Sinking the Boat or Missing the Boat?

Much has been written - and is being written (by marketers and economists alike) - on the subject of marketing during a recession.

Today's Small Market Radio Newsletter carried a fascinating New Yorker piece by James Surowiecki on the subject.

Surowieki contrasts the Depression-era responses of two ready-to-eat cereal makers, Post and Kellogg:

Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising (emphasis mine), and heavily pushed its new cereal, Rice Krispies. (Snap, Crackle, and Pop first appeared in the thirties.) By 1933, even as the economy cratered, Kellogg’s profits had risen almost thirty per cent and it had become what it remains today: the industry’s dominant player.

Chrysler took the same approach during the Great Depression and in 1933 passed Ford to become the #2 automaker in America, thanks to its aggressive marketing of the Plymouth brand. This gain was not as long-lived as some, but it demonstrates what can be done when a company goes after market share while others are trying merely to preserve what they have.

I was visiting with a new client earlier in the week. He's in the retail furniture business, a category not exactly thriving these days, given the overall economic climate and contraction in the housing market. But he's not hunkering down. He's planning for expansion and growth. He said to me, "We're in a kind of Ice Age now. And you know what an Ice Age is good for? It kills off the dinosaurs!"

Indeed.

Commenting on why many companies are so quick to cut their advertising during an economic slowdown, Surowiecki cites economist Frank Knight's distinction between risk and uncertainty.

Risk describes a situation where you have a sense of the range and likelihood of possible outcomes. Uncertainty describes a situation where it’s not even clear what might happen, let alone how likely the possible outcomes are. Uncertainty is always a part of business, but in a recession it dominates everything...

For businesses that choose to place their bets on minimizing risks and preserving assets in the short-term, cutting back makes sense.

For others, deep pockets or not, the opportunity to chase a bigger slice of the smaller pie, believing that they'll keep the larger share of their market when the economy rebounds (as inevitably it must), is a worthy challenge and a calculated risk.

Surowiecki concludes:

It’s true that the uncertainty of recessions creates an opportunity for serious profits, and the historical record is full of companies that made successful gambles in hard times: Kraft introduced Miracle Whip in 1933 and saw it become America’s best-selling dressing in six months; Texas Instruments brought out the transistor radio in the 1954 recession; Apple launched the iPod in 2001. Then again, the record is also full of forgotten companies that gambled and failed. The academics Peter Dickson and Joseph Giglierano have argued that companies have to worry about two kinds of failure: “sinking the boat” (wrecking the company by making a bad bet) or “missing the boat” (letting a great opportunity pass). Today, most companies are far more worried about sinking the boat than about missing it. That’s why the opportunity to do what Kellogg did exists. That’s also why it’s so nerve-racking to try it.

I am privileged to work with a number of clients who have the ambition, foresight, and fortitude to pursue relentlessly their goal to be the best they can at what they do.

Counterintuitive though it may seem, this is a great time for smart advertising on Radio!

Read the full article here.