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Sunday, April 06, 2008

Cutting Marketing Budgets Are Not the Way to Manage A Recession

At the SEMI Industry Strategy Symposium (ISS), held in Half Moon Bay, California, Stephen Newberry, president and CEO of Lam Research, discussed the state of the industry and today’s perplexing financial results that can be best described as profitless prosperity. In discussing causes of the problem, Newberry said, “Everybody is pursuing cost as solution…in a race to the bottom.” In presenting historical and segment financial results, he concluded, “Clearly cost is not the significant factor relative to generating operating profit.”

While Newberry was speaking about chip makers, I would argue that cost reduction is also not the solution to equipment and materials makers current financial challenges. In a recession, market share gainers are invariably the last to cut the budgets that deliver and communicate their winning differentiation. Market leaders create a winning future by understanding what their customers want, meeting those needs through product and service development, and effectively communicating their differentiation.

Communications is a critical part of the formula: you can’t “just build it and they will come.”. Customers need to know, understand and value the benefits of your product and services. There are a thousand differentiating variables for customers to focus on; they may choose to concentrate on those which give you an advantage or your competitors. Its not always rational, or fair, and its clearly not always about who “has the best technology.”

In a recession, companies that have a clear understanding of their competitive advantage—and have confidence in it—gain share and come up on the upturn stronger and more profitable than those that simply manage costs. These are the companies that see marketing and communications as a necessary instrument of differentiation, not as a luxury only affordable during good times.

After 30 years of SEMICONs, we have seen upturns and downturns come and go from a unique perspective. We see trade show budgets that rise with confidence and creativity when the market is simply making capacity buys, and shrink when buyers are making strategic decisions about partners and sole sourcing. We see successful companies communicate confidently and effectively with the market when their competitive advantage can best be leveraged, not just when it is more financially amenable.

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