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Recession: Will cut in marketing spend, downsizing save e-commerce firms?

By Jonah Nwokpoku

BUSINESSES in Nigeria at the moment are facing very tough times due to the economic recession. Disposable income has drastically reduced, shrinking and stretching consumers’ purchasing power beyond limit. This has put e-commerce firms in precarious situations. While some have resorted to slashing marketing costs, others have resorted to sacking employees workforce.

Some operators and analysts who spoke to Vanguard said although this period presents unique challenges for e-commerce firms but can be tackled with strategic approach rather than resorting to indiscriminate cost cutting.

Mark Essien, who is the Founder/CEO of Nigeria’s foremost online hotel booking site, Hotels.ng said, “Downsizing helps e-commerce firms when the firm was bloated to begin with. A lot of e-commerce firms staffed up based on their perception of the market and not necessarily based on the reality of the market. When a company downsizes, they often describe it as ‘right-sizing’. For companies doing that – cutting themselves down to the size they should be – then this is a net positive. For companies who cut essential staff to reduce costs, or perhaps getting cheaper, inexperienced people, they will probably suffer. If you trim too much fat, you start to trim the meat.”

He added: “As regards marketing spend – companies that are heavily analytical in terms of marketing spend will be fine. Those who do not understand marketing, or who are not working with professionals will lose a lot of market share as they cut spend.”

Increase marketing spend to beat competition: “Marketing wise, this is even a time to seize marketing opportunities. Although e-commerce firms are known, in some areas, for notoriously huge marketing spend but then it is a time to re-strategise around marketing spend. As it stands now, the reality is that even some firms that were doing several digits every month, has reduced budget significantly. It is a growing trend as the economy continues to reel under the pressure of the recession,” said Afam Anyika who had headed Marketing for online retailers, Jumia and Yudala.

According to him: “Finding more cost effective means of doing marketing aside what is traditionally known, which is digital, has become imperative at this moment. But if you ask me if this is the time to cut marketing cost, I would not say yes. I would actually think it is time to be more aggressive but only finding more cost efficient ways of doing it with a very high return on investment. Particularly now that your competition may be cutting marketing spend, this is time to increase and cut into their market share.”

Downsizing is inevitable: Also speaking, a digital communications analyst, Ifeanyi Abraham, and a PR executive with eTranzact Plc, said downsizing was inevitable for some of the e-commerce companies especially with the bust in the economy.

He said: “When a new thing comes, people become over excited about it. Sometimes, that excitement can go overboard. In some of Nigeria’s e-commerce companies, a lot of people were hired at salary levels that were truly unsustainable. So, over time as the economy got worse, they had to cut costs. They had to begin to streamline. They now looked at the salary line and looked at people below them who could do their jobs at lesser pay and still come out with the same result. So they had to become more efficient while running leaner operations. Now, the economy has become worse and marketing cost which is executed and measured in dollars has skyrocketed because of the FOREX crisis. They are really in a difficult place.

Adopt affiliate marketing: “So, one of the ways that e-commerce firms should cut cost is deciding on marketing channels. Over time, they have been relying on certain marketing channels but right now, they are in a place where they now have to look for more efficient channels such as affiliate marketing.

Affiliate marketing

Affiliate marketing is a powerful tool that allows e-commerce companies to utilise their customers as marketing agents, with a promise for commission on sales. It is a very powerful tool that can really come handy this period.”

Indiscriminate cost cutting is a mistake: “During recessions, consumers set stricter priorities and reduce their spending. As sales start to drop, businesses typically cut costs, reduce prices, and postpone new investments. Marketing expenditures in areas from communications to research are often slashed across the board, but such indiscriminate cost cutting is a mistake,” observed John Quelch who is a Professor of Business Administration at Harvard Business School in a Havard Business Review post.

Marketing is a ‘good cost’

According to him, “During recessions, it is more important than ever to remember that loyal customers are the primary, enduring source of cash flow and organic growth. Marketing is not optional; it is a ‘good cost,’ essential to bringing in revenues from these key customers and others.”

He said: “Company budget cuts often affect marketing disproportionately. Marketing communication costs can be trimmed more quickly than production costs, and without letting people go. In managing their marketing expenses, however, businesses must take care to distinguish between the necessary and the wasteful. Building and maintaining strong brands, ones that customers recognize and trust, remains one of the best ways to reduce business risk.”


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.