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MIP 25,4

The relationship between marketing strategies and performance in an economic crisis

Mehmet Haluk Koksal
Olayan School of Business, American University of Beirut, Lebanon, and

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Received November 2005 Revised January 2007, February 2007 Accepted February 2007

Engin Ozgul
School of Economics and Business Administration, Dokuz Eylul University, Izmir, Turkey
Abstract
Purpose To examine how companies are affected by economic crises, to assess the effects of marketing strategies on company performance in such conditions, and to identify those that can help companies to maintain successful performance despite turbulence in the operational environment. Design/methodology/approach A structured questionnaire contained questions relating to 21 marketing strategies, associated with the elements of the marketing mix, plus a general marketing strategies category. It was completed by 172 Turkish companies, drawn from a national frame of 1,000. Data were analysed by factor analysis, with performance criteria set as the dependent variable. Results are reported for each of the elements of the marketing mix. Findings Companies that modify their strategies appropriately can maintain or improve their performance in times of crisis. Conclusions and recommendations identify the strategic changes most likely to achieve that outcome, measured mainly in terms of sales, market share and protability. Research limitations/implications Subjective measures of performance were used because of practical obstacles to obtaining objective nancial data from the sample, which would have severely reduced the response rate. Future studies should include such data in the analysis. They might also cross-index ndings by company size, industry sector and market scope, and take account of company resources and skills. Practical implications The ndings provide valuable insights for decision makers and marketing planners in times of economic crisis, specically in the Turkish context but potentially in general. Originality/value Adds a specic focus on marketing strategies to existing studies of general measures taken by companies during economic crises. Keywords Economic cycles, Marketing strategy, Marketing mix, Company performance, Turkey Paper type Research paper

Marketing Intelligence & Planning Vol. 25 No. 4, 2007 pp. 326-342 q Emerald Group Publishing Limited 0263-4503 DOI 10.1108/02634500710754574

Introduction Since, the objective of this study is to draw conclusions about the effect on corporate and marketing performance of the marketing strategies pursued by Turkish companies in the wake of the twin economic crisis of 2000 and 2001, it will be helpful to begin with a brief history. The Economic Programme of January 1980, launched Turkey on a course of structural change, adopting an export-led development strategy in place of import substitution. Over the last two decades, many positive attempts have been taken towards a market economy. These include the free-market determination of exchange

and interest rates, the development of a nancial market, the lowering of barriers to foreign direct investment and the liberalizing of import and export regimes (Utkulu, 2001, p. 20). Although some were successful to some extent, and the Turkish economy achieved a signicant growth rate, the country has experienced three major economic crises since the beginning of the 1980s. The most recent erupted twice within three months: in November 2000 and February 2001. Among many causes, the main reasons were the crawling-peg system, which caused a further deterioration in the countrys current account decit, the absence of a solid banking system, and the continuous postponement of economic reforms by successive governments (Ornek and Tas 2001, pp. 241-43; Acar, 2002, p. 23). The crisis gained momentum with portfolio losses and liquidity problems for some banks. The Central Bank provoked the ight of excessive amounts of money abroad when it decided to transfer resources to the banking sector in order to lessen the effects of the developing crisis in the nancial markets, thereby giving the impression of abandoning the current economic programme and the anchor system then being practised. The interest rate started to climb, and a erce dispute between the president and prime minister shook any remaining condence in the government and its economic programme. This led to the unavoidable imposition of a oating exchange rate system, and the dropping of the exchange-rate anchor (Gorvett, 2001, pp. 31-2). The twin crises were the inevitable consequence. Such a severe interruption to trade and the economy as a whole prompted a major strategy re-think amongst the countrys businesses. Survival depended on being able to implement radical changes in line with the new market conditions. Some strategic initiatives were more successful than others, and some failed altogether. This paper proceeds with a review of the literature and a statement of the research questions, followed by the methodology, the ndings, and conclusions and recommendations. Literature review Economic crises hit consumers psychologically as well as economically. During such times, they say that they feel less secure in their employment and argue more about nancial matters; they feel the need to work more just to maintain their lifestyle, and that they no longer nd any enjoyment in being a consumer (Shama, 1978). Consumers also adapt their shopping behaviour and habits, to be able to adjust to the changing economic conditions. Studies reported in the literature show how consumers affected by crises in Asia and South America made adjustments accordingly (Ang, 2001a, b; Ang et al., 2000; Zurawicki and Braidot, 2005). Lessons learned from the past 25 years show that companies are also affected in many different ways by economic crises. Some are forced to close down and others to drop their production capacity because of insufcient consumer demand for their products and services combined with erce competition in the marketplace. Along with the economic crisis, input prices go up and result in higher costs for companies, which inevitably increase their prices to customers. All this negatively affects their competitiveness in the marketplace. Companies are also forced to lay off some of their personnel, and reduce wages, posing considerable managerial challenges (Zehir and Savi, 2004, pp. 346-47). Managers are furthermore urged to delay or abandon investment projects.

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Companies react to these changes in the marketplace by taking the appropriate measures to adjust their corporate behaviour, as consumers adapt their consumption behaviour. The best-known general measures include reducing costs, cutting production, reducing investment, entering foreign markets, working more with equity capital, improving efciency, re-structuring debt, these can have no positive impact on company performance unless they increase sales (Zehir, 2005; Laitinen, 2000; Uslu, 1999; Beaver and Ross, 1999; Pearce and Michael; 1997). Whilst some of the studies in the literature emphasize the general company measures taken in an economic crisis and identify the importance of strategies to improve sales gures, there is a distinct lack of investigation with respect to marketing strategy changes. An economic crisis requires some changes to be made in the general marketing strategies and particularly to the four main elements of the marketing mix: product, price, place and promotion. In terms of general strategy, companies need to withdraw from those markets in which they are not the main players and concentrate their resources on those in which they are strong (Ang et al., 2000, p. 109). Entering protable foreign markets is an important strategic option, especially for rms adversely affected by recessions at home (Rao et al., 1988). During the Asian crisis that erupted in mid-1997, companies skilled at nding new foreign markets did relatively well, even if their products were non-branded commodities (Goad, 1999, p. 38). However, this is not a marketing strategy that can be accomplished immediately or rapidly. It is suggested that increasing marketing expenditures, or at least maintaining the same level as before the crisis, will increase company performance. According to a study based on the PIMS database (Roberts, 2003, p. 33), those businesses that increased marketing spending were not signicantly less protable during recession. Furthermore, their prots increased dramatically faster once recovery had started, unlike those of rms that had cut their marketing budget, whose protability actually fell despite the recovery. Furthermore, businesses that increased their marketing budgets during a recession gained market share three times as quickly as those that had cut them. The consensus, therefore, is that companies should plan their marketing budgets for the long term and maintain spending in the short term, in order to survive during the hard times and be protable in the future. It is said that the most basic company strategy related to product policy during periods of crisis is to withdraw weak items from the market. Since, consumers place emphasis on the durability of products at such times, characteristics such as economy, durability, and functionality should be given high priority in the development of new lines (Shama, 1981). It will further be advisable to allocate extra effort to research and development, in support of new products (Williamson, 2001, p. 31). During recessions, companies that spent proportionately more on R&D were found to have performed signicantly than others (Morbey and Dugal, 1992, p. 45). However, this should again be seen as a long-term strategy. DeDee and Vorhies (1998, p. 57) found that an increase in product development capabilities, and careful control over the types of R&D expenditures, were positively correlated to the change in the return on common equity. If long-term sales growth is the goal of a company, managers must avoid the temptation to cut back R&D activities during a recession. Shama (1978, p. 50) explained that an economic crisis forces a signicant change in the price decisions of companies, mostly in the direction of reductions. The rationale is to increase sales volume in the short term, but this strategy can cause serious damage

to a company in the long run by lowering protability. It could also harm the brand image, and customers might resist moves to return to former price levels when the crisis is over. Bennett (2005, p. 124) found that maintaining price stability did not have any effect on company performance during cyclical uctuations in the construction industry in the UK. Ang et al. (2000, p. 113) suggest two quality strategies related to pricing in conditions of crisis: to apply the same prices for higher quality products, or to offer the same quality product at lower prices. In the light of these insights from the literature, pricing strategy should be integrated with other marketing mix initiatives during the period of the crisis. The changes companies make in promotion strategies during a crisis are also of great importance. It has been shown that those increasing or maintaining their level of advertising will increase sales, income and market share during and after a recession (Kim, 1992, p. 15; Werner, 1991, p. 29). DeDee and Vorhies (1998, p. 58) found that rms responding by reducing sales staff and cutting advertising expenditure fared worse, in terms of return on common equity, than those that had maintained or increased their promotional efforts. Since, consumers can be expected to shop more rationally when experiencing a decrease in their purchasing power during a crisis, advertising campaigns should emphasise such rational motives as safety, reliability, and durability, rather than image and status (Shrager, 1991, p. 5) Other positive initiatives might be to increase the usage of print media, and to prot from decreased sales time by delivering training programmes on changes in consumer shopping behaviour. Allocating some of the budget to sales promotion techniques, from which the consumer gains value immediately, can affect company performance more positively than, for instance, increasing the terms and levels of customer credit. Moreover, winning the condence of consumers is of vital importance. Shama (1992, p. 48) found that, during a period of stagation in the former Yugoslavia, companies had widened the responsibilities of their sales personnel to emphasise listening to customer needs and responding to them. The conclusion is that more proactive personal selling can build a better customer relationship in times of crisis. Turning to the place element of the marketing mix, elimination of unprotable intermediaries in the distribution channel members and reallocation of scarce company resources to the better-performing channel members is the most appropriate strategy in crisis conditions. However, since decisions of this kind often demand long-term commitments, they should be taken carefully (Kotler and Armstrong, 2006, p. 363). Ang et al. (2000, p. 117) suggest that the company should choose the best channel and direct their efforts to discount stores or wholesalers. The chosen alternative distribution channels, by lowering operating costs and improving cooperate within the channel, can clearly affect company performance positively. Against this background, the study reported here addresses the following research questions: RQ1. What are the outcomes of a crisis that negatively affect company performance? RQ2. What are the effects on performance of particular changes in general marketing strategy during periods of economic crisis? RQ3. What are the effects on performance of changes in product strategy during periods of economic crisis?

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RQ4. What are the effects on performance of changes in pricing strategy during periods of economic crisis, particularly in combination with other marketing-mix initiatives, during periods of economic crisis? RQ5. What are the effects on performance of changes in promotional strategy during periods of economic crisis?

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RQ6. What are the effects on performance of changed strategy with respect to the distribution channel during periods of economic crisis? Research methodology This study did not target any specic industrial sector, since the aim was to measure the effects of changes on performance generally. However, a special effort was made to attain a meaningful distribution of company size, as this signicantly affects recommendations concerning the use of marketing strategies. Since, the research focuses on strategy changes during an economic crisis, companies included in the sample had to have been in the market for at least two years. We randomly selected 1,000 companies from the list of 5,000 Turkish companies published in 2000 by GEME, the Turkish Export Promotion Centre, making sure the sample accurately I reected the proportion of each size band in the total list. About 500 companies agreed to cooperate in the study, in response to an initial e-mailing. The subsequent questionnaire was returned by 237. After adjustments for missing, faulty or meaningless data, data from 172 companies were available for analysis. The effective return rate is thus 17 per cent of the sampling frame of 1,000. Frequencies and independent t-tests were used to determine whether signicant differences exist between the responding and non-responding companies; no signicant differences were identied. The rst part of the questionnaire contained questions to collect descriptive data relating to the companies. In the second part, respondents were presented with 25 marketing strategies ve product, one price, one place (distribution), 14 promotion, and four general were and asked to what extent and in which direction their company had changed those strategies since the crisis periods in late 2000 and early 2001. Answers were recorded by means of a nine-point scale ranging from signicantly decreased to signicantly increased through a neutral mid-point. The third part of the questionnaire investigated changes in performance measures. Respondents were asked to state the amount of change as a percentage of the level before the crisis, using this ten-point scale: 1-4 per cent, 5-9 per cent, 10-14 per cent, 15-19 per cent, 20-24 per cent, 25-29 per cent, 30-34 per cent, 35-39 per cent, 40-44 per cent and $ 45 per cent. The purpose of using a numeric scale of this kind was to obtain more precise answers than a verbal or open-ended option would provide. In the nal part of the questionnaire, companies were asked to evaluate the extent to which they had been affected by the eight outcomes of the crisis compared with the situation beforehand, using a ve-point scale from too much to not at all. Research nings Sample prole The proles of the responding companies are shown in Table I. Small- and medium-sized companies, employing up to 150 staff, make up 98 per cent of the Turkish economy

N Size Small-sized company Medium-sized company Large-sized company Total Activity area Regional National International Total Industry Manufacturing Trade Service Total Foundation years 2-10 years 11-20 years 21-30 years More than 31 Total Export None 1-10 per cent 11-30 per cent 31-60 per cent 61-100 per cent Total Regions Aegean Marmara Central Anatolia East Anatolia Total Foreign investments Yes No Total Structure of equity Group company Independent company Total 33 84 55 172 35 48 89 172 128 28 16 172 55 57 35 25 172 60 24 23 31 34 172 99 46 19 8 172 154 18 172 58 114 172

Per cent 19.0 48.8 32.1 99.9 20.5 27.5 52.0 100.0 74.4 16.3 9.3 100.0 31.8 33.5 20.0 14.7 100.0 35.3 14.1 13.5 17.6 19.4 100.0 57.6 26.7 11.0 4.7 100.0 90.0 10.0 100.0 33.7 66.3 100.0

T (per cent) 19.0 67.9 100.0 20.5 48.0 100.0 74.4 90.7 100.0 31.8 65.3 85.3 100.0 35.3 49.4 62.9 80.6 100.0 57.6 84.3 95.3 100.0 90.0 100.0 33.7 100.0

Marketing strategies and performance 331

Table I. Prole of companies

versus two thirds (67.9 per cent) of the 172 respondents in this survey. Whilst their operations were generally concentrated in the Aegean and Marmara Regions, company characteristics did not signicantly vary across the different regions. The Turkish economy is dominated by manufacturing enterprises, which account for three quarters of the sample. It can thus be condently asserted that the research respondents are acceptably representative of the Turkish business population. More than half of the companies responding (53.5 per cent) had been in business for between ten and

MIP 25,4

thirty years, so the responses related to a short period of crisis would generally have been grounded in long prior experience. Crisis outcomes Factor analysis with varimax rotation was applied to the answers related to reasons for being affected by the crisis, in order to reduce the data into a smaller number of underlying dimensions. Two meaningful factors were determined, as shown in Table II. The rst comprises various external economic factors: increases in foreign currency exchange rates, inability to forecast the economic indicators, decrease in consumer demand, high ination, and the negative impact of uncertainty. The second factor comprises internal company reasons, mainly nancial. The most important nding from the factor analysis is that the loading of the decreases in consumer demand is high in both factor groups. This nding can be interpreted as showing that reducing consumer demand was a result of both external and internal circumstances. Table III shows the proportions of all answers accounted for by each reason given for being affected by the crisis. The conclusion is that companies felt they had suffered most from exchange rate increases, followed by, in decreasing order, the difculty in

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Factors Increases in foreign currency exchange rate Inability to forecast economic indicators Decreases in consumer demand Debts incurred before the crisis High ination Inability to plan due to uncertainty Insufcient equity Internal factors Explained variance Total explained variance Note: P , 0.000

External reasons (factor 1) Internal reasons (factor 2) 0.705 0.835 0.451 0.283 0.789 0.715 0.282 0.031 0.299 0.553 0.131 0.190 0.426 0.533 0.197 0.062 0.722 0.871 0.253

Table II. Factor analysis related to the outcomes of the crisis that negatively affected the companies

Factors General level of affectedness Increases in foreign currency exchange rate Inability to forecast economic indicators Decrease in consumer demand Debts incurred prior to crisis High ination Inability to plan due to uncertainty Insufcient equity Internal factors Notes: 1 very much; 5 not at all

Av. 2.69 2.04 2.11 2.5 3.1 2.2 2.26 3.24 3.9

N 159 162 163 162 159 160 163 160 158

1 15.9 41.3 35.1 22.2 16.5 30.9 29.2 12.1 3.1

Level of effect (per cent) 2 3 4 29.9 31.7 32.1 33.5 17.7 31.5 33.9 15.8 6.7 34.8 13.8 21.4 24.0 25.6 27.3 26.2 28.5 19.6 7.9 8.4 8.9 12.0 19.5 6.7 7.7 22.4 37.4

5 11.6 4.8 2.4 8.4 20.7 3.6 3.0 21.2 33.1

Table III. Outcomes of the crisis that negatively affected the companies

forecasting economic indicators, high ination, and inability to plan because of uncertainty. Internal circumstances were in this case relatively insignicant. Marketing strategy changes Factor analysis with varimax rotation was applied to answers relating to marketing strategies, in order to reduce the data into a smaller number of underlying dimensions. Table IV presents the results of principal component analysis. The most important factors are those relating to the promotion element of the marketing mix, collectively explaining between a quarter and a third of total variance (29.2 per cent). They are: promotional budget, advertising budget, media usage, sampling, quantity discounts, public relations activities, rational messages, after-sales service. The second most important factor explains 10 per cent of the total variance, and relates to product strategy. Its components are new product development, product range, R&D budget, product quality, and marketing expenditures. Though the last of
Strategies Promotion strategy Promotion budget Advertisement budget Use of radio and media Use of samples Quantity discounts Public relations activities Giving more importance to rational motives After sales service Product strategy New product development Number of products R&D budget Quality Marketing expenditures Sales and distribution strategy Number of sales force Sales training Distribution channels General marketing strategy Focusing on strong markets Entering new markets Marketing planning Entering new business areas Sales with credit Sales with credit Sales promotion Duration of product guarantees Use of coupons Concentrating on wholesalers and discount stores Price Price Total variance (per cent) KMO 0.083; Barlett 1655.5; P , 0.000 (a) 0.84 Variance (per cent) 29.223 0.592 0.568 0.599 0.753 0.540 0.777 0.669 0.442 0.78 10.096 0.793 0.790 0.614 0.447 0.426 0.75 7.251 0.663 0.773 0.475 0.70 5.614 0.825 0.818 0.745 0.343 0.50 4.758 0.634 4.468 0.440 0.750 0.727 4.140 65.550 0.792 Factor loading

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Table IV. Factor analysis results related to marketing strategies

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those were discussed as general marketing strategies in the literature review, respondents associated it with product strategy. This can be explained by the fact that expenditures on products gure prominently in the marketing budget, and marketing expenditures are seen to be for the benet of the product range. The remaining ve factors collectively explain only a quarter of the total variance. The three variables grouped under the heading of sales and distribution contribute 7.2 per cent. The four relating to general marketing strategy (focusing on strong markets, entering new markets; moving into new business; marketing planning) account for 5.6 per cent. A single variable relating to credit arrangements explains 4.7 per cent. Those grouped together as sales promotion (extended warranties, coupon schemes and discounting) contribute 4.4 per cent to the total variance. Lastly, and perhaps surprisingly, the price variable accounts for a virtually insignicant 4.1 per cent. It is noteworthy that the two factors related to nance, price and credit, together explain well under 10 per cent of the total variance measured. Table IV also shows that the Cronbachs a coefcients for each factor, except price and credit, vary between 0.49 and 0.84, while the whole factor analysis explains 0.65 of total change. Thus, the convergent and divergent validity of the scale are high. Table V presents the mean values for the respondents performance criteria evaluations. Successful denes companies that displayed better than average performance during the period; unsuccessful denes those with below-average performance. The results show that net prot was most negatively affected by the crisis, followed by sales and market share, in that order. Average success which is an amalgam of the three criteria, sits between those two criteria. It is clear that the successful companies increased their sales, market share and net prot. Having the median value of sales above the median value of net prot indicates that, even if companies are successful, the increase in sales is not transformed into net prot. Success was achieved at the expense of lower sales prices or cost increases due to reduced usage of capacity, or other reasons. Simple linear regression analysis was used to analyze the effects on company performance of the changes in the marketing strategies, to determine the relationships between the dependent variables (performance criteria) and the independent variables (marketing strategies). The Kolmogorov-Smirnov Test assessed normality within respective groups. It was found that the error value indicates a normal distribution.
Criteria Sales Market share Net prot Total Unsuccessful Successful Total Unsuccessful Successful Total Unsuccessful Successful Total Unsuccessful Successful N 169 98 71 167 79 88 168 98 70 167 89 78 Median 2 1.9645 2 6.2449 3.9437 2 0.5449 2 4.3797 2.8977 2 2.9464 2 6.1939 1.6000 2 1.8900 2 5.3602 2.0303

Table V. Distribution of successful and unsuccessful companies according to performance results

Average success (sales net prot market share /3)

The second condition to be satised was the Durbin-Watson Test, useful for testing whether the error values are independent from each other. Table VI shows that the auto-correlation coefcient ranges between 1.52 and 2.01, and is therefore signicant. General marketing strategy As shown in Table VI, the f and t values of three strategies in the general marketing strategies group are signicant with respect to average success, sales and market share. That is, important increases in average performance, sales, and market share were recorded by companies that entered foreign markets, concentrated on those in which they had a strong position, and increased marketing expenditures. The analysis did not nd any signicant relationship between net prot and the strategy of concentrating on those markets in which companys position is strong. The ndings also show that there is no signicant relationship between diversication of business and any of the performance variables. These strategies explain the changes in the variations between 0.072 and 0.023. There is a strong relationship between entering foreign markets and average performance, sales and market share, and a signicant one between marketing expenditure and net prot. Thus, entering foreign markets and playing to the companys strengths results in an increase in sales and market share, but has a limited effect on net prot. Conversely, an increase in marketing expenditure improves net prot. Product strategy It was found that only the introduction of new products and product quality were not signicantly related to market share, while there is a strong relationship between the other three performance variables and product strategies. According to Table VI, increases in the R&D budget are signicantly related to sales and net prot. Pricing strategy It was found that the effect of the price variable exhibited was not signicant with respect to sales, net prot or average performance. This result suggests that there is no signicant differentiation in the performance of companies that practise different pricing policies during an economic crisis. The Scheffe Test found no difference in sales volumes between companies that increased prices and those that decreased them, in response to the crisis. When the price variable is considered together with quality strategy, an important element in the pricing decision, the levels of sales (t 2 1.95, p , 0.05), net prot (t 2 1.92, p , 0.05), market share (t 2 1.88, p , 0.05) and average performance (t 2 2.06, p , 0.05) were higher in the companies that did not change their product prices during the crisis, and did increase product quality. Conversely, the sales, net prots and average performance fell among companies that reduced product quality in reaction to the crisis conditions. This suggests that companies in this situation must maintain product quality if prices are lowered, or increase it if they are not. Promotion strategy Promotional activities are an important ingredient of total marketing strategy, as was indicated in the factor analysis (Table IV). It was found that ve variables in this group had a strong relationship with sales, explaining the changes in sales between 0.021 and 0.15. They are, in rank order, size of the sales force (0.39), advertising budget (0.239),

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Strategies T T

General marketing strategies Focusing on strong markets 0.038 6.05 * Entering foreign markets 0.072 11.69 * Marketing planning activities 0.067 11.01 * Entering new business areas 0.002 0.34 Marketing expenditures. 0.053 8.73 * Product strategies Introduction of new products 0.043 7.211 * Number of products 0.065 11.051 * R&D budget 0.085 13.836 * Quality 0.033 5.47 * Promotion strategies Promotion budget 0.104 17.46 * Advertisement budget 0.097 16.51 * Size of sales force 0.206 39.87 * Sales training 0.077 12.78 * 0.195 2.460 * 0.025 2.8 0.133 1.67 0.268 3.420 * 0.065 10.83 * 0.255 3.29 * 0.028 0.258 3.319 * 0.051 0.047 0.583 0.230 2.956 * 0.032 0.208 2.685 * 0.034 5.83 * 0.185 2.415 * 0.051 5.30 * 0.179 2.30 * 0.004 0.62 0.062 0.790 0.005 0.85 8.53 * 0.226 2.922 * 0.043 4.06 * 0.159 2.017 * 0.018 0.027 7.90 * 0.207 2.664 * 0.037 0.073 0.92 0.001 0.064 10.97 * 0.253 3.312 * 0.023 8.84 * 0.227 2.974 * 0.016 0.255 3.324 * 0.046 7.80 * 0.214 2.794 * 0.062 10.70 * 0.249 3.271 * 0.047 0.292 3.720 * 0.080 13.24 * 0.283 3.64 * 0.064 10.39 * 0.254 3.224 * 0.046 0.182 2.340 * 0.047 8.08 * 0.217 2.843 * 0.032 5.47 * 0.180 2.339 * 0.006 0.322 4.179 * 0.010 1.57 0.312 4.064 * 0.057 0.101 1.253 0.132 23.42 * 0.363 4.840 * 0.058 9.51 * 0.239 3.084 * 0.132 23.80 * 0.364 4.879 * 0.044

Table VI. Results of regression analysis related to marketing strategies and performance R2 Sales (1) F b R2 R2 Net Prot (2) F b Market Share (3) F b T 4.30 * 0.164 2.076 * 0.261 3.361 * 6.05 * 0.10 3.73 * 2.70 7.97 * 7.32 * 0.97 9.48 * 7.19 * 0.193 2.460 * 2 0.026 0.323 0.152 1.934 * 0.128 1.64 0.217 2.825 * 0.215 2.706 * 0.077 0.985 0.242 3.079 * 0.210 2.683 * 0.310 4.082 * 0.178 2.268 * (continued) 4.50 * 0.168 2.123 * 0.068 11.29 * 0.453 6.314 * 0.153 28.56 * 0.391 5.344 * 0.196 32.29 * 0.443 6.188 * 0.096 16.66 * 0.277 3.576 * 0.046 7.54 * 0.214 2.747 * 0.104 18.29 * 0.323 4.277 * 0.032 5.14 *

R2

Average performance (1 2 3)/3 F b T

Strategies T T 0.288 3.756 * 0.043 0.213 2.724 * 0.021 0.174 2.156 * 0.002 0.30 0.044 0.548 0.027 4.17 * 0.163 2.043 * 0.038 5.89 * 3.50 * 0.149 1.87 * 0.065 11.05 * 0.255 3.325 * 0.024 3.93 * 7.10 * 0.206 2.666 * 0.076 13.16 * 0.277 3.629 * 0.064 10.83 *

R2

Average performance (1 2 3)/3 F b T R2 Sales (1) F b R2 R2 T Net Prot (2) F b Market Share (3) F b 0.253 3.292 * 0.155 1.985 * 0.194 2.428 *

0.175 2.171 * 0.004 0.62 0.30 1.61 0.02 0.75 0.39 0.06 0.020 0.249 0.000 0.050 0.631 0.010 0.070 0.866 0.008 1.18 1.58 0.017 -.01 -.16 0.009 1.41 0.105 1.269 0.015 2.19 0.044 0.548 0.015 2.35 0.123 1.53 0.122 1.481 0.094 1.18 0.088 1.08 0.099 1.26 -.01 -.13 0.064 0.788 0.027 0.146 1.812 * 0.002 0.108 1.30 0.038 0.475 0.124 1.526 0.116 1.463 0.028 0.341 0.000 0.002 0.005 0.000 0.011

4.16 * 0.163 2.040 * 0.051 0.027 0.002 0.002 0.024 0.012 0.006

8.26 * 4.35 * 0.26 0.25 3.64 * 2.01 0.91

0.226 2.874 * 0.166 2.087 * 0.043 0.518 0.040 0.509 0.154 1.91 * 0.111 1.41 0.077 0.95 0.306 3.96 *

After sales service 0.083 14.11 * Public relations 0.045 7.41 * Usage of radio and media 0.030 4.69 * Giving more importance to rational motives 0.030 4.71 * Usage of samples 0.021 3.82 * Usage of coupons 0.012 1.69 Quantity discounts 0.001 0.25 Duration of guarantees 0.015 2.329 Sales with credits 0.013 2.14 Distribution strategies Concentrating on wholesalers 0.001 0.11 Distribution channels 0.144 25.08 * Price strategies Price 0.001 0.13 0.380 5.008 * 0.101 17.13 * 0.317 4.139 * 0.094 15.68 * 0.306 3.961 * 0.094 15.72 * 0.029 0.371 0.001 0.096 0.024 0.310 0.002 0.29 0.042 0.542 0.000 0.002

0.004

-.04

Note: Signicant correlations at the *p , 0.05 are shown in italics

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Table VI.

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sales force training (0.217), after-sales service (0.206) and public relations (0.146). It is interesting to note that the sales variable is signicantly related to the advertising budget, but less so to the promotional budget. This suggests that the respondents, as representatives of marketing practitioners in general, mostly considered promotion to mean sales promotion. This conclusion is supported by the absence of any signicant relationship between sales and such other sales promotion activities as quantity discounts, sampling, coupon schemes and extended warranties. Furthermore, the advertising budget shows an important relationship to sales, while media usage does not. This suggests that the respondents were thinking of wider promotional options. Similar conclusions can be drawn with respect to net prot. The promotional strategies signicantly associated with net prot are, in rank order: size of the sales force (0.44), advertising and promotion budgets (0.36), sales training (0.32), after-sales services (0.27), public relations (0.25), media usage (0.163), and rational message appeals (0.163). It was found that the market share is signicantly and positively associated with most of the promotion strategies, with the sole exception of credit arrangements and quantity discounts. The signicant associations in this case are, in rank order, with: size of the sales force (0.31), after-sales service (0.25), promotional budget (0.24), rational message appeals (0.22), advertising budget (0.21), media usage (0.19), sales force training (0.17), sampling (0.16), public relations (0.15) and extended warranties. The study also found that average performance has a strong relationship with nine varieties of promotional activity: size of the sales force (0.45), promotional budget (0.32), advertising budget (0.31), after-sales services (0.288), sales force training (0.27), public relations (0.21), rational message appeals (0.175), media usage (0.174), and sampling (0.14). Although there is a positive relationship between the market share and sales with credits, the usage of coupons and quantity discounts, these relationships are not strong. A general overview of the promotional strategies suggest that the size of the sales force is the one that has the strongest impact on performance, with the highest relationship to all four performance variables. Others of general importance are budgeting for advertising and promotion, and after-sales service. Place strategy Table VI shows that there was no signicant relationship between any performance variable and the policy of distribution via discount stores and wholesalers. However, the effect of the number of distribution channels on average success is 0.14, on sales it is 0.10, and on both net prot and market share 0.094. Thus, increasing the number of distribution channels can be expected to have a positive effect on overall performance in times of crisis. Concluding remarks The study makes some signicant contributions to theory and practice. First, it investigates the effects of marketing strategy changes on company performance during times of economic crisis. Although there are studies in the literature focusing on the general measures taken by companies to lessen the negative effect in such situations, they fail to explain the outcomes on performance indicators. Such tactics as

lowering production capacity, reducing the workforce and so on have only short-term effects on company performance. The study reported here takes a more radical path, in investigating the effects of marketing strategy changes on company performance measures. The performance measures set as the dependent variable are sales, market share, and protability. The purpose of such a rigorous analysis is to provide decision makers and marketing planners with full evidence for the most effective strategy changes to implement during an economic crisis. Thus, equipped, companies can survive and be protable even during such a situation by modifying strategy accordingly and appropriately in response to radically changing environmental conditions. The study concludes that companies increasing their sales volume cannot raise their prots by the same rate. This result calls into question the benet of price reductions typically made by companies during crises. Price changes alone, in either direction, do not affect company performance and should, therefore, be examined in concert with the other factors identied. It was also found that such strategies as market diversication and distribution through discounters have no effect on performance. The size of the sales force and the number of distribution channels are both vitally important. Companies should enlarge the former towards an optimum size (Ang et al., 2000) and can further facilitate market penetration by increasing the latter. Moreover, providing additional training for the sales force, related to the effects of the crisis conditions, will have a positive effect on performance. Bennett (2005) found that companies that did continue to train their marketing staff during recessions attained superior performance. The study nds that increasing the R&D budget, in spite of all the nancial limitations imposed by a crisis, has an important impact on performance. It will be useful to focus R&D on the development of products that capture niche markets, and technology and production methods that save costs. This nding is consistent with the literature. For example, DeDee and Vorhies (1998) found that small- and medium-sized companies that increased their emphasis on improving new product capabilities during an economic downturn achieved a better return on common equity than others, while Roberts (2003) concluded that new product introductions during a recession are crucial to strong recovery in protability and growth. Entering foreign markets is one of the key strategies for counteracting the negative effects of the economic crisis (Rao et al., 1988). However, companies must implement it as a long-term strategy, with good planning, as distinct from more short-term, competitive export marketing strategies. Communication with consumers is of special importance. Lost consumer interest, due to reduced discretionary income, can be reacquired through promotion activities. By this means, companies can also attract oating customers to their brands, since consumers tend to change their brand preferences more frequently during crises than at other times. The most striking element in the promotion activities is advertising. Ang (2001a, b) reached a similar conclusion when noting that, during the Asian economic crisis, Singaporean businesses adapted more by increasing their promotion budget, especially the advertising budget, than US companies had done during the oil crisis. He added that such increased advertising should be accompanied by a change in advertising style towards rational appeals in place of imagery. In the same way, media advertising and public relations are signicant elements of the promotional mix in these situations.

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When consumers are more sceptical about advertising, reliance on apparently non-commercial vehicles such as newspaper and magazine write-ups increases (Ang et al., 2000). Among sales promotion tools, the most useful was found to be sampling. One of the research ndings is that the number of product introductions should be increased. Also, offering higher quality products at the same price, or the same quality at a lower price, has a positive effect on performance in times of crisis, while reducing price and quality, a tempting response, negatively affects performance. As Ang et al. (2000) have explained, product quality decisions should always be made in concert with pricing decisions. Finally, it seems clear that a promotion-centred general marketing strategy is effective in increasing company prots, one focusing on both product and promotion has a benecial effect on sales, and one majoring on promotion and distribution has a positive effect on market share. Thus, to be successful during an economic crisis, decision-makers and planners need to focus on promotional strategy, but in a resipe with other strategies, as suggested by the ndings of this study. Limitations and directions for future research The research has one key limitation. Managers subjective perceptions of performance measures were preferred to objective nancial data. That research design decision was based on the fact that most of the small and medium-sized companies included in the were not required by law to disclose their nancial data unless they were listed on the stock exchange, meaning that a request for privileged information would be required, and would be likely to reduce the response rate. Undoubtedly, however, it would have strengthened the ndings to be able to include nancial data in the analysis. Future studies might test strategy choices during an economic downturn in relation to such company characteristics as size, industry sector and market scope. Given that competitive advantage and company resources and skills affect strategic marketing decisions in such conditions, their effects on company performance should also be examined.
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Zehir, C. (2005), The activation level of crises and the change of strategic targets of enterprises in Turkey during the depression era, Journal of the American Academy of Business, Vol. 5 No. 2, pp. 293-9. Zehir, C. and Savi, F.Z. (2004), A eld research about implications of organizational downsizing on employees working for Turkish public banks, Journal of American Academy of Business, Vol. 5 Nos 1/2, pp. 343-9. Zurawicki, L. and Braidot, N. (2005), Consumer during crisis: responses from the middle class in Argentina, Journal of Business Research, Vol. 58, pp. 1100-9. Further reading Goadell, P.W. and Martin, C.L. (1992), Marketing strategies for recession survival, Journal of Business & Industrial Marketing, Vol. 7, pp. 5-16. Rao, C.P. (1990), Impact of domestic recession on export marketing behavior, International Marketing Review, Vol. 7 No. 2, pp. 54-65. Shama, A. (1993), Marketing strategies during recession: a comparison of small and large rms, Journal of Small Business Management, Vol. 31, pp. 62-73. Whittaker, J. and Lim, B.F. (1999), An engineering managers bout with Asian u, Engineering Management Journal, Vol. 11, pp. 21-5.

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