosure, Cisco is a Crimson client.)

My takeaway: Companies of all kinds can maximize the likelihood of people revisiting their site, and of feeling engaged with that vendor if the company will invest in content that’s of interest to customers – content that extends beyond discussions of products and services. One great way to do that is to establish a community on the site that enables visitors to vote and comment on the things they want to see on the site. The community approach (not covered in the HBR study) will strengthen the tie a company is attempting to make with its customers even further.

What best practices have you encountered in getting customers more engaged with your company?

We work with a lot of clients that focus on verticals, many that consider focusing on verticals and several that go back and forth in terms of their commitment to verticals. I asked myself — why aren’t companies better at this? Here’s the answer:

1. World-class vertical marketing takes executive level commitment. No commitment, no success. As we mention in CMOs: Step It Up, this is the responsibility of the CMO.
2. Companies must recognize that this is a significant cultural shift, not a casual “marketing” shift. Products may change. New solutions may be developed. New positioning is required. New alliances are almost certainly required, along with new channel partners. Companies may require a retooling of their sales organization as well. This is a big deal.
3. The vertical “shift” will take time. A long time. Many years will pass before the organization can determine success, and as we know, ROI is hard to measure on this particular topic.

So, what’s a world-class marketer to do? Here’s a greatly simplified list to get you started thinking about the key issues to address.

1. Determine the right verticals. This is based on size and your ability to differentiate a solution within a vertical.
2. Identify the hot spots within the vertical. What and where is it that people really want to buy?
3. Determine who the buyers are. You will find they are different from who you sold to via a horizontal approach.
4. Determine what the “whole product” needs to look like. It is different from what you have today.
5. Determine what partners you need to deliver that whole product. You will almost certainly need a new set of alliance and channel partners.
6. Determine your go-to-market strategy (with which partners, with what solutions, into which markets?)
7. Build the teams you need, with the right domain expertise (people who understand that vertical), both internally and externally.
8. Develop your positioning and messaging around your new solutions. See Marketing Gets the Message for more info.
9. Pilot your approach into your highest priority vertical.
10. Rinse and repeat for each vertical.

Too simple? Too complex? What do you think?

Why do you think companies aren’t better at vertical marketing?

Venture capitalist Stu Phillips of Ridgelift Ventures writes about companies needing to “eat their own dog food” when it comes to using their products. He makes the point that they’ll understand product issues and fix them faster if they do.

While I agree, I think it’s especially important that companies eat the competitors’ dog food too! Most of our clients are involved in crowded markets where customers have a multitude of choice. And yet, I see technology companies using ONLY their own products internally.

Does HP use Sun servers with Solaris? Does Apple use Nokia phones? Does Cisco use Juniper switches? Does Oracle use SAP? Does Microsoft use web-based office productivity software?

Imagine if they did. Imagine what the marketing and engineering people would learn. They would learn the good, the bad and the ugly, not just about their competitors’ products, but more importantly, they’d learn the good, the bad and the ugly about their own products when they contrast them to competitive offerings.

Too many companies “drink their own kool-aid” and/or eat their own dog food so much that they actually believe they understand their products from a customer’s perspective inside an incredibly competitive world.

Worst case, if you can’t make it happen inside your company, hire a firm (could be Crimson, could be other companies) to help you get that real experience, insight and knowledge you crave about how your competitors’ products are really doing.