I recently spoke to Una Coleman of http://www.codegaconsulting.com/ as part of her series of posts on Marketing on the Irish business blogging website Bloggertone, about my recent graduation from University of Limerick with a first class honours MBs. I spoke to her about my thesis which explored cost reduction strategies for Irish SMEs in a recession and found that many Irish businesses tend to first target marketing when it comes to cutting costs, although academic findings suggest they should do the very opposite to survive the recession and thrive thereafter. Una and I went on to discuss the primary findings of my research in greater detail and we spoke about International Marketing in a Recession. Here I present an extract from our discussion as previously posted on http://bloggertone.com where Una asked me questions about International Marketing in a Recession.

What is your opinion on the common fallacy that reducing marketing costs in a recession will help the small firm survive?

Having spoke to close to a hundred SMEs throughout Ireland I found that discretionary spending in an area such as marketing was often first to feel the knife.
The natural reaction of many businesses experiencing a downturn in their revenues is to cut costs in advertising and promotion, yet literature on the subject suggests that small firms should do the very opposite if they wish to ride out the recession. Evidence gathered from the PIMS (Profit Impact of Market Strategy) database of almost 4,000 businesses throughout the USA and Europe shows firms who increased marketing spending were not significantly less profitable in a recession.

Moreover, firms which spent more on marketing during a recession saw their profits increase dramatically once a recovery had started. In fact, SMEs that increased marketing spend gained market shares three times more rapidly during a recovery than those that had previously cut their budgets. The consensus is that companies should plan their marketing budgets for the long term and continue to spend on marketing in the short term, in order to survive during hard times and to be more profitable in the future.

How do you believe the current recession affects consumers?

‘Economic crises hit consumers psychologically as well as economically and consumers tend to adapt their shopping behaviours and habits. As a result changes need to be made to the general marketing strategy and particularly to the four main elements of the marketing mix: product, price, place and promotion. As part of a general strategy, firms operating in International Markets should concentrate on the markets in which they are strong and withdraw from markets where they are not the main players. Entering previously untouched but potentially lucrative foreign markets is also an important strategic option to consider by SMEs who are adversely affected by the recession back in Ireland.’

So how should Irish SMEs change their marketing strategy?

‘Savvy marketers can increase sales and market share during hard times by concentrating on price promotions and by tailoring advertising to suit the uncertain climate. Companies should emphasize durability and reliability in their advertising as consumers tend to shop more rationally when their purchasing power has taken a dent due to a recession. More proactive personal selling can also be beneficial and can help build stronger customer relationships.’

Pricing can be a very sensitive issue during times of recession and it is a topic I have written about recently: from your research how should SMEs price their products in a recession?

‘The rationale of many small firms is to reduce prices in the short term in order to increase sales but this can greatly impact profitability in the long run. This can also effect the brand image long term and customers may be reluctant to buy at previous price levels once the downturn is over. Firms need to be careful with pricing strategy and it should be integrated with other marketing mix initiatives during a recession.’

Improving perceived quality of your offering relative to competitors pays off in better profits and growth. Although it may seem natural to decrease marketing spending due to the current economic climate, it is plain to see that Irish SMEs should continue to spend on marketing if they wish to ride out the recession and continue to be successful once the recovery begins.

‘The quality, availability and cost of waste management solutions continues to be a key competitiveness issue for enterprise in Ireland’ (Forfás).

Although most businesses are now well aware of the benefits of reducing and recycling waste, most SMEs still do not realise the real savings that can be made by managing waste more effectively.  For example, it is estimated that 1kg of food waste costs €2 to dispose of. If a business involved in food production was to produce 1000kg of food waste a year they are throwing away €2,000 of potential profits.

Ireland takes a similar approach to many other international countries when dealing with waste. Ireland follows a hierarchy which declares the preferred option for waste management is prevention and minimisation of waste, follow by re-use and recycling, energy recovery and as a last resort, disposal. Energy recovery or waste-to-energy projects such as anaerobic digestion are becoming increasingly popular as a source of power generation because unlike renewables such as wind and solar, rubbish is something mankind produces a lot of all year round regardless of the weather!

While such solutions to waste management exist, many projects have been delayed due to lack of funding and this problem has been exacerbated by the economic climate. Furthermore, Ireland lacks the waste infrastructure and sufficient planning to deliver cost effective and commercially viable waste treatment options. Waste management in Ireland tends to be regionally based and this results in expensive small treatment facilities. If waste planning was to be nationally coordinated this would result in greater investment in waste infrastructure which would ensure competitiveness and maximise economies of scale, such benefits would then be passed onto businesses throughout Ireland.

However, Irish SMEs can start realising potential savings right away by having structured waste management initiatives in place. The key to good waste management is preventing waste at the source. A great example of this is the area of packaging. Often suppliers to SMEs provide excess packaging which requires disposal, by simply asking suppliers to reduce packaging significant savings for your business can be gained. Small firms by improving the resource productivity of their business can reduce waste and savings go straight to the bottom line.  Small firms should start with a systematic analysis of where money is being spent. By developing an effective waste management plan SMEs can identify key targets in input, process and output activities. These targets allow the business to have something to aim for instead of recycling just for the sake of it. Camaraderie can be built up in house by having staff working together to achieve such targets. Not only will your business achieve real savings, but you will create a happier work environment. Now go! There’s not a second to waste!

The prospect of water charges being introduced for domestic households has increasingly been on the government’s agenda of late. The introduction of these charges could bring in €200m a year in badly needed Exchequer revenue for the government yet would surely be met with firm resistance as Socialist Joe Higgins promises a water war if the “hatred water charges” are introduced. But would the introduction of such charges be beneficial for the future competitiveness of Irish businesses?

Naturally the provision of affordable water services is important to the development of enterprise in Ireland and further increases on water charges could have a grave impact on Irish businesses. Currently, water prices throughout Ireland vary as each local council sets the price when it is agreeing its budget annually. For Irish businesses the EU Water Framework Directive (2000) requires that the “polluter pays principal” is invoked and all businesses have to pay charges for both water and waste water. The Irish Government has secured a derogation from this directive in relation to domestic users and as a result Ireland remains one of the only countries in the EU where domestic households are not charged for water services.

However, when one considers that Irish businesses account for only 15% of all water connections throughout the country one realises that they remain responsible for carrying a disproportionate burden when it comes to water charges. Irish businesses paid in excess of €2 billion in waste disposal and water user charges, rates and levies in 2008, while Irish households are still not required to pay water charges.

The average consolidated water charge per cubic metre (both water and wastewater) in the five Irish city councils was €1.30 in 2007, €1.67 in 2008 and €2.07 in 2009. This means the average price of water per cubic metre in the city councils rose by 28.5% between 2007 and 2008 and it still continued to rise by 24% between 2008 and 2009. In Irish county councils the average charge per cubic metre is €2.36 which again is a significant increase on a price of €1.59 in 2007.

Average City and County Council Water Charges Per m3           

	Average City Council Water Charges Per m3	Average County Council Water Charges Per m3
2009	€2.07	€2.36
2008	€1.67	€2.17
2007	€1.30	€1.59

 

The main problem which exists for Irish businesses when it comes to water charges is that there is a lack of transparency as to how local authorities price water for the business community and it is difficult to ascertain how much it costs to provide water services to domestic users who do not pay any charges. In order to determine if current water charges for the Irish business community are fully cost reflective, the full cost of providing water services for domestic users needs to be identified.

While it is essential that transparency exists when it comes to how water services are priced for Irish businesses, it remains unlikely that clarity on this will be secured from local authorities any time soon. It is perhaps more likely that domestic water charges will be introduced which could lessen the heavy burden currently being carried on the shoulders of Irish businesses. How domestic water services would be charged, whether it would be a flat charge or metered is of course another major issue but this is a discussion for another day!

Hello and welcome to my first ever blog!

Having recently submitted my thesis entitled Going Green and Staying Lean: Effective Cost Reduction Strategies for Irish SMEs, several people have asked me to write a few lines to explain exactly what my thesis was about. So I thought, what better way to start blogging than to write a few words about my research.

The main aim of my thesis was to establish if by ‘Going Green and Staying Lean’ Irish SMEs could effectively reduce costs and in doing so create the conditions that would enable them to retain employees. The thesis provides a descriptive account of cost reduction strategies available to SMEs in a recession before focussing on the merits of ‘Going Green’ as one of these strategies.

In this study empirical evidence is gathered through primary research and compared to existing literature on the subject area. To this end, the research provided insight for three research questions:

• Can Irish SMEs retain staff by ‘Going Green’ and reducing costs?
• What attitudes and perceptions towards ‘Going Green’ currently exist among SMEs in Ireland?
• Is renewable energy a viable option for Irish SMEs as a source of power generation?

Evidence gathered showed the fallacy in reducing costs during recessionary times in areas such as Marketing and R&D which are often first to feel the knife. Moreover, findings showed that firms which spent more on marketing budgets during a recession often saw their profits increase dramatically when a recovery had started. It was thus hypothesized that ‘Going Green’ is one of the most effective means of reducing costs during this uncertain economic climate. My findings show that although many Irish SMEs are receptive to the idea of ‘Going Green’, not many are fully utilizing its potential.

As a result, I developed a new conceptual model for Irish SMEs to try and tackle increasing costs. This is a holistic model which theorizes that energy management, water management and waste management should be targeted collectively in a three-pronged attack in order to maximise the potential of any green strategies. Synergies can be realised across these three areas and would help to create a ‘green culture’ within the firm which would allow the business to maximise its potential savings.

By ‘Going Green’ Irish SMEs can significantly reduce costs and prosper as result. In the midst of an unprecedented economic crisis and with the government’s ‘Green New Deal’ on the table, there has never been a better time for Irish SMEs to establish a leaner, greener cost base.