Software Marketing in a Recession

Vendors don’t have to slash budgets but they do need to reposition investments to emerge from a downturn unscathed.

By Glenn Gow, Crimson Consulting Group

Are we in a recession? Maybe, maybe not. Many of you have worked through the most recent recession of 2001 – 2003. For most of us, and particularly those of us involved in software marketing, “bad” doesn’t quite describe how bad it was. Anything purchased by, or influenced by IT was hit hard.

This time will be different. Software won’t get hit as hard – but it will suffer along with the rest of the economy. Vendors that shape their marketing strategy for the downturn will emerge stronger when economic growth returns.

During the current slowdown, it is likely that business software will be less impacted than other sectors. IT spending will likely grow slowly; it will probably not decline. Consumer markets are likely to be harder hit than business-business (B2B) markets.

Many enterprise software solutions are accurately positioned as improving efficiency and productivity. Hardware providers have a harder time defending that argument (can you say, “virtualization?”) Another saving grace is that for most of us, the U.S. market represents a smaller percentage of overall revenues and profits than in the last recession.

Smarter Marketing During a Downturn
Let’s assume that at least the U.S. economy will be in a recession and that as software marketers, we need to work within that reality.

Historically, software companies cut marketing first and deepest. However, for most companies, this is a mistake. To quote one of my Harvard professors, John Quelch, “It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times.” It’s my contention that this applies to marketing investments as a whole, not just advertising.

Here are some tips for how software companies should alter their marketing strategies, just in case a recession is reality.

1. Spend smarter
You may spend less on marketing. Not because marketing should be cut first or most (it most certainly should not), but rather because your company may cut budgets across the board. In fact, by showing how you intend to spend smarter you will make it easier to fight for your resources (see no. 6 below).

By “spend smarter”, I mean create a clear-cut justification for the investment. While you won’t always be able to measure the ROI (this is marketing after all), you can have your people create a compelling business case for each investment. Then, when it comes time to justify the investment, you will have established sound business reasoning behind it. And that’s what the CEO and CFO need to see in a recession.

For example, consider the costs of certain tradeshows and contrast those with investing in blogs, podcasts, webinars, wikis, blogtracking, and online communities. Consider what you spend on print and non-web media advertising and examine web advertising even more closely. Chances are, now may be the time and the opportunity to do something you always wanted to do anyway.

2. Double-down on your current customers
Sure it’s more fun to get new customers, but it’s more practical in a downturn to provide better value (and get more in return) from your current customers. When customers make decisions in a downturn, they’re more likely to go with a trusted source. If they’re more likely to go with you, then you want to make it even more easy and obvious for them to go with you. Market to them. Enable your sales teams to be more effective with them. Ask current customers what they need from you. Care for them and they will be even more likely to stick with you if the going gets tough.

For example, is your license renewal team thinking about how to strengthen the relationships you have with your current customers, or are they just focused on selling maintenance and support? How can you reengineer their goals to contribute to this objective? Imagine if they became facile at consultative selling, or at the very least identifying where else in the organization your company could add value.

More importantly, now is the time for strategic account planning, and driving activities via a coordinated effort into your major accounts. Do your teams really understand the key business initiatives being driven within those accounts and how to create a value proposition that addresses their key business initiatives?

3. Outsmart your competitors
You have an opportunity to win market share from your competitors in a downturn. If you pay close attention to what’s happening in your target markets and how customers are reacting to a recession, you can act early and often with changes in product (if you can change it quickly), price, and positioning (especially as perceived needs change).

For example, in the last technology downturn, software companies became very creative in their pricing schema, creating many variations of software-as-a-service (SaaS) that enabled them to sell when their competitors were stuck in an old paradigm.

Positioning is often the easiest to change. If you coordinate gathering input from your strategic account selling teams, you’ll have invaluable information about what your key customers are looking for. You can modify your messaging to address the patterns that emerge from these discussions, before your competitors know what hit them.

4. Invest in Growing Market Segments
In every downturn there are market segments that grow faster than others. It’s your job as a marketer to help your company see and understand these market segments, and determine if you can quickly win business in these fast-growing market segments. These may be segments you’re already selling to, but not particularly focused on, or they may represent new segments – and new opportunities for your company. At the same time, you want to reduce your investments in the segments that will get hit the most in the downturn.

For example, in this potential recession, we see a slowdown in consumer spending, primarily in the U.S. How many of your market segments are dependent on consumer spending? How many are more dependent on B2B transactions? How much of your marketing effort is focused outside the U.S? Do you know which markets outside the U.S. are likely to grow the fastest?

Now is the time to know what is happening in each segment upon which you focus so you can make marketing investment decisions with “all the lights on”.

5. Support your channel
The average reseller has fewer than 10 employees. They will be hit more significantly in a downturn than virtually all software companies. They could be running scared.

These partners will turn to the vendor that supports them in a downturn. Extend financing to them. Provide more generous offerings in training, more sales attention and better technical support. Give them high quality leads. This is what they want the most and this is what they’re the worst at doing for themselves.

Finally, consider dropping those channel partners that you always knew weren’t going to work out anyway and recruit better partners.

6. Fight for Your Resources
As I’ve argued before (see ”CMOs as True Leaders”) it’s marketing’s responsibility to drive strategic issues. In a recession, this becomes even more important. When the CMO is not deeply involved in strategy, marketing is likely suffer from a knee jerk reaction to the challenge of cost savings.

This often means a disproportionate cut to marketing budgets and marketing headcount with disastrous results. First, marketing winds up playing a less important role, strategically. Second, a pendulum-swing of dollars and people begins, which makes it very hard to recover once the economy does. Third, the company ends up short-handed, completely reactive, and outsmarted by competitors and wishing it hadn’t made the cuts it had. It’s marketing’s responsibility to fight for its resources, and doing the five items above will help you win that battle.