Marketing and Distribution in a Mean Economy
By: RICHARD J. WEGENER
April 2008
The signs of an imminent recession are all around us. The stock market is jittery. Lending has gotten tighter. The subprime mortgage crisis has weakened both consumer confidence and spending – much of it on credit – that has been buoying the U.S. economy.
A recession can have an important impact on a manufacturer’s distribution and marketing strategies. Economic downturns certainly create hazards, but there are opportunities as well. In a “Mean Economy” there are two critical things to get right – product portfolio management and distributor support.
Product Portfolio Management
In a Mean Economy, consumers may postpone purchases, trade down, or simply buy less. As a result, marketers have to revisit consumer demand for each item in their product portfolios as consumers show interest in new products, especially those that address new consumer realities. Product offerings must match consumer demand. For example, in the face of lessening consumer interest in noncarbonated drinks, Coca-Cola is using its distribution system to support water brands such as Glaceau, with additional varieties, shelf space, and more prominent displays.
Distributor Support
Recessionary pressures call for adjustments in distributor policies, too. In a Mean Economy, distributors are reluctant to tie up working capital in excess inventories. Early-buy allowances, extended financing, and generous return policies help distributors face the challenge of an increasingly difficult business environment. Again, we don’t have to look far to see these changes already occurring.
Anheuser-Busch, the nation’s largest brewer, has announced significant changes to a key distribution policy which previously prohibited distributors from carrying competing brands. Under its former decade-long “100% Share of Mind” policy, A-B provided cash incentive payments to distributors that carried only A-B brands. Now, in a major strategy adjustment, A-B will let its distributors sell small amounts of competing products and still pay those distributors financial incentives for carrying A-B brands.
Conclusion
Faced with uncertainty, in a Mean Economy consumers become value oriented, distributors are concerned about cash, and we all worry about our jobs. But an economic downturn is no time to throw in the towel. The key to marketing and distribution success is to understand how consumer preferences and business partners’ needs also change, and then adjust business plans to the new environment. Companies like Coca-Cola and Anheuser-Busch recognize this need and have already made significant product portfolio and distribution policy adjustments necessary to weather a marketplace exposed to recession, inflation, and a credit crisis.