The Cost Of Promotion

Posted by Allison on 4 April 2009, 10:24

The current credit crisis is causing problems in many countries all around the world.  Both businesses and individuals are feeling the strain, and it's becoming necessary to take a long hard look about what we have all done with our money in the past, to make sure we can weather the coming storm if we do indeed sink into a recession.

But for businesses the problems can be quite complicated.  The trick is to keep bringing in as much business as possible while paring down all the outgoings they are paying for.  For those businesses with connections to other countries (they may have shops or buy stock from other places for example) the problem can be even more complicated to work out, since they are not just dealing in one currency either.

If a particular currency were to lose a lot of value – just as the dollar did a short while ago – that could have a profound effect on the business concerned.  It may also have benefits though; a fall in one particular currency could mean they might now be able to buy a lot more stock than they could previously, enabling them to make bigger profits on the items they do sell, even during hard times.

It can be a fine balancing act between looking at what is essential when it comes to outgoings, and what is more of a luxury.  Unfortunately not all businesses see things in the same light.

For example if you owned a business that had shops to sell their stock from, those shops would need a certain level of staff to be able to serve the customers.  But some businesses think that they can reduce the staff down until they have no more than a skeleton staff available.  That can result in not having enough people available to serve when there is a queue – and that can lead to lost profits as a result.

Customers may go elsewhere because they are waiting too long; they may feel the shop looks untidy and uncared for because no one has the time to tidy it.  All in all the savings the company makes by cutting staff are lost because they are now selling less – and what's more they have damaged their image as well.

This is why investing money in a business is essential at all times, especially during a recession or times of trouble.  People need to see that you are there and still doing well, and they will bring you their business if they can.  You may cut down on that investment but no business should cut down completely since that would mean starting a downward slide that you may never recover from.

Regardless of whether businesses are fairly localised or spend money on their advertising and promotions in many different countries and in currencies of all kinds, they must be very careful of why they are cutting down in certain areas.  Advertising for business during a recession is actually a very good move, because most of the competition will be making the mistake of not doing it… precisely because they see it as an unnecessary expense.

All of which means that those businesses that do still make the effort to put money into advertising are likely to get the best share of the marketplace for doing so.

Some businesses – particularly those who are fairly new and don't have as much experience as others do – fall into the trap of thinking that they should do away with some forms of expense altogether.  Quite often this is not necessary, nor is it advisable.  If for example a business needs to pare back £1000 from its expenditure, that doesn't mean that all of the £1000 has to come from one area or department.  It may of course work out that it is the best way forward, but the chances are good that it is not required.

If there are ten areas of expenditure involved in a particular business it would be much easier to shed £100 from each one (or whichever currency is being used in the country the business is based in) than it would to shed the whole amount from a single area.  In this way the effects will not be felt quite as profoundly.

As we can see, it is not so much what promotion costs when it comes to advertising what a business can do and who it is for, it is more a case of promotion being an investment in that company's future.

It is a fact of life that in any recession a number of businesses of different types will go under.  But it is not always directly because of the recession itself – it can be just as likely that it is due to the way that business is handled at the time.

So what should you do if you own your own business?  Should you already be looking at ways to cut down on your expenses in case profits really do take a nosedive?

Preparation is always the key to getting through a recession more easily, although it will still be hard work, make no mistake.  The businesses that are most likely to suffer are those who have remained oblivious to what is going on around them and carried on spending money when they should have been looking at ways to conserve some of their resources for when they really needed them.

By preparing in advance and forming a strategy for continuing to make money when a recession bites, you will be able to take advantage of the market when virtually every other business in your sector is surprised by the fact that the recession has finally arrived.

So think carefully before stopping your advertising efforts, because they could be the only thing that will keep your business from going under with several others if the hard times get worse.  So long as you remember that advertising costs bring in new business, you won't go far wrong.