Jessica Hubbard, Deputy Editor; 11 March 16
At the recent IAB Summit held in Johannesburg, serial entrepreneur and CEO of Gyft Vinny Lingham shared some wisdom with Adlip around how brands and businesses can survive in tough times. In his view, economic recession presents opportunities for savvy marketers and entrepreneurs – provided they take the right approach.
For one, he advises against cutting marketing spend.
“Marketing spend is customer acquisition at the end of the day, and the cost of acquiring customers is a small percentage of what they’re making for you over a long period of time,” he explains. “Some companies have to recover that money over long cycles, so they cut their budget because they can’t afford to wait that long, while other companies are just inefficiently acquiring customers…”
When acquiring customers efficiently, however, with evidence that these customers are remaining loyal, Lingham says businesses should leave marketing spend as is.
“The knee-jerk reaction in a recession is to cut 20% off everything – costs, employees, marketing, etc, – which just doesn’t make sense. You need to look at each line item and figure out what makes sense for the business…but marketing is easier to cut than firing people…which leads to the longer term decline of the business and loss of market share.”
When it comes to listed companies, he explains that typically, CFOs don’t understand marketing …
“They are numbers guys, [operating] in isolation…when you publish results, shareholders don’t look at the line items – they look at the earnings per share. So the short tem focus on earnings, quarterly results, etc, has a direct impact on how the business is run.”
He adds: “As a private company owner, I’m more interested in creating equity value. So, how do I acquire more customers, how do I create a better value proposition, etc. I’m not accountable to shareholders, and to be honest, shareholders in a stock market don’t really care what you’re doing…they look at the bottom line.”
Loyalty = ROI
Lingham also emphasised that ‘loyal customers will give you the best ROI on your marketing spend.’
“This means that you don’t have to keep paying to acquire the customer…so while initially you have to recover marketing spend, over time, every incremental rand of marginal profit goes to the bottom line.”
He adds that in a recession, customers become more value conscious, and often churn a lot faster.
“So as customer loyalty goes down, it impacts the bottom line. Many companies survive on loyal customers, but often in tough times, those customers leave.”
Interestingly, Lingham notes that with the currency decline, it provides an opportunity for South Africans to start looking at buying homegrown tech instead of always looking to buy from abroad.
“As technology licenses become more expensive, and producing goods and services becomes cheaper, there is an opportunity for local entrepreneurs to start building and exporting tech related products,” he adds.
Lingham’s advice for local entrepreneurs…
“Keep it lean and mean…always focus on the customer, and on building products and services which are scalable,” he says. “Also, focus on one product until it has a large portion of the market share, instead of trying to roll out too many offerings at once.”