Tighten Your Belt. But Not Around Your Neck.

Lucent lays off 20 percent of its workforce and reports a loss of $3.25 billion. Corning reports $4.76 billion in losses and lays off 1,000 workers. JDS Uniphase drops 35 percent of its staff. Retail sales are down. Economically, it’s bad news on top of bad news. The “R” word rears its ugly head across the nation. Will the tax refund ride to the rescue in time? Will the economy be saved? Will your business survive the hard times?

Of course, here in Southwest Florida, things aren’t that bad. Housing starts continue to grow. Tourism continues to buoy the local economy. The solid base of retirement and Social Security payments keeps the economy on a fairly even keel.

Still, how long will it be before the whip end of the downturn hits us? Will you be prepared? What are you doing to get ready for the cutbacks that may be required?

“No problem,” some will say. “I’ll just cut back on my marketing.”

Bad idea.

Evidence suggests that companies that cut back on their marketing and advertising end up losing valuable franchise with their customers. When the economy comes back, they must invest more to catch up with competitors that continued to advertise.

In his book, “Ogilvy on Advertising,” the late David Ogilvy, one of the legends of advertising, cited cases in which, “...companies that do not cut back their advertising budgets achieve greater increases in profit than companies which do cut back.”

According to a study by Getzler & Co., a New York-based turnaround firm, as reported in American Business Media, if you maintain a strong advertising presence during an economic downturn, while your competitor cuts his, “you will automatically increase your share of mind.” The study continues that maintaining share of mind costs much less than rebuilding it.

Ogilvy also suggested that a company should consider advertising as part of the product and treat it as a cost of goods rather than a selling cost. He recommended that you should not cut back on your advertising any more than you would cut back on the quality of your product or service.

That sentiment is echoed by the Harvard Business Review, which claims, “Advertising in an economic downturn should not be regarded as a drain on profits, but as a contributor to profits.”

Still, the temptation is there. Many business managers and proprietors don’t really understand advertising in the first place. They only advertise because their competition does. Since they don’t value advertising to start with, they don’t regret the opportunity to cut it. Management assumes that cutting the marketing budget can reduce costs that reduce prices that reinvigorate sales that keep profits from slipping away.

Nothing is static. Everything is dynamic. If you surrender your position in your customers’ consciousness to a more aggressive competitor, your brand image and your business will suffer in the short-term and in the long-term.

The Getzler & Co. study adds that, “Maintaining a company’s advertising during an economic downturn will give the image of corporate stability within a chaotic business environment” Advertising during hard-times also allows you to solidify your customer relationships and take business away from less aggressive competitors who may share some of those customers’loyalties.

One of my favorite metaphors for the situation is the story of two campers who suddenly encounter a mama grizzly bear. One starts to back away as the other laces up his sneakers. The first guy asks, “Are you nuts? You’re never going to outrun that grizzly.” The second guy responds, “I don’t have to outrun her. I just have to outrun you.”

Here are some strategies your company can use to be the one who does the outrunning.

Have a plan. For some companies, such as the dot.com bombs, it’s too late to plan. For most businesses in Southwest Florida, however, the economic warnings are still warnings. You still have time to plan for a downturn.

Review all your operations, including marketing and advertising. Analyze what is necessary and what is “extra.” What employees and functions are critical and what are expendable? What efforts are returning the best results? If you don’t know, ask your staff and vendors to justify their programs. When you know what’s working and what isn’t, you will know what and when to cut back and how to redirect your efforts to the most productive possibilities and paths.

Know your customers. Who are they? Where do they come from? What do they buy? How much do they spend with you? How profitable is their business? Divide them up into three tiers: the Cream, the Half-and-Half and the Skim.

• Honor the Cream. They have the money to buy, they know who you are and trust you and their business earns you the most profit.

• Evaluate the Half-and-Half. Look for those who may be ready and able to graduate to the cream. Analyze their purchases. Are they increasing or decreasing in amount and frequency? Are they moving toward higher-end, more profitable goods or services, or slipping lower on the profitability scale.

• Set aside the Skim. Serve them like royalty if they come to you. But concentrate your advertising where it will do the most good.

Work your customer base. Clearly, the time and money spent attracting the Cream will result in the best return on your investment. Contact this group regularly. Call them. Send them postcards. E-mail them (but only if they ask to be on your e-mail list.) Give them preprints of your ads and prior notice of your sales. Let them know you appreciate their business. Make special offers to them.

Do some random sampling of your Half-and-Half. Call them from time to time. Let them know you are interested in them. They will be the group most likely to be overlooked by your competition when the cutbacks begin.

If things get really slow, use the time to mine the Skim. Keep the contacts up. “Hello, how are you?” goes a long way. Someday they may graduate to the Cream or reinforce your reputation with some other company’s Cream.

Get your customers ginned up. It’s just too easy to get down when every second person you talk to bemoans the “coming recession.” Business is bad. Sales are down. Profits are slipping. Don’t know that we’ll make it through. Woe is me. As the old saying goes, “The Optimist thinks this is the best of all possible worlds. The pessimist knows it is.” Fact is it is what it is. You can make the most of it or let it get the better of you.

One way to get customers ginned up is to make some special offers to them. For a limited time only, get this discount, or add this valuable extra to your purchase at no cost. Consider a no-cost trial period or two-for-one offer. Offer extra service. Consider free delivery or pick-up. Pay for shipping, or a bridge toll or gift wrapping.

Look for strategic alliances. Is there another company that doesn’t compete with you that might share your advertising investment and share in the benefit from it?

Don’t allow yourself to despair. Nothing drives business away like the smell of desperation. Don’t bad-mouth the market or your competition. Keep your head up and your vision clear.

If you cut your prices, make it a “sale” with a seasonal or holiday rationale, or a special discount for a valued customer. When all you advertise is the lowest price, you encourage your competition to go lower. Like the limbo, you only win when you end up on your back.

William Ernest Waites is the former chairman and co-creative director of Spiro & Waites Advertising, Marketing & Public Relations. In a previous Life, he held senior creative and management positions with Young & Rubicam and Ogilvy Mather.