Lenders and vendors are under intense pressure to survive in today’s current mortgage environment. Products and services that were in great demand just a couple of years ago have almost completely evaporated. Lenders have had to dramatically adapt to these market conditions by changing their product mix, origination process, underwriting guidelines, valuations and funding to produce saleable and profitable loans. Servicers have had to shift focus to loss mitigation, loan modifications, short sales, REOs and foreclosures to remain viable. In addition, the current regulatory environment is constantly changing and adding significant pressure to the entire mortgage process.
Lenders and servicers are not alone in feeling the pressure. Vendors are frantically working to respond to these challenging times by rolling out new products, realigning development efforts and creating strategic partnerships to meet the new demands while striving to remain compliant.
They are faced with tough questions, such as: Do our current products have enough flexibility to be modified or do we need to develop new solutions from scratch? Are these new products long-term solutions that have sustainable revenue models or are they just a quick fix that has a short shelf life? What types of products and services will lenders and servicers invest in during these market conditions?
While we would all agree that properly managing costs, having appropriate budgets and being fiscally responsible is vital to the success of an organization, a culture of constantly cutting costs over a prolonged period of time can have a negative impact on your business. These conditions have created a cost cutting environment that is primarily focused on survival. When this takes place, lenders, servicers and vendors are often so focused on cutting cost that they stop innovating, they miss out on current opportunities and often cut the programs that would drive top line growth.
“Many companies think of an economic downturn as a time to tighten belts and safeguard cash reserves. The executive mindset becomes survival, not growth – the bunker mentality. The irony is that this leaves a company in a vulnerable position organizationally and in the marketplace. The path to success in a down-market is to swim upstream,” said Jim Pinto.
The result of all of this the creation of a scarcity mindset that doesn’t benefit anyone. Richard Spoon, the CEO of ArchPoint Consulting put it this way when he pointed out that “organizations try to save their way to prosperity. Take the newspaper industry, for example. Many newspaper companies essentially killed their products through savings. They saved themselves right out of business.
“Think about what allowed Microsoft and Apple to compete. Microsoft wouldn’t share code. Apple would,” he continued. “Microsoft had a scarcity mentality. Apple had an abundance mentality. Which one do you believe put the biggest dent in the universe? The equation of investment versus expense is always there. Ask yourself these questions: When do I spend ahead of the market and when do I manage to cost? Do I believe for every dollar I put into business development that I can garner $2 or more?
A person with a scarcity mentality doesn’t invest in the business. They hoard cash. A person who comes from an abundance mentality believes the pie can get bigger. They don’t believe it’s possible to save their way to prosperity. Instead, they believe in growing the way to prosperity, according to Richard Spoon.
Attempting to save your way to prosperity will ultimately lead to your demise. Continually cutting costs eventually impacts the quality of your product and service. There is a point at which a dollar of savings produces $5 in lost sales. Customers reach a point at which the service just isn’t worth what they’re paying for. In the scarcity mindset, many people believe getting the most value from vendors or employees means paying the lowest price — just as giving the most value to the customer means being the cheapest in the marketplace, but that’s the wrong approach.
How does all of this relate to our industry? When companies need to make important budget cuts, many of them look at marketing as an area to reduce their spending. Many decisions to cut marketing are based on rationale that is flawed such as: “I can maintain my clients or customers I have now.” Or worse yet, marketing budgets are looked as a luxury expense and the logic is “If I have some really profitable months I’ll spend more in marketing later.”
Other logic might suggest that the competition has cut their budgets, so it’s safe for you to do the same. Wrong … in slower economies one of the best ways to gain market share over the competition is by not cutting advertising budgets, defining a clear strategy for the dollar amounts and staying true to your plan. A case can be made for actually increasing marketing budgets in a down economy. An example of this is Proctor and Gamble. During the depression P&G showed incredible resolve and gained market share over competitors, even increasing marketing budgets when others cut back.
Spending more in a down market allows for companies to even push the envelope in emerging advertising technologies and leverage deeper advertising buys when inventory is much more available from media companies.
Marketing budgets should never be considered a negative budget item, prime for the chopping block. In actuality it is fuel to help companies achieve business goals. So if the conversation in the boardroom comes up about cutting the marketing and advertising budgets ask yourself, would you cut off your own head and still be successful?
I know that when the economy starts sinking, it’s tempting to cut any and all expenses. Perhaps revenue has dropped, employee morale has sunk and there’s no sign of a recovery. In this present day, marketing expenses are often the first to go, but in reality they should be the first to stay in the budget.
I know what you’re thinking: That’s easy to say, pal—you’re a marketer! While that’s true, consider that the fulltime job of marketing folks like myself is to get businesses on the map and in front of their ideal clients. Cutting funding to the very strategies that generated clients in the first place seems counter-intuitive at best. Let’s take a look at some other reasons why cutting marketing costs shouldn’t be the first response to economic uncertainty.
- Beat the Competition! Because marketing is one of the first line items to get slashed, you’ll likely find that your competitors aren’t spending as much, if anything, on marketing. If you cut marketing costs as well, you won’t get ahead of your competitors…you’ll suffer with them. A recession is one of the best times to solidify your position in the market and set yourself apart as an industry leader.
- Sustain Momentum. Although it’s good to be aware of your competition, it’s not all about them. It’s about you and your company. Marketing serves as the momentum underneath many lead-generating aspects of your business—and when it’s cut, the first place it affects is sales. From there, if you’re not selling and closing new business, your sales force begins to lose its confidence. This instability then inevitably trickles down to many other areas of business, including your employees, not only affecting their daily work habits, but also their personal well-being. When employees are worried about losing their jobs, they will naturally begin looking elsewhere, and the last thing any business needs is an inexperienced work force when the economy turns for the better.
About The Author
Michael Hammond is chief strategy officer at PROGRESS in Lending Association and is the founder and president of NexLevel Advisors. They provide solutions in business development, strategic selling, marketing, public relations and social media. He has close to two decades of leadership, management, marketing, sales and technical product experience. Michael held prior executive positions such as CEO, CMO, VP of Business Strategy, Director of Sales and Marketing and Director of Marketing for a number of leading companies. He is also only one of about 60 individuals to earn the Certified Mortgage Technologist (CMT) designation. Michael can be contacted via e-mail at firstname.lastname@example.org.